Author | Jinze
The possibility of the United States establishing a BTC strategic reserve was proposed by Trump last summer, sparking endless imagination in the cryptocurrency market, especially the market's prediction that this event will be realized within the first 100 days after Trump's formal inauguration today, with a probability of more than 50% (Polymarket betting data).
Although many skeptics have questioned the stability and security of BTC, supporters believe that BTC reserves can strengthen the US dollar and fight inflation. Currently, there are divergent views on whether Trump can use executive power to create a reserve fund, directly instruct the Treasury to spend money, or whether a congressional bill is needed.
1. What is a strategic reserve?
A strategic reserve is a reserve of critical resources that the country can quickly mobilize and use in response to emergencies, crises or wars. The most famous example is the US Strategic Petroleum Reserve, the world's largest national-level oil reserve system (700 million barrels), created by an act of Congress in 1975 to address the impact of the 1973-1974 Arab oil embargo on the US economy. The US has tapped this reserve during wartime or when Gulf Coast oil infrastructure was hit by hurricanes, and the Ukraine war.
2. How will the US BTC strategic reserve operate?
Experts have differing opinions on whether Trump can create a BTC strategic reserve through executive power.
— — Initial Source
The initial source of the reserve is most likely to be the BTC confiscated from criminals by the US government, currently around 200,000 BTC, worth about $21 billion at current prices. Trump mentioned in a July speech that these BTC could serve as a starting point for the reserve, but it is currently unclear how to transfer them out of the Department of Justice.
Trump has not explicitly stated whether the government will purchase more BTC on the open market to increase the reserve.
— — Funding Source 1: ESF
Some believe that Trump could use the Treasury Department's Exchange Stabilization Fund (ESF) to create the reserve through an executive order. The ESF can be used to buy or sell foreign currency, and may also be used to hold BTC. This option is more realistic, can be executed quickly, and the use of the ESF within certain limits does not require individual congressional approval, providing greater flexibility. The ESF currently has over $200 billion, mainly used to stabilize the US dollar exchange rate and support international monetary flows.
— — Funding Source 2: New Debt
There is also the view that the government may issue new debt to purchase BTC, which I think is unlikely. Because US government debt issuance requires congressional approval, and the US hits the debt ceiling several times a year, the two parties are unlikely to agree to increase debt to buy BTC, as the US has many higher priority spending tasks than BTC, such as pensions, healthcare, and wars... However, in the past, the US has financed the purchase of gold through national debt to increase its reserves, so there is still a glimmer of hope here.
— — Funding Source 3: Sell Gold
Finally, some supporters of a BTC reserve imagine that the US could sell some of its gold reserves and use the proceeds to buy BTC. The biggest problem here is that the US selling gold could cause violent fluctuations in the global gold market, affecting the reserve security of all countries, and potentially destabilizing the international financial market, as gold is the collateral of many financial institutions. In addition, the price of gold is relatively stable and is widely recognized as a scarce international asset with good liquidity, so the possibility of selling gold to buy BTC is not high. It would be better for both assets to be increasingly held as reserves rather than selling one to buy the other.
— — Potential Purchase Scale of 1 Million
Currently, the most specific BTC reserve proposal circulating in Washington comes from Republican Senator Cynthia Lummis, a cryptocurrency supporter. She personally holds 5 BTC, and in July she proposed a bill that has not yet gained attention, which would create a reserve operated by the Treasury Department.
The bill envisions the Treasury creating a program to purchase 200,000 BTC per year for five years, until the reserve reaches 1 million BTC. This would account for about 5% of the global BTC supply (around 21 million). The Treasury would use the profits from Federal Reserve bank deposits and gold holdings to fund these purchases. The BTC reserve would be maintained for at least 20 years.
Lummis' proposal has not yet gained congressional attention, and its implementation remains uncertain.
— — Perhaps State-Level First
Another possibility is that the establishment of the reserve may be phased, starting perhaps from a single state (possibly Pennsylvania or Texas, as six US states have already proposed plans to establish a BTC strategic reserve). State governments can act more flexibly and independently, viewing BTC as a tool to hedge fiscal uncertainties or attract crypto investment and innovation, before gradually moving up to the federal level.
For example, in November last year, Pennsylvania introduced the "Pennsylvania BTC Strategic Reserve Act", which would authorize the state's Treasury Department to invest 10% of its $7 billion in reserves in BTC.
A month later, Texas introduced a similar bill, the "Texas Strategic BTC Reserve Act", proposing to establish a special fund in the state's treasury to hold BTC as a financial asset for at least five years.
— — What is WLFI Plotting?
Finally, the WLFI (WORLD LIBERTY FINANCIAL) project controlled by the Trump family has recently been intensively buying over $50 million in cryptocurrencies, including LINK, AAVE, BTC, ETH, ENA, and TRX, and may continue to purchase several more million dollars. The relationship between this project and the potential US strategic reserve is unknown.
3. What are the benefits of a BTC reserve?
Since this proposal is to be implemented, there must be a logically coherent rationale.
Trump's view is that a BTC reserve will help the US take a dominant position in the global BTC market, in the face of competition from China.
Other supporters believe that by holding a BTC reserve (which they believe will continue to appreciate in the long run), the US can reduce its deficit without increasing taxes, thereby strengthening the US dollar. Lummis' plan is to halve the US debt in 20 years. "This will help us withstand inflation and protect the dollar on the global stage." Some supporters believe that a strong dollar will give the US more leverage in its competition with adversaries like China and Russia.
4. What are the risks of a BTC reserve?
Cryptocurrency skeptics argue that unlike most other commodities, BTC has no actual use or intrinsic value, and is not critical to the functioning of the US economy. BTC has only a 16-year history and is still too young and unstable to assume its value will continue to rise in the long term. In addition, cryptocurrency wallets are vulnerable to cyber attacks, and they also point out that given the volatility of BTC, any government purchases or sales could have an outsized impact on BTC prices.
5. Summary
Since Trump's strategic reserve plan clearly faces significant obstacles, the most important issue is where to get additional money to purchase new reserves? If this issue is not resolved, the US federal government is unlikely to purchase additional BTC, although we may see state governments take the lead.
More importantly, with Trump's platform promotion and more policy relaxation (such as the major relaxation of banking services), as the exposure and adoption of cryptocurrencies gradually increases, the US will eventually embrace cryptocurrencies on a larger scale.
