The Strategic Bitcoin Reserve is now a reality.
In the wake of last week’s executive order establishing a Strategic Bitcoin Reserve (SBR), policymakers are tasked with discovering innovative methods to acquire bitcoin without impacting the federal budget or placing a financial burden on taxpayers. The executive order emphasizes budget-neutral bitcoin acquisition, indicating that bitcoin accumulation for the reserve will rely on accounting strategies instead of direct purchases from the market. This strategy is financially responsible and aims to prevent the SBR from becoming a contentious political issue, as using taxpayer funds to buy a volatile asset could draw criticism from a public that may not grasp its complexities.
Nonetheless, the acquisition of bitcoin by sovereign nations is seen as a vital component of national security. The United States is fortunate to have several key officials who appreciate the strategic significance of bitcoin. However, the question remains: how will the U.S. Treasury increase its bitcoin holdings while maintaining a budget-neutral approach?
Understanding Budget-Neutral Acquisition
Budget neutrality in government policy refers to avoiding net increases in spending or deficits. Practically, this often involves offsetting any new expenditures by cutting back spending in other areas or bringing in new revenue. When applied to a bitcoin strategy, it means no direct purchases on exchanges with taxpayer dollars. Instead, the government will need to be inventive. The executive order creating a strategic bitcoin reserve instructs the U.S. Treasury to identify methods for accumulating bitcoin without incurring new expenses.
This method has precedence. Historically, the Treasury has built gold reserves through measures such as mandatory exchange policies or accepting gold for taxes and tariffs. This allowed the government to amass substantial reserves without overt deficit financing, as the gold was obtained through internal circulation or trade rather than borrowing or direct spending.
Legislators and advisors have proposed various solutions for incrementally developing a bitcoin reserve in a budget-neutral manner. Some options, such as retaining seized coins, appear more immediately viable, while others may necessitate significant legislative changes. The common thread across these strategies is avoiding open-market purchases; the government would instead collect or swap its way to a substantial reserve.
Retaining Seized Bitcoin
A notable amount of bitcoin is already held by federal authorities. Over the years, law enforcement agencies have seized substantial quantities from illicit actors, with estimates suggesting around 200,000 coins are currently in their possession. Historically, the government auctioned these coins, funneling the proceeds into the general fund. However, a recent executive order from President Donald Trump reversed this approach, directing agencies to transfer forfeited bitcoin directly to the U.S. Treasury rather than selling it.
Exchanging Gold for Bitcoin
One bold proposal comes from Senator Lummis, who has suggested that the Treasury explore swapping a portion of its gold reserves for bitcoin. The United States is one of the largest holders of gold globally, possessing approximately 8,100 tons in its vaults. If even a small percentage of that were converted into bitcoin, it could yield a cache of one million coins—approximately 5% of all bitcoin that will ever be mined.
Interestingly, through some innovative—but completely legal—accounting techniques, gold could be exchanged for bitcoin without altering the “book value” of the gold on the Treasury’s balance sheet. This is because the gold is valued in dollars rather than ounces, and the Treasury’s valuation has remained unchanged at $42.2222 per ounce since 1973, giving it a nominal worth of around $11 billion. If the Treasury were to adjust its gold valuation to reflect contemporary prices—approximately $2,900 per ounce—
Collecting Tariffs or Taxes in Bitcoin
An intriguing approach involves the collection of certain taxes, fees, or tariffs in bitcoin. Consider customs duties: importers contribute billions in tariffs to the government annually. A reformed policy could allow a segment of these payments to be made directly in bitcoin.
If this were to occur consistently, the federal government could amass a regular influx of bitcoin as a standard revenue stream—eliminating the need for open-market purchases. To manage liquidity demands, the Treasury could issue bonds secured by those bitcoins. Investors in these bonds could see returns partially tied to bitcoin’s price appreciation. While some might view this as a radical innovation, historical precedents exist; in the late 19th century, the U.S. mandated payments of tariffs in gold or silver, which bolstered precious metals in federal reserves.
The Exchange Stabilization Fund (ESF)
Another potential method—though somewhat esoteric—is utilizing the Exchange Stabilization Fund (ESF). The ESF traditionally oversees foreign currency operations, gold, and other financial instruments for the Treasury. Some analysts suggest that bitcoin-denominated debt could fall under the ESF’s management. In this scenario, the Treasury purchases a debt instrument that would be repaid in bitcoin at maturity, thus channeling bitcoin into the government’s possession without explicit purchases on exchanges. Upon debt maturity, the counterparty would settle in bitcoin, sidestepping the conventional route of executing large buy orders on public markets.
However, legal experts warn that such a maneuver would require a considerable reinterpretation of the ESF’s permitted holdings. Historically, it has been constrained to foreign currencies and gold. Nevertheless, this concept indicates the numerous aspects of federal finance that could be explored if the political will exists.
Mining and Other Ambitious Strategies
State-supported mining represents another option, although it is less common in the U.S. For instance, Bhutan has quietly mined bitcoin utilizing hydroelectric power, perceiving block rewards as a means to accumulate value over time without direct dollar investments. An American variation of this concept could involve establishing or partnering with large-scale mining operations in areas like Texas, where energy resources are plentiful. While it may require initial capital investment, any substantial profitability could offset costs, minimizing the overall impact on the budget.
A further innovative proposal includes a government-backed “bitcoin bond,” an approach reminiscent of El Salvador’s endeavor to fund infrastructure through bonds tied to bitcoin revenues. The scale of implementation in a U.S. context is vastly different. If the government issued billions in interest-bearing notes linked to potential bitcoin revenues, it might cover its own interest obligations with the profits generated from the coins. While some critics find this approach overly complex and risky, proponents view it as a demonstration of the flexibility of digital assets, especially if policymakers embrace the creative opportunities afforded by new financial constructs enabled by bitcoin technology.
Strategic Bitcoin Reserve: Economic and Political Consequences
Constructing a bitcoin reserve by reallocating existing assets may seem like a clever loophole, yet it presents serious implications. Advocates emphasize the benefits for national security and the potential for capitalizing on future price increases. Critics, on the other hand, raise concerns over volatility, security complexities, and the risk of disrupting bitcoin markets if a significant government stake is acquired. To grasp both perspectives, it can be helpful to consider historical parallels and analyze how a U.S. “budget-neutral” strategy might reverberate globally.
Historical Examples: Gold Accumulation and Tariff Approaches
Throughout much of American history, gold served as the foundation of the national monetary system. The government didn’t always purchase gold directly at retail prices; instead, it utilized policy tools—tariffs, fixed exchange rates, and ultimately, the mandated acquisition of private gold in the 1930s—to centralize a considerable portion of the world’s bullion in U.S. vaults. By 1950, the Treasury had acquired nearly two-thirds of global gold reserves.
The story of gold provides a blueprint for bitcoin. Rather than making direct purchases, the U.S. can redirect existing flows (such as confiscated assets) or convert existing values (like gold) into a digital counterpart. In the 1870s, tariff revenues supported a gold standard, directing tangible gold into federal coffers. Today, a reimagined system could facilitate the collection of that same “hard money” in bitcoin form. The advantage lies in bitcoin’s ability to move digitally—eliminating the need for transporting physical materials. However, the challenge remains that bitcoin operates in a global, free-floating market, making it difficult for the U.S. to maintain a fixed exchange rate between dollars and bitcoin as it once did with gold.
Potential Effects on Bitcoin Markets and Global Perspectives
In the short term, the decision not to sell seized bitcoin has already removed thousands of coins from exerting potential selling pressure in the market. Analysts note that if the government intends to “hodl,” the concern that it may at any point dispose of a significant amount on the open market will be alleviated. The immediate implication is arguably positive for price stability.
From a geopolitical perspective, a U.S. bitcoin reserve—even if relatively small—could trigger “game theory” dynamics. Other nations, or even U.S. states, may worry about being left behind and begin formal acquisition processes. While El Salvador’s adoption of bitcoin is a comparatively minor event, the U.S. signaling that it considers bitcoin a serious strategic asset may incentivize other countries to follow suit.
However, not everyone is in favor of government ownership of bitcoin. Some members of the liberty movement express concern that a U.S. stockpile could lead to politically motivated market interference. For instance, the buying and selling of bitcoin could be utilized to influence markets, similar to how the Strategic Petroleum Reserve occasionally stabilizes oil prices. Others highlight the moral hazard: if law enforcement seizures augment the reserves, could this incentivize agencies to pursue forfeitures more aggressively?
Feasibility, Risks, and Future Considerations
Labeling these strategies as “budget-neutral” does not lessen the reality that bitcoin’s price can fluctuate by 50% within months. If the government aims to reduce deficits, a sharp downturn could hinder that goal. Politicians are keen to avoid accusations of jeopardizing national resources on a high-risk asset. Security also presents a challenge; managing hundreds of thousands of bitcoin introduces digital custody complexities that differ from the storage of gold bars in Fort Knox.
Moreover, legislative action may be required. Transforming gold into bitcoin or mandating tariff payments in bitcoin will likely necessitate Congressional approval. As anyone familiar with Washington politics understands, achieving consensus is no easy feat. While Trump’s executive order regarding seized bitcoin largely remained within executive jurisdiction, larger measures will demand wider support. Senator Lummis’s legislation advocating for a million-coin reserve refers explicitly to “diversifying existing funds” rather than earmarking new dollars, but that alone does not guarantee a smooth passage through Congress.
Nevertheless, supporters perceive momentum. Even symbolic gestures—like ceasing the auctions of seized bitcoin—impact how markets interpret the asset and how other states or governments might engage with it. If the Treasury were to officially shift assets from gold to bitcoin, it would serve as the clearest indication yet of a significant change in monetary policy. This could challenge the existing dominance of the U.S. dollar or, as Lummis argues, “supercharge the dollar” by combining it with the attributes of a hard-capped digital asset.
The outcome of this situation remains uncertain. Some analysts predict the U.S. will proceed cautiously, initially opting to securely store seized coins. Others believe we stand on the brink of a broader transformation, reminiscent of FDR’s gold revaluation in the 1930s. Regardless, the notion of budget-neutral bitcoin accumulation within a strategic bitcoin reserve is no longer merely theoretical—it has already begun to take shape in the refusal to liquidate seized bitcoin. The future of this initiative, whether it evolves into a full-fledged “Fort Nakamoto,” will hinge on political will, inventiveness, and policymakers’ ability to envision a promising future shaped by bitcoin.
