The United States is poised to launch a “Strategic Bitcoin Reserve,” following President Donald Trump’s backing of the cryptocurrency sector as he strives to position the nation as the “bitcoin and cryptocurrency capital of the world”.
Earlier this month, Trump issued an executive order to create the reserve, which White House crypto chief David Sacks has referred to as “a digital Fort Knox,” likening it to the gold reserves held at the US military base.
For centuries, nations have maintained gold reserves, regarded as a safe-haven asset during economic turbulence. Recently, gold prices surged past $3,000 per ounce for the first time, spurred by market unease over Trump’s trade tariffs. Similar to gold, national reserves can aid in stabilizing a country’s currency and serve as collateral in financial dealings.
What will the US Bitcoin Reserve entail?
The reserve will be underpinned by 200,000 bitcoins, valued at approximately $17 billion, which have been seized in various civil and criminal cases across the US. These assets will be secured indefinitely, with additional bitcoin allowed only if it remains “budget-neutral”, ensuring no financial burden on taxpayers.
Market reaction: lukewarm
Despite the ambitious initiative, the announcement did not elicit a strong market response. Following Trump’s executive order, bitcoin’s price dipped initially before finding stability. Analysts noted that the lack of immediate government purchases of additional bitcoin contributed to the lackluster market reaction.
Dessislava Aubert, an analyst at crypto data firm Kaiko, informed AFP that US authorities have a legal obligation to return a portion of the seized bitcoin to victims of past hacking incidents. Nearly 198,000 bitcoins might be returned to parties affected by the 2016 Bitfinex exchange hack.
There is also speculation about whether the reserve could expand to incorporate other cryptocurrencies. Trump has indicated the potential inclusion of ether (ETH), XRP, Solana (SOL), and Cardano (ADA), but no finalized decision has been made.
Can bitcoin replace gold?
Critics argue that bitcoin presents greater risks compared to gold, lacking intrinsic value. Unlike gold, cryptocurrencies exhibit high levels of volatility and are susceptible to market speculation.
Conversely, Sacks maintains that by holding bitcoin over the long term, the government can safeguard itself against market fluctuations and prevent sudden price drops. Stephane Ifrah, investment director at Coinhouse, echoed this sentiment, asserting that bitcoin’s capped supply of 21 million tokens lends it a rarity akin to gold.
One potential benefit of a bitcoin reserve is its transparency, as the number of tokens owned by the government would be accessible to the public at all times, in contrast to the undisclosed gold reserves at Fort Knox.
Despite these points, noted crypto skeptic Molly White posited that the primary goal behind the reserve is to stimulate interest within the crypto sector, consequently benefiting investors.
Trump has openly expressed his ambition to establish the US as the “bitcoin and cryptocurrency capital of the world.” Nevertheless, his direct engagement in the industry raises concerns about conflicts of interest.
The Financial Times revealed that Trump garnered $350 million from launching a meme coin ($TRUMP) prior to his inauguration. Additionally, the Wall Street Journal reported that the Trump family contemplated acquiring a stake in Binance, although the exchange’s founder has dismissed these claims.
International interest
The US is not the only nation exploring a national cryptocurrency reserve. Brazil is said to be contemplating a akin strategy, while Switzerland’s central bank has ruled it out. Globally, governments are increasingly engaging with digital assets, often liquidating seized cryptocurrencies, such as Germany’s sale of 50,000 bitcoins last year.
Some countries have even adopted bitcoin as legal tender, though with mixed outcomes. El Salvador designated bitcoin an official currency but later rescinded the decision due to low adoption rates. Conversely, Bhutan quietly holds nearly $900 million in bitcoin, constituting around 30 percent of its GDP.
