It’s no secret that Donald Trump fell hard for Bitcoin and cryptocurrencies a few years ago.
During his first term as US president, Trump said that cryptocurrencies are “not money” and that their value is “very volatile and based on thin air.”
Fast forward to 2024, and Republican politicians have changed their tune.
During his re-election campaign, Trump was the headline speaker at a Bitcoin convention. He launched his own crypto venture (World Liberty Financial) and received millions of dollars in donations (in the form of Bitcoin, Ether, and XRP) from backers, including a small number of cryptocurrency backer billionaires. I did.
President Trump’s pledge to enact pro-crypto policies has driven Bitcoin’s value to a new record (up to $108,000 in mid-December) since pledging to make the United States the “crypto capital of the planet.” (approximately $173,000)).
President Trump has also appointed crypto advocates to key roles within his administration.
However, one of President Trump’s more controversial policies is the creation of a “Strategic Bitcoin Reserve.” This essentially requires the US to stockpile Bitcoin and hold onto it for a significant period of time.
At this stage, there are not many details about what the Strategic Reserve would look like.
Some analysts expect the value of this highly volatile cryptocurrency to continue rising, especially if the U.S. government uses taxpayer funds to make large purchases.
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What is the Strategic Reserve?
When people talk about “strategic reserves”, they probably think of oil.
One of the best-known examples is the U.S. Strategic Petroleum Reserve (SPR), an emergency reserve of crude oil created by President Gerald Ford’s administration in 1975.
This was in response to the Arab oil embargo, which severely damaged the US economy (through soaring gasoline prices, inflation, and unemployment).
These oil reserves came in handy most recently in 2022, when the Biden administration released a record 180 million barrels from the SPR to cushion the impact of soaring oil prices caused by Russia’s invasion of Ukraine.
China also has strategic reserves, worth millions of tonnes of copper, aluminum, zinc and other metals important to its real estate and high-tech industries.
Bitcoin rises, falls, and rises again
Canada is also notable for being the only country with a strategic stockpile of maple syrup, but supplies fell to 3.1 million kilograms last year, the lowest in 16 years.
The idea is that these commodity reserves can be released in emergencies to minimize the impact of supply shortages and inflation shocks.
Bitcoin, which has only been around for 15 years, clearly has nothing in common with oil, industrial metals, or maple syrup.
For example, reserve supplies of oil can be used to fuel tanks and fighter jets during a national emergency, but Bitcoin’s usefulness as an emergency resource is questionable.
Government purchases of Bitcoin could help crypto investors by pushing up prices, but the economic benefit is difficult to discern.
Practicality of Bitcoin reserves
Trump told a crowd of supporters at the Nashville Bitcoin Convention in May that he would never sell the U.S. government’s holdings of Bitcoin if he won the election.
Many people came under fire believing in cryptocurrencies and now regulators are cracking down.
“For too long, our government has violated the golden rule that every Bitcoiner knows by heart: never sell your Bitcoin,” he said at the time.
However, the US already owns around 200,000 Bitcoin tokens worth more than $21 billion ($33.6 billion).
This was a result of the US government’s seizure of Bitcoin from criminal organizations, including the high-profile closure of the illegal drug market Silk Road.
At this point, the most concrete proposal regarding Bitcoin reserves comes from a young pro-crypto Republican senator called Cynthia Lummis. (She previously interviewed for Trump’s Interior Secretary position but was unsuccessful).
In July, she circulated a bill in Washington that would create a U.S. Bitcoin reserve (it has not yet gained support in the House of Representatives).
If passed, the Wyoming senator’s Bitcoin bill would require the Treasury Department to purchase 1 million Bitcoin tokens over five years, with funding coming from Federal Reserve deposits and the gold supply. It turns out.
Under his proposal, the U.S. would eventually own about 5% of the world’s Bitcoin supply (capped at about 21 million coins), and the government would have to maintain a stockpile of Bitcoin for at least 20 years. It will happen.
Critics say Mr. Lummis’ bill, if given serious consideration by Congress, faces significant hurdles because, at the very least, the U.S. government is likely to add to its already prohibitive $36 trillion national debt. It says that it will be.
And recent drama in the House has shown that any proposals to increase spending and raise the debt ceiling – even to avoid a government shutdown – will face fierce opposition.
Thirty-eight Republicans, even from within President Trump’s own party, crossed the floor and voted with Democrats to reject the spending bill supported by the president-elect.
Given that Republicans hold a slim majority in the House (220 seats to Democrats’ 215) and the fact that Republicans are not a unified group, strategic readiness for Bitcoin could lead to their legislative Very unlikely to be near the top of your priorities.
Additionally, if the Trump administration needs to issue new Treasury bonds to finance Bitcoin purchases, it will likely face strong resistance from the US Federal Reserve.
Last week, Federal Reserve Chairman Jerome Powell said the U.S. central bank has no intention of holding Bitcoin in its reserves.
“We are not allowed to own Bitcoin,” Powell said.
“The Federal Reserve Act dictates what we can hold, and we are not asking for a change in the law. That is for Congress to consider, but we are asking the Fed to change the law. It’s not like we’re doing that,” he said.
Federal Reserve Chairman Jerome Powell has said that the U.S. central bank has no intention of holding Bitcoin in its reserves. (AP: Jacqueline Martin)
Protection from inflation or “crazy” ideas
Earlier this month, President Trump told CNBC, “We’re going to do great things with cryptocurrencies because we don’t want China or anyone else…But other countries are also accepting cryptocurrencies, and we’re going to move forward. I want to go there.”
Essentially, the argument is that if the US doesn’t stock up on Bitcoin, China and other geopolitical rivals will.
Therefore, fear of missing out (FOMO) and potential geopolitical risks (if an adversary of the United States accumulates a huge supply of cryptocurrencies) are factors to consider.
Lummis claims his bill could cut the U.S. debt in half within 20 years.
“That helps protect us from inflation and protects the U.S. dollar on the world stage,” she told FOX Business in November.
She also wrote in a letter published in the Wall Street Journal that, “While there may be short-term volatility, over the long term these Bitcoin reserves represent a significant and stable source of value.” It will function as a storage area.”
However, that assumes that Bitcoin’s value will continue to rise over time (despite what Bitcoin true believers claim, that is not guaranteed).
Government purchases of bitcoin could help crypto investors by pushing up prices, but the benefits to the economy are difficult to discern. (Provided by: Pixabay)
Former Treasury Secretary Larry Summers, meanwhile, dismissed President Trump’s Bitcoin reserve initiative as a “politically motivated” move to boost Bitcoin’s value and reward the president-elect’s big donors. did.
“Some of what’s being said, the idea that we should have a national Bitcoin reserve, is crazy,” he said in an interview with Bloomberg in early December.
“Of all the prices that should be supported, why would a government choose to support a large amount of Bitcoin by accumulating a barren inventory?”
“There is no reason to do so other than to pander to the generous contributors of special interest campaigns.”
Although Bitcoin has hovered near all-time highs, it has experienced dramatic declines, or “crypto winters,” in the past.
Most recently, its value plummeted by more than 70 percent from November 2021 to November 2022.
It has since rebounded above $100,000, but its outcome (like the outcome of the US election and the crypto policies that will be introduced) was by no means certain.
Given the large price swings and continued volatility, there is always a risk that deploying taxpayer funds to purchase Bitcoin will ultimately threaten rather than protect the financial security of the United States. .
No one knows what the price will be.
