What to know about the potential for a national bitcoin reserve that's got the crypto market so excited
Lauren DeCicca/Getty Images; Jenny Chang-Rodriguez/BI
- Crypto bulls are eager to see Trump establish a "bitcoin strategic reserve."
- Supporters say the US could manage its debt if it buys and holds bitcoin now.
- Yet, sources tell BI they expect obstacles to making the reserve happen.
Donald Trump's rise as the first "crypto president" has riled up the industry in anticipation of a golden age for cryptocurrencies.
Among a host of awaited changes, crypto enthusiasts are especially eager to see Trump follow through on a pledge he made in July to create a national bitcoin stockpile.
With Trump now set to reenter the White House in January, the promise has helped slingshot bitcoin to a string of record highs, with few signs of any impending slowdown.
"I think it's exciting in the sense that it certainly gives credibility to cryptocurrency and bitcoin,"Scott Mason, a Holland & Knight senior policy advisor with expertise in blockchain and crypto, told Business Insider.
What would a bitcoin reserve do?
In the same week that Trump pledged to create a national stockpile, Wyoming Senator Cynthia Lummis put out the leading blueprint for what one could look like.
Under her so-called BITCOIN Act, the US would accumulate 1 million bitcoins over 20 years, with the goal of owning approximately 5% of the total supply.
"Bitcoin has been appreciating since inception. This would be an asset that could help shore up the US dollar as the world reserve currency, and serve as a reserve that could be used to reduce the national debt significantly," she explained on Thursday.
The industry is excited by this idea. Presuming that the token's finite supply leads to a higher price, amassing a portion of bitcoin today could allow the US to offset rising debt issues in the coming years.
It is also presumed that bitcoin's appreciating value will counterbalance the weakening of the dollar in the event of another bout of inflation.
"This is the type of action that would cost us very little financially, but could have a profound impact on our financial health in the future," crypto bull Anthony Pompliano wrote in a LinkedIn post. calling for the US to print $250 billion to rake in more bitcoin.
Yet, not everyone is convinced.
Ananya Kumar, deputy director for the future of money at the Atlantic Council's GeoEconomics Center, is uncertain about bitcoin's role as an inflation hedge. Unlike gold, she said that the currency still tends to track the stock market.
If the US invests in a volatile asset, it risks downstream effects on the economy, she told BI.
Under Sen. Lummis' proposal, the US would convert gold certificates held by the Federal Reserve to today's fair market value before selling them and using the proceeds to buy bitcoin.
That's not inconsequential, Kumar said: "It is incredibly inflationary, and you're going to have to rethink how the Fed works. You're sort of adding a time component to all of this."
Other lingering questions remain, such as whether the US public — most of whom does not own bitcoin — will favor the idea.
Whatever the obstacles may be, investors are largely optimistic that a reserve is coming in the next year. According to the betting market Kalshi, there's a 64% chance it will happen before 2026.
But it might all depend on Congress, where support appears to be lacking right now, crypto billionaire Michael Novogratz said.
"While the Republicans control the Senate, they don't have 60 seats," the Galaxy founder told Bloomberg TV, while questioning the need for a reserve.
For those hoping that the incoming administration could create the reserve through executive action, it will require guardrails that may be too big for a presidential order to handle, Mason said.
"Who controls the balance? Who controls the ability to buy and sell?" he told Business Insider.
Congress will ultimately have to collaborate with the Federal Reserve and the Treasury, and it could take a while for that to happen. Both Kumar and Mason said they don't expect Capitol Hill to prioritize the reserve. Even in terms of crypto legislation, other bills will likely come first.
What would happen to bitcoin?
Novogratz predicted that the event would amount to such a paradigm shift that it would send bitcoin to $500,000. His forecast is based on the idea that other countries would feel pressured to follow suit and establish their own bitcoin reserves.
The same theory is why Matt Mena, crypto research strategist at 21Shares, previously told BI that bitcoin could soar to $1 million "almost overnight."
"Such a move would trigger a rush by other countries to front-run the US and their neighbors, spurring global competition to build reserves," he said over email. "In this scenario, Bitcoin's total market cap could easily surpass gold's."
Kumar doesn't expect the reserve's impact to be that direct. Crypto bulls may be taking an example from the fact that countries tend to have an oil reserve, and the price of oil can be impacted when they. add to or reduce their stockpile.
However, the difference is that oil is strategically important during major supply disruptions, while bitcoin's importance as an asset for governments to own is still being debated.