Although Trump did not sign any cryptocurrency-related executive orders after officially "taking the throne" today, the market is still eagerly looking forward to the United States establishing a BTC strategic reserve, and I am personally optimistic about this (but the path may not be what everyone imagines).
This possibility was raised by Trump last summer and sparked endless imagination in the cryptocurrency market, especially today, when the market once predicted that the probability of this happening within 100 days after Trump officially "ascended the throne" was greater than 50% (Polymarket betting data, which fell back to 36% at the time of writing).
Many skeptics have questioned the stability and security of BTC, but supporters believe that BTC reserves can strengthen the dollar and fight inflation. There is currently disagreement on whether Trump can use executive power to create reserves, directly direct the Treasury to spend money, or whether a bill from Congress is needed.
Next, I will take readers to look forward to the potential implementation paths of the relevant reserves.
1. What is a strategic reserve?
Strategic reserves are reserves of key resources that a country can quickly mobilize and use in response to special circumstances such as emergencies, emergencies or wars. The most famous example is the U.S. Strategic Petroleum Reserve, the world's largest national oil reserve system (700 million barrels), created by an act of Congress in 1975 to respond to the impact of the 1973-1974 Arab oil embargo on the U.S. economy. The United States has used this reserve during wars or when hurricanes hit the oil infrastructure on the Gulf Coast and the Ukrainian war. The United States also has strategic reserves of gold, minerals, food, military supplies, and more.
2. How will the US BTC strategic reserve work?
The first question is, can Trump create a strategic reserve of BTC through executive power?
——Original source
The initial source of the reserve is most likely BTC confiscated by the U.S. government from criminals, which currently has about 200,000 BTC, worth about $21 billion at current prices. Trump suggested in a July speech that these BTC could be used as a starting point for the reserve, but it is not clear how to transfer them from the Department of Justice.
Trump has not yet made clear whether the government will increase its reserves by purchasing more BTC on the open market.
——Funding source 1: ESF
Some people believe that Trump can use the U.S. Treasury's Exchange Stabilization Fund (ESF) to create reserves through executive orders. The fund can be used to buy or sell foreign currencies, and may also be used to hold BTC. This option is more realistic and can be executed quickly. The use of ESF within a certain range does not require approval from Congress one by one, and has greater flexibility. The fund currently has more than 200 billion US dollars, mainly used to stabilize the US dollar exchange rate and support international currency flows.
——Funding source 2: Issuing new bonds
In addition, there is a view that the government may issue new debt to purchase, which I personally think is unlikely. Because the issuance of US government debt must be approved by Congress, and the US debt ceiling is reached several times a year, it is unlikely that both parties will agree to increase debt to buy BTC. The US has too many spending tasks that have higher priority than BTC, such as pensions, medical insurance, and war... However, in history, the US has purchased gold through treasury bonds to increase its reserves, so there is a glimmer of hope here.
——Source of funds 3: Selling gold
Finally, some supporters of BTC reserves imagine that the United States could sell part of its gold reserves and use the proceeds to buy BTC. The biggest problem here is that the sale of gold by the United States may cause drastic fluctuations in the global gold market, affecting the reserve security of all countries, and may in turn cause instability in the international financial market, because gold is collateral for many financial institutions, and a single move can affect the entire system. In addition, the price of gold is relatively stable and as an internationally recognized scarce asset, it has good liquidity, and the possibility of selling gold for BTC is not great. It is better to have more and more of both assets as reserves rather than selling one for one.
——Funding source 4: Coin issuance financing
In the new era when the US government is struggling to raise debt and the president takes the lead in issuing coins, it is indeed possible to think a little more creatively. It is possible for a federal government agency to issue a new digital currency. Because if the US government buys Bitcoin on a large scale, it may have an intervention effect on the Bitcoin market, pushing up prices and forming bubbles. After the market bubble bursts, the price of Bitcoin may plummet, and the government and many investors who are halfway through will face huge losses.
Therefore, the government has launched a project to allow everyone to invest Bitcoin or WBTC into the on-chain contract address, and issue a corresponding governance token, which does not correspond to the right of redemption, just like Trump's $WLFI. This is likely to attract many people to participate. The US government can pocket Bitcoin without affecting market prices or incurring additional debt, which is the best option.
Funding source 5: Start a company similar to MSTR to raise funds
The U.S. government could set up a government-controlled company that would finance the purchase of Bitcoin through debt financing or other capital market instruments, thereby providing diversified assets for the U.S. strategic reserves. Similar to $MSTR, it could issue bonds, increase equity, and convertible bonds to raise funds, a three-pronged approach.
There are many cases where the US government controls a company through the Treasury Department or the Federal Reserve, the most typical of which are Fannie Mae and Freddie Mac. Since 2008, these two institutions have actually become "government-controlled companies" after being rescued by the government, and the government has provided clear guarantees for their debts. As an enterprise entity, the company issues bonds or other securities to the capital market for financing, purchases and guarantees residential mortgage loans. In fact, the purpose is not simply to make profits for shareholders but more for macroeconomic regulation - to improve the liquidity of the US housing market and reduce loan interest rates.
During the 2008 financial crisis, the US government provided huge loans to these two companies (the US Treasury and the Federal Reserve), and became their major shareholders by acquiring their shares after the crisis.
So is it possible for the government to invest in $MSTR or start a similar company? It is not impossible. If one day Bitcoin penetrates deeply into the traditional financial system and becomes as important as the housing mortgage assets of the past, its stability needs to be maintained.
——Potential purchase volume: 1 million
The most concrete BTC reserve proposal currently circulating in Washington comes from pro-crypto Republican Senator Cynthia Lummis, who holds five BTC herself and introduced a bill in July that has yet to gain traction that would create a reserve run by the Treasury Department.
The bill envisions that the Treasury Department will create a program to purchase 200,000 BTC per year over five years until the reserve reaches 1 million. This will account for about 5% of the total global BTC supply (about 21 million). The Treasury will use profits from Federal Reserve Bank deposits and gold holdings to finance these purchases. The BTC reserve will be maintained for at least 20 years.
Loomis's proposal has yet to gain traction in Congress, and its likelihood of being enacted remains uncertain.
——Maybe the state level will run first
Another possibility is that the establishment of reserves will be phased in, perhaps starting with one state (perhaps Pennsylvania, Texas, six U.S. states have proposed plans to establish strategic BTC reserves), state governments can act more flexibly and independently, viewing BTC as a tool to hedge against fiscal uncertainty or to attract crypto investment and innovation, and then gradually rise to the federal level.
For example, last November, Pennsylvania introduced the Pennsylvania BTC Strategic Reserve Act, which would authorize the state Treasury to invest 10% of its $7 billion reserves in BTC.
A month later, Texas introduced a similar bill, the Texas Strategic Bitcoin Reserve Act, proposing the creation of a special fund in state treasury to hold Bitcoin 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 used the funds raised to intensively purchase more than $50 million in cryptocurrencies, including LINK, AAVE, BTC, ETH, ENA, and TRX. It may continue to purchase tens of millions of dollars in the future. It is unknown what the relationship between this project and the potential US strategic reserves is. I seriously suspect that $WLFI is testing the possibility of the government selling coins.
3. What are the benefits of BTC reserves?
Since the Democratic Party wants to promote this proposition, it must have a logically consistent explanation.
Trump’s view is that the BTC reserves will help the United States dominate the global BTC market against competition from China.
Other supporters believe that by holding BTC reserves (which they believe will continue to appreciate in the long term), the United States can reduce its deficit without increasing taxes, thereby strengthening the dollar. Loomis said her plan would halve the U.S. debt in 20 years. "This will help us fight inflation and protect the dollar on the global stage." Some supporters believe that a strong dollar will give the United States more leverage in its game with rivals such as China and Russia.
4. What are the risks of BTC reserves?
Cryptocurrency skeptics argue that, unlike most other commodities, BTC has no real use and intrinsic value and is not critical to the functioning of the U.S. economy. At only 16 years old, BTC is still too young and unstable to assume that its value will continue to rise in the long term. In addition, cryptocurrency wallets are vulnerable to cyberattacks, and they also point out that given BTC's volatility, any government purchase or sale could have an outsized impact on BTC prices.
5. Conclusion: I want to do it, but I don’t have the money
Since Trump’s strategic reserve plan is obviously faced with many obstacles, the most important question is where to get the extra money to purchase new reserves? If this problem is not solved, the U.S. federal government is unlikely to purchase additional BTC, but we can fully expect to see state governments take the lead.
More importantly, with Trump's promotion and more policy relaxations (such as major banking service relaxations, which are no less beneficial than Bitcoin reserves), the exposure of cryptocurrencies is gradually increasing, and the adoption rate is bound to increase. The United States will eventually accept cryptocurrencies on a larger scale.
