By Christopher Mason, who is a Silicon Valley native currently located in County Cork, Ireland, Christopher Mason is a cryptocurrency industry insider. He is a Bitcoin enthusiast, and close follower of all things crypto.
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You wouldn’t need to be a crypto watcher to have heard the term “Strategic Bitcoin Reserve.” It’s been talked about quite a lot lately, and not just in fringe crypto publications. So, what is it? What would its purpose be? What are the chances it’ll actually happen?
Most people will be familiar with the Strategic Petroleum Reserve. It’s a large stockpile of crude oil held by the United States government, specifically, the Department of Energy. It’s stored underground in Louisiana and Texas; these facilities have a combined capacity of 727,000,000 barrels. The Strategic Petroleum Reserve was created by President Ford in 1975 in response to the oil embargo of 1973-1974 (when OPEC cut off oil shipments to the United States in response to aid sent to Israel during the Yom Kippur War). The basic idea behind the creation of the Strategic Petroleum Reserve was that it could serve to soften future oil-related price shocks to the US economy.
Why an United States Strategic Bitcoin Reserve?
So, why a Strategic Bitcoin Reserve? Oil is an essential enabler of the US economy – without it, a large portion of economic activity would grind to a halt. But Bitcoin? It depends who you ask, but there wouldn’t be many that would classify it as essential to the US economy. Senator Cynthia Lummis (R, WY) would argue through her proposed BITCOIN Act of 2024 – a bill that is being considered by the United States Senate – that a Strategic Bitcoin Reserve is vital. The bill aims to reduce US government debt without raising taxes (simultaneously strengthening the US dollar); it also proposes that the US government acquire 5% of outstanding Bitcoin (similar to the portion of global gold reserves held by the US government).
U.S. President Donald Trump has suggested that such a reserve would help ensure that the US dominates the cryptocurrency market and that there is growing interest in China to do just that.
Whether or not this will ever come to fruition is still quite unknown, but Trump took a potential first step toward it on January 23rd, when he signed an executive order which established a cryptocurrency working group. This group will explore new cryptocurrency regulations, the protection of banking services for crypto companies, and the creation of a national cryptocurrency stockpile. The order also banned the creation of US central bank digital currencies, which would have been seen by industry followers as a potential rival to Bitcoin. The working group is not short of heavy-hitters, featuring the Secretary of the Treasury, as well as the heads of the Securities Exchange Commission and the Commodity Futures Trading Commission. The chair of the group will be David Sacks (venture capitalist and former executive at PayPal).
According to the wording of the executive order, the group will “evaluate the potential creation and maintenance of a national digital asset stockpile… potentially derived from cryptocurrencies lawfully seized by the Federal Government through its law enforcement efforts.” It’s possible that the fund could be created via another executive order, directed at the Treasury Department’s Exchange Stabilization Fund, often used to buy and sell foreign currencies.
Critics of the strategic reserve concept have said that there is no utility in it; that Bitcoin has no intrinsic value. They say that the price fluctuations of Bitcoin mean that a strategic reserve would pose a risk to taxpayers and to the economy and that government purchases and sales of Bitcoin would have a big impact on it’s value. The legality of transferring Bitcoin seized by the Justice Department into the U.S. Treasury is very much in question. And will creating a strategic reserve require an act of Congress? It might.
So, where does this leave us? Time will tell. The newly-created cryptocurrency working group has until July to investigate and present its findings. Until then, the market will be left to wonder whether or not a Strategic Bitcoin Reserve will happen.
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