Summary The idea of a US Bitcoin National Reserve gained traction after Trump's July 2024 proposal and November 2024 election victory, but its implementation remains unlikely. Trump's pro-Bitcoin stance appears more like electioneering than a well-thought-out policy, conflicting with his pledge to maintain the USD reserve currency status. Establishing a Bitcoin reserve would face significant funding challenges and skepticism from mainstream financial institutions and Congress. Despite occasional bullishness, I remain cautious about Bitcoin's hype and wary of being bullish due to the speculative nature of the reserve idea. The idea of the US establishing a strategic national reserve of Bitcoin has recently attracted a lot of media attention. In this article, I will discuss my views on how this might impact Bitcoin's price. Before I begin the discussion, for readers that have not read my commentary on crypto before, I would like to showcase my crypto "credentials" with the tactical buy recommendation of Coinbase ( COIN ) in Oct 2022 during the previous crypto winter, which has since gone up by 315%. Author track record on crypto (Seeking Alpha) Now back to the discussion on the Bitcoin National Reserve. Timeline and overview Bitcoin price (StockCharts) The idea of establishing a Bitcoin National Reserve in the US is a relatively recent one. If you google for "Bitcoin reserve" before July 1, 2024, you won't find many mainstream mentions of the idea. President-elect Donald Trump first mentioned creating a "national bitcoin stockpile" on July 27, 2024 at a bitcoin conference, reportedly saying "If I am elected, it will be the policy of my administration, the United States of America, to keep 100% of all the bitcoin the U.S. government currently holds or acquires into the future…If we don't embrace crypto and bitcoin technology, China will, other countries will. They'll dominate, and we cannot let China dominate. They are making too much progress as it is." As shown in the above chart, this mention coincided with the trough in bitcoin (BTC-USD) prices in July 2024, which have soared since Donald Trump won the US Presidential election in November 2024. The Bitcoin Act of 2024 was also introduced on July 31, 2024 by Senator Cynthia Lummis, which proposed to establish a Strategic Bitcoin Reserve through the Treasury purchasing 1 million Bitcoins over a 5-year period and held for 20 years (unless used to retire the outstanding federal debt). Since Donald Trump won the election, momentum (or at least discussion) for establishing a Bitcoin National Reserve has snowballed: Trump has nominated David Sacks as AI and crypto czar, who is viewed as friendly towards the crypto industry. Trump has made multiple comments on crypto that were viewed positively ( example ) My Assessment of likelihood My current assessment is, despite the hype, it is unlikely the Bitcoin National Reserve will be established in any meaningful way: There may be some symbolic gesture where the Bitcoin owned by the US federal government ( currently about 200k ) is placed in a reserve; however, the federal government purchasing massive amounts of Bitcoin is probably unlikely. Based on a summary of pros and cons from the broader financial community, I personally don't find the arguments in favor of establishing a Bitcoin reserve as persuasive: Reasons supporting Bitcoin reserve My view 1. Inflation hedges against economic uncertainty and monetary instability While buying Bitcoin as an inflation hedge may make sense from an individual investor's point of view, it does not make sense from a legislative point of view. Inflation over the long run is largely due to money printing and government overspending, without addressing these root causes, proposing that the government buys bitcoin just because the government cannot balance its books doesn't sound like a strong argument to me. It's like, if a car broke down, proposing to rent a car instead of fixing it. 2. strengthen the dollar as the world's reserve currency It's not clear to me why promoting an alternative currency strengthens the dollar as the world's reserve currency. It could just as well encourage other countries to use Bitcoin and forgo the dollar. 3.exert control over bitcoin supply I'm not sure what would be achieved by the government owning 5% or 10% or 15% of all Bitcoin supply. Does having 19 million Bitcoin in circulation rather than 21 million Bitcoin in circulation somehow improve Bitcoin? By the same logic, the Federal Reserve might buy stocks just to exert control of the supply of stocks, but the stock market is doing just fine doing its own thing without such additional governmental support. Reasons against Bitcoin reserve 1. not crucial to running the economy (unlike oil reserves) This I would tend to agree with. While having mineral and resource stockpiles could be useful in times of economic crisis, stockpiling a bunch of digital tokens doesn't really do anything. If the concern were inflation, then the root cause should be addressed rather than funding a bitcoin reserve and avoiding root problems. 2.commit the state and taxpayers to backing bitcoin and create economic risks This I find some merits as well. While I can appreciate the uses of Bitcoin, does that mean the government should commit to backing it when there are so many other items on the agenda? And if the wider public has that question in mind, it may be difficult to pass actual legislation funding any Bitcoin reserve. Donald Trump's pronouncements on Bitcoin appear, in my opinion, to be telling crypto proponents what they want to hear rather than a well-thought-out policy: His initial pledge to establish a Bitcoin Strategic Stockpile in July 2024 was made at a Bitcoin conference, so it may just be electioneering and fundraising and telling the crypto crowd what they want to hear. Trump has previously made many negative comments on Bitcoin before embracing it in July 2024, e.g. in 2021 he called Bitcoin "a scam against the US Dollar". There is very little indication of what caused this change of heart. While Donald Trump has been very public and consistent about some of his policy ideas since the 1980s (e.g. getting US allies to contribute more defense spending or tariffs) and attempted to apply them during his first term as president, his change in stance on Bitcoin is relatively new and untested. This could mean even if he views Bitcoin more positively (for whatever reason), he might not push too hard for it and just make a moderate effort to placate his supporters, which might not be enough to get the Bitcoin reserve established. It contradicts with his pledge to maintain the US Dollar reserve currency status. Trump has mentioned potential massive tariffs against countries that go against the US Dollar reserve currency status. It would make no sense to expend that much effort to maintain the USD reserve currency status just to undermine it by elevating Bitcoin. Some of his points don't correspond to what is happening in reality: Trump often mentions that the US should counter China's influence in crypto while China has actually banned crypto activities in its mainland territories (allowing crypto to be conducted only in Hong Kong etc), so this type of "straw man" argument does not hold up under close scrutiny. Massive funding for something so unorthodox (purchasing 1 million Bitcoin at $100,000/each would cost $100 billion) would be relatively hard to pass in Congress. Witness in the below chart how during the Great Financial Crisis of 2008 how it took a stock market collapsing for a year before Congress would pass legislation establishing TARP. Given how we've seen in the past week the difficulty of getting run-of-the-mill stopgap spending bills through Congress, spending a hundred billion dollars purchasing Bitcoin sounds farfetched. DJIA 2008 (Online charts)
