Bitcoin is often touted as an alternative to the US dollar, the world’s reserve currency, as only a limited number of coins will ever be produced. Proponents argue that bitcoin’s fixed supply makes it an inflation-proof value store outside the global financial system. Bitcoin is often compared to gold for a similar reason.
While central banks worldwide keep large reserves of the dollar and gold, until now, only one country — El Salvador — has created a strategic reserve of cryptocurrencies, although several governments do hold them, mostly seized from criminal activities or to circumvent international sanctions.
On Thursday, US President Donald Trump signed an executive order to create a strategic reserve of bitcoin, having previously said he wants the United States to be a leader in digital money.
Crypto advocates have responded euphorically to the plans, while skeptics argue it will expose US taxpayers to the huge price volatility of digital currencies.
As Trump welcomes the top crypto movers and shakers to the White House for a summit on Friday, DW explores what the president has in mind.
What do we know about Trump’s plan?
Under Trump’s order, the federal government will retain the nearly 200,000 bitcoin seized in criminal and civil proceedings, according to Trump’s “crypto czar” David Sacks.
“The U.S. will not sell any bitcoin deposited into the Reserve. It will be kept as a store of value. The Reserve is like a digital Fort Knox for the cryptocurrency often called ‘digital gold,'” Sacks wrote on X, referring to the location in Kentucky where most of the US gold reserves are kept.
The executive order calls for a “full accounting” of the government’s bitcoin holdings, which Sacks said have never been fully audited.
Sacks added that over the last decade, Washington had sold off about 195,000 bitcoin for $366 million, which he said would be worth about $17 billion if still held.
Sacks said the order allows for the Treasury and Commerce Departments “to develop budget-neutral strategies for acquiring additional bitcoin.”
On Sunday, Trump named the five cryptocurrencies to be held in the reserves, namely bitcoin, ether, XRP, solana and cardano.
“A U.S. Crypto Reserve will elevate this critical industry after years of corrupt attacks by the Biden Administration,” Trump wrote on his Truth Social platform. “I will make sure the U.S. is the Crypto Capital of the World.”
Trump, who was once anti-crypto, is now a growing fan of alternative currencies and first mooted the idea of a strategic stockpile at the Bitcoin 2024 Conference in Nashville, Tennessee, in July.
US agencies hold 198.109 bitcoins, worth around $18.1 billion (€16.7 billion) as of Thursday, according to a tally by Arkham Intelligence.
Most of the holdings are the seized proceeds of crime, including drug trafficking, money laundering, and hacking. The government also holds millions of dollars of seized ethereum, tether and other smaller digital coins.
What is a strategic reserve?
A strategic reserve is a stockpile of vital resources kept by governments or large organizations to provide a safety net during hard times.
Examples include the US Strategic Petroleum Reserve, which helps ensure a regular supply of oil during crises, food reserves, including stockpiles of grain, to protect against hunger, and the stockpiling of vaccines by the US and European Union during the COVID-19 pandemic.
Countries also maintain monetary reserves, like foreign currencies or gold, to stabilize their economies and facilitate trade. The US government, for example, holds around 8,133 metric tons of gold, most of it at the United States Bullion Depository at Fort Knox, Kentucky.
Increasingly, reserves of critical minerals needed for technology, the energy transition and defense are also being established.
Will a crypto stockpile work?
Proponents say a crypto strategic reserve could help financial stability by diversifying US national reserves beyond traditional assets like gold and foreign currencies.
Such a stockpile would also help legitimize cryptocurrencies, encouraging more financial institutions to hold them. The likes of bitcoin are still viewed by many institutional investors with suspicion due to their price volatility and decentralization.
But some analysts think the value of the stockpile could vanish in a market crash.
Others worried that if the government were to buy Bitcoin near its all-time high price of $109,000, it would be a costly endeavor, at a time when Trump is seeking billions of dollars in public sector cuts.
But Sacks insisted the use of the seized crypto assets “means it will not cost taxpayers a dime.”
Other critics accused Trump of favoritism toward a highly speculative investment, without providing clear strategic benefits for the nation.
Many of Trump’s backers are big crypto investors. Trump, himself, has a meme coin named after him.
Some observers pointed to the contradiction between creating a government stockpile of an asset that is deemed anti-establishment. Bitcoin was originally designed as a way to bypass government and central bank control.
Others were worried that if more governments began stockpiling the likes of bitcoin, they could potentially start to manipulate the crypto market, just as they do with gold and currencies.
Source : https://www.dw.com/en/bitcoin-as-a-us-strategic-reserve-does-it-make-sense/a-71837690