President-elect Donald Trump has sparked conversations and debates over his proposition of establishing a ‘Strategic National Bitcoin Stockpile’. Though the intended purpose for this kind of institution remains somewhat ambiguous. This week saw the price of Bitcoin (BTCUSD) momentarily surpass the $108,000 mark, following the reintroduction of this concept by Trump, which was initially brought up during his campaign.
Despite Bitcoin demonstrating a swift shift in direction post the Federal Reserve meeting this week, the idea of a reserve seems to be gaining traction. However, it also receives its fair share of criticism from economists dubious about the need for a strategic reserve for a highly unpredictable speculative asset. Trump initially suggested this idea during a Bitcoin conference in Nashville this July, referring to government-seized cryptocurrency from criminal investigations forming the basis of this “Strategic National Bitcoin Stockpile”. He voiced intentions to retain it permanently, and according to BitcoinTreasuries, the U.S. currently possesses 198,000 bitcoins valued at around $21 billion.
Drawing parallels to the Strategic Petroleum Reserve implemented in 1975 in the U.S. following oil embargoes that wreaked economic havoc, the proposed Bitcoin reserve might be seen as a similar emergency provision. The influence of crypto investors in Washington seems to have also contributed to this concept gaining momentum.
This model of an equivalent government stockpile of Bitcoins was supported in July by Senator Cynthia Lummis, a Republican from Wyoming, who introduced a bill advocating for the government to purchase 1 million bitcoins over five years, as a financial safeguard amidst economic uncertainty. Some consider this strategy akin to the Federal Reserve’s gold bullion keep.
George Mason University professor of economics and Bloomberg columnist, Tyler Cowen, wrote that this move could solidify the Dollar’s standing as world reserve currency, thereby bolstering U.S. hegemony over the global financial system.
However, this notion has been met with skepticism from certain quarters. Critics argue that unlike oil, Bitcoin holds no essential function for the running of the economy, and some question the benefits this reserve could offer to the economy. The establishment of a crypto reserve could potentially expose the state and taxpayers to risks involving Bitcoin, a speculative and volatile financial asset, as stated by Ramaa Vasudevan, a professor of economics at Colorado State University.