As the US government considers adding Bitcoin to its strategic reserves, experts weigh in on the pros and cons of such a move. With a potential value of over $17 billion, the proposal has sparked debate about the role of cryptocurrency in global finance.
The idea of creating a ‘Crypto Strategic Reserve‘ has been floated by President Trump, with the goal of establishing the United States as a leader in the cryptocurrency market. The reserve would hold five types of cryptocurrencies, including bitcoin, ether, XRP, solana, and cardano.
Bitcoin is a decentralized digital currency that allows for peer-to-peer transactions without the need for intermediaries.
It was created in 2009 by an anonymous individual or group using the pseudonym Satoshi Nakamoto.
Bitcoin uses cryptography to secure and verify transactions, with a global network of computers working together to record all transactions on a public ledger called the blockchain.
Understanding the Concept of a Strategic Reserve
The US already maintains strategic stockpiles of other assets, such as military and medical equipment. However, a reserve is typically defined as an asset that the government actively manages to stabilize its value or prevent market fluctuations. Trump’s executive order on digital assets established a working group to evaluate creating a stockpile, but not a reserve.
The Pros and Cons of a Bitcoin Reserve
Supporters argue that a federal reserve would allow the US to profit from cryptocurrency investments, which could be used to reduce the nation’s large debt. However, critics contend that crypto is historically volatile and a speculative investment. Eswar Prasad, a professor of trade policy at Cornell University, notes that the US has precedent for holding a stockpile of a speculative asset: gold.
The Reserve Would Hold Five Types of Cryptocurrency
The proposed reserve would hold around 200,000 bitcoin tokens from criminal seizures, valued at over $17 billion. This number could be broadened to also include ether and three lesser-known cryptocurrencies: XRP, solana, and cardano. Bitcoin is the oldest, most valuable, and most popular cryptocurrency on the market, followed by ether, XRP, solana, and cardano.
Prominent Crypto Backers Weigh In
Some prominent crypto backers have expressed opposition to creating a reserve using assets other than bitcoin. Brian Armstrong, CEO of Coinbase, stated that ‘Just Bitcoin would probably be the best option – simplest, and clear story as successor to gold.’ A senator’s bill outlined how a federal strategic reserve could work, directing the government to buy 1 million bitcoins over five years.
Concerns About Government Involvement
Eswar Prasad raised concerns that a reserve could put the federal government in a tricky bind, where it becomes a major player in the crypto market and influences the price of assets. If the government tried to liquidate its digital assets to chip away at its debt, it could cause the value to drop.
The Bitcoin Policy Institute’s Argument
The Bitcoin Policy Institute has argued that while bitcoin‘s price experiences fluctuations, a federal reserve would be a tool for ‘financial resilience’ in the long run. They claim that as bitcoin matures and its market deepens, its volatility is likely to decrease, making it more stable as a store of value.
Trump’s Ties to Crypto
President Trump has ties to crypto, having received millions of dollars in donations from investors and founders during his campaign. He spoke at a bitcoin conference last summer and released a crypto ‘meme coin‘ before his inauguration. His sons are also involved in a cryptocurrency startup that sells its own token.
