Establishing a “Strategic Bitcoin Reserve” in the United States proves President Donald Trump’s support for the cryptocurrency industry.
Trump issued an executive order establishing the reserve earlier this month, comparing it to “a digital Fort Knox” and the stockpiling of gold bars at the US military facility.
Countries worldwide hold gold reserves because it is seen as a safe-haven asset that protects against financial instability, such as rising inflation.
On Friday, the metal reached $3,000 per ounce for the first time, propelled by an uncertain economic outlook following Trump’s tariffs.
Gold reserves can also help stabilise a country’s currency, while bars are used as collateral for loans and transactions.
How will the US Bitcoin reserve work?
It will be funded by about 200,000 bitcoins, totalling $17 billion, confiscated in the United States as a consequence of civil and criminal prosecutions.
The reserve will be secured indefinitely.
Additional bitcoin can be added to the reserve if the move is “budget-neutral,” meaning it does not cost the taxpayer.
The announcement fails to impress
The bitcoin price initially slid after Trump signed the executive order but has since stabilised.
Analysts have blamed the lack of support for failing to buy more Bitcoin immediately.
Dessislava Aubert, an analyst at crypto data provider Kaiko, told AFP that “legally,” the US government must return Bitcoin to all victims identified as suffering from a hack.
According to Aubert, “a big chunk” of the bitcoin held by the United States—estimated at around 198,000 tokens—would have to be returned to victims of a 2016 hack at the crypto exchange Bitfinex.
Sector watchers are also waiting to see if other digital tokens will be added to the reserve, which is possible according to the executive order.
Trump has said that bitcoin’s nearest rival, ether, and three other tokens – XRP, Solana, and Cardano – could be added.
Reason to copy gold reserve?
Critics of the US Bitcoin reserve point out that, unlike gold, cryptocurrencies are risky assets with no intrinsic value.
However, Sacks believes that by storing Bitcoin over time, the government would protect itself from the cryptocurrency’s massive short-term volatility.
Meanwhile, Stephane Ifrah, an investment director at crypto platform Coinhouse, said that bitcoin, like gold, can profit from its rarity thanks to a limited 21 million tokens.
An advantage of the Bitcoin reserve is its transparency. The level of tokens will be known at all times, unlike the amount of gold placed in Fort Knox.
Additionally, with the bitcoin reserve, “we’re dealing with a rare asset that’s much more suited to today’s world”, Ifrah told AFP.
Prominent cryptocurrency critic Molly White believes the “true reason” for the reserve “is a way to drive interest in the crypto industry”, which could financially benefit investors.
Some have accused Trump of showing a conflict of interest, having vowed ahead of being elected to make the United States the “bitcoin and cryptocurrency capital of the world”.
The Financial Times reported that Trump earned $350 million from launching a meme coin, $TRUMP, to coincide with his inauguration.
The Wall Street Journal reported that the Trump family discussed acquiring a possible stake in the Binance platform, a report denied by the crypto exchange’s founder.
Other country plans
Brazil is also considering creating a cryptocurrency reserve, an idea recently ruled out by the Swiss central bank.
Governments worldwide are participating in cryptocurrency activity, notably by selling digital assets seized in court cases, as was the case in Germany last year with 50,000 bitcoins.
El Salvador made bitcoin one of its official currencies, but it reversed the decision this year due to a lack of citizen take-up.
Bhutan holds nearly $900 million worth of bitcoin, equivalent to almost 30 percent of the kingdom’s gross domestic product.
