What Would Be The Point Of A ‘Strategic Bitcoin Reserve’? | Global News Avenue

President-elect Donald Trump has been promoting the idea of ​​creating a “National Strategic Bitcoin Reserve,” but the purpose of such an agency remains unclear.

Bitcoin price (Bitcoin USDBitcoin prices surged to an all-time high this week, briefly topping the $108,000 mark, after President-elect Donald Trump reiterated his campaign proposal that the government formally hold a certain amount of the popular cryptocurrency.

Although Bitcoin quickly reversed course after this week’s Federal Reserve meeting, the idea of ​​reserves is gathering some momentum. It has also raised skepticism among some economists, who question the purpose of establishing a strategic reserve of volatile speculative assets.

Trump first proposed the idea at a Bitcoin conference in Nashville in July. At the time, he said the cryptocurrency seized by the government in criminal proceedings would serve as the core of the “National Strategic Bitcoin Reserve” and that his policy would be to never sell it. According to BitcoinTreasuries, a website that tracks cryptocurrency ownership, the United States owns 198,000 Bitcoins worth $21 billion.

The supply of Bitcoin is capped at 21 million19.79 million of which are already in circulation.

What other strategic reserves does the United States possess?

This idea echoes the Strategic Petroleum Reserve. The reserve was established after the 1975 oil embargo against the United States, which caused oil shortages and wreaked havoc on the economy. The United States stores as much as 727 million barrels of oil in underground caverns for emergency use. And, like any good trader, the government seeks to sell oil reserves when prices are high, thus driving prices down, and to replenish oil when prices are low.

The idea of ​​creating an equivalent government Bitcoin reserve has gained growing support as cryptocurrency investors gain influence in Washington. In July, Republican Senator Cynthia Lummis of Wyoming introduced a bill that would require the government to purchase 1 million Bitcoins over five years as a “hedge against economic uncertainty and currency instability.” Instrument,” similar to gold bullion held by the Federal Reserve.

The case of Bitcoin strategic reserve

Tyler Cowen, an economics professor at George Mason University and a Bloomberg columnist, wrote in July that the United States’ purchase of Bitcoin will strengthen the U.S. dollar’s ​​status as the world’s reserve currency and consolidate the United States’ leadership position in the global financial system.

Padhraic Garvey, head of research for the Americas at ING, told Investopedia that there are several possible reasons for building cryptocurrency reserves. By exerting some control over the Bitcoin supply, Trump may seek to prevent Bitcoin from falling into the hands of bad actors. He also said that Trump may aim to prevent other countries from using Bitcoin as an alternative to the U.S. dollar.

The Case Against Bitcoin Strategic Reserve

But the idea of ​​a cryptocurrency reserve also raises skepticism among experts. Unlike oil, Bitcoin is not critical to the functioning of the economy and cannot be converted into fuel for tanks and fighter jets during a national emergency. While government purchases of Bitcoin can help cryptocurrency investors by driving up prices, the benefits to the economy are harder to discern.

“It’s unclear what the cryptocurrency reserves will be used for, other than ensuring that the United States has sufficient leverage over them,” Garvey said.

The reserve may also pose economic risks. Ramaa Vasudevan, an economics professor at Colorado State University, told Investopedia via email that establishing reserves would commit the state and taxpayers to supporting Bitcoin, a risky financial asset.

“The fund will provide assurance to Bitcoin speculators that when a crash occurs, the state will deploy the fund to come to the rescue,” she said.