Bitcoin prices have witnessed a remarkable upward trend this year, with a significant portion attributed to President-elect Donald Trump's messaging regarding creating a crypto-friendly administration. This includes plans to accumulate the volatile digital currency. At a July conference, Trump emphasized the importance of holding onto the country's bitcoin holdings, stating that it would create a permanent national asset beneficial to all Americans and position the US as a leader in the global cryptocurrency space. Some are advocating for the upcoming administration to take it a step further by establishing a bitcoin strategic reserve, arguing that building up the country's cryptocurrency assets could aid in reducing the national debt.

Unraveling Trump's Crypto Stockpile Plans and Its Implications

How a Bitcoin Stockpile Would Work

According to crypto tracking firm Arkham Intelligence, the United States already owns nearly $20 billion worth of bitcoin obtained through legal seizures. Federal officials occasionally sell off the cryptocurrency, but Trump has shown interest in halting these future sales to create a "core" stockpile. "For too long, our government has violated the cardinal rule that every bitcoiner knows by heart: Never sell your bitcoin," Trump said in July. This year, bitcoin's price has surged by more than 100%. By avoiding future selloffs, the US can help maintain high bitcoin prices, benefiting current investors. "If you constrain supply in the overall, real-time market, then it does help to not suppress the price," said Seoyoung Kim, author of "DeFi For Dummies" and associate professor of finance at Santa Clara University.

The Case for a Bitcoin Strategic Reserve

Some believe the government should do more than just hold onto its current crypto and are pushing for a bitcoin strategic reserve similar to the reserves of gold and oil held by the US government. Republican Sen. Cynthia Lummis of Wyoming introduced a bill earlier this year that would have the country acquire 1 million bitcoin (about 5% of outstanding tokens) over time and hold it for at least 20 years. To fund the purchase, the government would revalue about $11 billion worth of gold certificates on the Federal Reserve's balance sheets. Lummis argued that establishing a bitcoin reserve could help the US reduce its $36 trillion national debt and strengthen the US dollar. "While there may be short-term volatility, over the long term a bitcoin reserve like this will serve as an important and stable store of value," Lummis wrote in a letter published in the Wall Street Journal. Trump has also suggested that a bitcoin reserve would enhance the US's competitiveness in the cryptocurrency space. "We're going to do something great with crypto because we don't want China or anybody else − and not just China, but others are embracing it − and we want to be the head," Trump told CNBC earlier this month.

Other Countries' Bitcoin Holdings

As of Thursday afternoon, other countries with significant bitcoin holdings include China ($18.5 billion), the United Kingdom ($6 billion), Ukraine ($4.5 billion), Bhutan ($1 billion), and El Salvador ($582 million), according to data site BitcoinTreasuries. However, some cryptocurrency experts believe the US doesn't need a strategic reserve to remain competitive. "I would rather see regulatory clarity around all digital assets moving forward. To me, that benefits the United States economy even more than possibly holding a volatile asset in reserve," said Michele Neitz, visiting professor at the University of San Francisco and founding director of the Center for Law, Tech, and Social Good.

Risks Associated with a Federal Bitcoin Reserve

Owen Lau, a senior analyst at Oppenheimer & Co., stated that creating a stockpile would be straightforward for the president; the government would just stop selling off its bitcoin. Funding a strategic reserve, however, would likely require Congress' approval, and he believes the likelihood of that happening is low. "I just have not heard enough support for creating something like that," he said. "Taking (the idea of a stockpile) a step further to actively buy and sell bitcoin would be quite risky and harder to justify to the public." There are concerns about crypto wallets being vulnerable to cyber attacks and bitcoin's price falling. Although the digital currency is hovering near record highs, it has experienced significant drops in the past, such as falling more than 70% between November 2021 and November 2022. "If bitcoin goes up, you benefit from it. If bitcoin goes down, the taxpayer will lose value on that trade," Lau said. A Barclays analysis reported that funding a bitcoin strategic reserve would likely require the issuance of new Treasury debt, according to Reuters. The bank suspects such a plan would "face stiff resistance from the Fed." When asked about a potential bitcoin reserve at a Wednesday press conference, Fed Chair Jerome Powell said the central bank is not looking to hold bitcoin. "We're not allowed to own bitcoin. The Federal Reserve Act says what we can own, and we're not looking for a law change," Powell said. "That's the kind of thing for Congress to consider, but we are not looking for a law change at the Fed."