Strategic Bitcoin Reserve: What It Is and How It Works
In July 2024, Senator Cynthia Lummis introduced the BITCOIN Act, the first U.S. bill proposing a Strategic Bitcoin Reserve. This guide delves into what the reserve is and how it would work in practice.
What Is The Strategic Bitcoin Reserve (SBR)?
The Strategic Bitcoin Reserve (SBR) is a concept that centers on the idea of the United States holding Bitcoin as part of its national financial assets. This reserve would be managed by the U.S. government, not just as a hedge against inflation, but as a way to elevate the nation’s economic and geopolitical standing. Similar to the strategic petroleum reserve, the SBR would aim to accumulate Bitcoin over a period of time, ensuring that the U.S. has a substantial stake in the digital asset, a move that could significantly influence both the global economy and the financial future of the country.
Bitcoin has gained traction as a decentralized currency working also as a store of value, in a better way than gold (sorry Peter Schiff). It works outside the control of central banks, offering protection against inflation and currency devaluation. The SBR would act as a safeguard, both protecting against economic instability and strengthening national security in a world where the role of digital assets is increasingly critical.
How The Strategic Bitcoin Reserve Works
The SBR’s basic operation would involve the U.S. government purchasing Bitcoin over a set period, accumulating a substantial amount, and holding it in secure, self-custodied locations. One proposal suggests that the U.S. Treasury would acquire 1 million Bitcoin (5% of the total supply) over a period of 5 years, which would be worth over $101.88 billion at current market prices. The goal would be to use Bitcoin as a strategic asset, much like the way the U.S. uses its reserves of oil or gold.
Once acquired, the Bitcoin would be held for an extended period, with plans to keep it for at least 20 years, with the specific intention of paying down the national debt.
The Bitcoin would not be sold or traded on the market, adhering to the cardinal rule of Bitcoin: “never sell your Bitcoin.”
This long-term strategy could not only provide stability to the U.S. economy but also potentially position the country as a dominant force in the global cryptocurrency market.
Additionally, the U.S. government would not be alone in this strategy. Other nations, including countries like El Salvador, have already adopted Bitcoin as part of their financial systems. The establishment of an SBR would place the U.S. in a stronger position relative to those nations, asserting the nation’s dominance in the digital finance era.
Trump’s Vision On The Bitcoin Strategic Reserve
President Donald Trump has also shared his vision regarding Bitcoin’s potential for the United States. During his speech at the Bitcoin 2024 conference in Nashville, he laid out a bold plan that would make the U.S. the world’s leading Bitcoin mining powerhouse. His proposal centers around making the U.S. the country with the lowest energy and electricity costs, which would, in turn, allow it to dominate the Bitcoin mining industry.
Trump’s idea is to leverage the country’s energy resources, particularly natural gas, to produce cheap electricity, making Bitcoin mining more efficient and less costly. He emphasized that America could become the undisputed leader in Bitcoin mining, securing financial dominance in the process. In his vision, Bitcoin and cryptocurrencies would play a central role in economic growth, increasing the nation’s global financial influence.
In his speech, Trump also pointed out that the U.S. government already holds nearly 210,000 Bitcoin, or about 1% of the total Bitcoin supply. However, he criticized past administrations for violating the “cardinal rule” of Bitcoin: never selling it. Trump promised that if he were re-elected, his administration would adopt a policy of retaining 100% of the Bitcoin the U.S. government currently holds and will acquire in the future, forming the core of the nation’s Strategic National Bitcoin stockpile.
The BITCOIN Act
The BITCOIN Act, proposed by Senator Cynthia Lummis, represents one of the most ambitious legislative efforts to integrate Bitcoin into the U.S. government’s financial framework. As said, the bill outlines plans for the U.S. Treasury to purchase 1 million Bitcoin over the course of five years, making it a strategic reserve asset. The value of this acquisition could exceed $101.88 billion at current market rates, and it would be used specifically to stabilize the U.S. dollar and counteract inflation.
WE ARE GOING TO BUILD A STRATEGIC BITCOIN RESERVE 🇺🇸 🇺🇸 🇺🇸
— Senator Cynthia Lummis (@SenLummis) November 6, 2024
Lummis has been a strong advocate for Bitcoin in Congress, arguing that the U.S. needs to act swiftly to maintain its financial competitiveness and sovereignty in the face of growing global interest in digital currencies. She envisions Bitcoin as a potential solution to the nation’s $35 trillion debt, believing it could serve as an inflation-resistant asset that would help address long-term fiscal challenges.
The BITCOIN Act also aligns with Trump’s vision of a stronger Bitcoin presence in the U.S. economy. While it’s uncertain whether the bill will pass before the 2024 elections, the growing political interest in Bitcoin suggests a shift in how lawmakers view cryptocurrency, with Bitcoin becoming an increasingly prominent issue in American politics.
By legitimizing Bitcoin as a reserve asset, the U.S. would not only bolster its financial stability but also send a powerful message to the rest of the world: America is embracing the future of money, and it’s ready to lead the way.
Criticism of the Strategic Bitcoin Reserve
While many Bitcoin enthusiasts support the idea of a Strategic Bitcoin Reserve (SBR), not everyone is on board. Nic Carter, a prominent Bitcoin investor and researcher, strongly opposes proposals like Senator Cynthia Lummis’ BITCOIN Act, which calls for the U.S. government to acquire 1 million Bitcoin over five years.
Carter distinguishes between holding Bitcoin as a passive stockpile and actively acquiring it as part of a broader economic strategy. He supports the U.S. keeping the Bitcoin it already holds but rejects the idea of purchasing new Bitcoin. For Carter, introducing Bitcoin as an active monetary asset risks undermining the dollar’s dominance. Unlike countries like Russia or Iran, the U.S. has no need to hedge against currency seizing, as it is the issuer of the dollar.
Carter argues that Bitcoin in a government reserve could signal a lack of confidence in the dollar-based system, creating uncertainty in global markets. The dollar’s status as the world’s reserve currency is backed by America’s economic strength, military influence, and deep financial markets. Acquiring Bitcoin might raise concerns about the future of the dollar, potentially destabilizing global finance.
In his view, a Bitcoin reserve linked to the U.S. dollar would confuse markets and undermine the stability the U.S. dollar currently provides. While Carter isn’t against Bitcoin as an asset, he believes that the government should stay out of the business of directly using it to influence the monetary system.
The concept of establishing strategic Bitcoin reserves is gaining traction among various nations, each motivated by unique economic and geopolitical factors. Here’s an overview of some countries, excluding the United States, that are exploring or have already implemented Bitcoin reserves.
Countries Exploring or Establishing Bitcoin Reserves
The concept of creating a strategic Bitcoin reserves is gaining traction among various nations, each motivated by unique economic and geopolitical factors. Here’s an overview of some countries, excluding the United States, that are exploring or have already implemented Bitcoin reserves.
Brazil
Brazil is moving forward with legislation to create a sovereign Bitcoin reserve, known as the Sovereign Strategic Bitcoin Reserve (RESBit). This initiative is driven by Brazil's high cryptocurrency adoption rates and aims to bolster the country's financial stability through Bitcoin holdings.
Russia
A proposal has been put forth by a member of the Russian parliament to consider Bitcoin as a reserve asset. This move aligns with Russia's strategy to mitigate the impact of international sanctions and diversify its financial assets. The Central Bank of Russia is also exploring cross-border payments using cryptocurrency13.
El Salvador
El Salvador made headlines as the first country to adopt Bitcoin as legal tender in September 2021. The government has acquired approximately 5,944 Bitcoins, valued at over $560 million, as part of its national strategy.
Bhutan
Bhutan has accumulated around 12,218 Bitcoins, valued at approximately $1.2 billion. This wealth comes primarily from its state-owned investment arm's Bitcoin mining operations, leveraging the country's favorable geographic conditions for energy production.
United Kingdom
The UK government reportedly holds about 61,245 Bitcoins, worth over $6 billion. This accumulation reflects a broader trend among nations seeking to diversify their reserves with cryptocurrencies.
China
While not yet confirmed, there are speculations that China may consider establishing a Bitcoin reserve in response to global trends and competition in digital assets. Industry leaders suggest that it’s "inevitable" for China to adopt such measures given the rising significance of Bitcoin as a hard asset.
Other nations
Reports indicate that at least 13 nations are currently holding Bitcoin as part of their reserves, reflecting a growing acceptance of digital currencies in national financial strategies. Countries in the Gulf Cooperation Council (GCC) are also reportedly exploring similar strategies to incorporate cryptocurrencies into their economic frameworks.
What Will Happen to Bitcoin’s Price with a Strategic Bitcoin Reserve?
The creation of a Strategic Bitcoin Reserve could have a significant impact on Bitcoin’s price. Given the U.S.’s pivotal role in the global economy, its decision to stockpile large amounts of Bitcoin would likely trigger similar moves by other nations. Countries like Russia, China, and even smaller nations could follow suit, setting off what some have called a “Bitcoin arms race.” The idea of governments buying Bitcoin in bulk would likely drive demand through the roof.
Increased government adoption would show that Bitcoin is gaining recognition as a legitimate store of value and a more effective hedge against inflation than traditional assets like gold. As the U.S. and other nations build their reserves, Bitcoin’s scarcity—capped at 21 million coins—could cause its price to rise, especially if demand outpaces supply. A surge in institutional and government buying could push Bitcoin’s price to new heights, creating an unprecedented buying frenzy.
Moreover, the SBR would likely speed up the process of mainstream adoption. As more nations and institutions join the Bitcoin market, it would solidify Bitcoin’s position as a global asset. If states like Texas and other regional players test the waters and demonstrate how a Bitcoin reserve can work, it could lay the groundwork for federal action, amplifying Bitcoin’s use case and driving its value even further.
In short, the creation of a Strategic Bitcoin Reserve could trigger a price surge, not just because of government buying, but because it would set in motion a chain of events that accelerates Bitcoin’s adoption across the globe.
States Leading the Charge in Strategic Bitcoin Reserves
In a growing trend, U.S. states are taking the lead in adopting Bitcoin as a strategic asset, potentially outpacing the federal government’s actions in this area. Some states are preparing to introduce legislation that would allow them to stockpile Bitcoin, positioning it as a key asset in their financial strategies.
This movement reflects a strong interest at the state level in securing Bitcoin reserves, with many states seeking to enhance their financial security by holding Bitcoin as a hedge against inflation and economic uncertainty. As the federal government has been slow to take action, state governments are seizing the opportunity to build their own Bitcoin reserves.
The federal government’s reluctance is partly due to the stance of the Federal Reserve, which has emphasized that it does not have the authority to hold Bitcoin. Meanwhile, President-elect Donald Trump has voiced support for stockpiling Bitcoin at the federal level. However, with state-level initiatives gaining traction, states may not only create a reserve independently but could also set a precedent for federal policy, encouraging a shift in how Bitcoin is integrated into the broader financial system.
As states like Texas and Wyoming lead the charge, a decentralized approach to Bitcoin reserves could emerge, with various states independently holding and managing Bitcoin as a strategic asset. This decentralized approach could accelerate the mainstream adoption of Bitcoin as a legitimate store of value, distancing it from the control of centralized institutions like the Fed and further supporting its role as a hedge against economic instability.
Pros and Cons of a Strategic Bitcoin Reserve
The idea of a Strategic Bitcoin Reserve has stirred up a lively debate, and the arguments on both sides reveal a complex balance of ideals and practicality. On one hand, proponents see it as a way to push Bitcoin into the mainstream. They argue that if governments hold Bitcoin, it sends a strong signal about its legitimacy as a global financial asset. Over time, this could accelerate the transition to a system where Bitcoin is central to the global economy, reducing reliance on fiat currencies and eroding centralized monetary control.
However, critics are quick to highlight the ethical dilemma. Should taxpayer money be used to buy Bitcoin? Many libertarians reject the idea outright, viewing taxation as coercive by nature. To them, it seems contradictory to rely on state power to fund a system designed to function independently of state influence.
There’s also the concern that granting governments control over Bitcoin—even with good intentions—might backfire. Instead of decentralizing power, it could inadvertently entrench state control in the very system Bitcoin was meant to challenge. The risk is that the state could use its holdings to manipulate the market or influence the ecosystem in ways that undermine Bitcoin’s core principles.
Still, some see a potential silver lining in decentralizing power across smaller governing bodies, such as states within the U.S. This could reduce federal dominance while moving toward a more localized and distributed economic model. But this too raises questions about whether short-term compromises will lead to the desired long-term outcomes.
In the end, the Strategic Bitcoin Reserve is a double-edged sword. It promises significant benefits but carries risks that challenge the very ethos of Bitcoin itself: financial sovereignty and independence from centralized control.
| Pros | Cons |
|---|---|
| ✅ Legitimizes Bitcoin as a global financial asset | ❌ May contradict Bitcoin’s ethos of decentralization |
| ✅ Could accelerate Bitcoin adoption worldwide | ❌ Ethical concerns over using taxpayer money to buy BTC |
| ✅ Reduces dependence on fiat currencies | ❌ Risk of government manipulation of Bitcoin markets |
| ✅ Encourages other nations to adopt Bitcoin | ❌ May unintentionally strengthen state control |
| ✅ Strengthens economic resilience for the U.S. | ❌ Potential backlash from libertarian and anti-tax groups |
| ✅ Aligns with the push for digital financial systems | |
| ✅ Enhances geopolitical competitiveness |
Bottom Line
The creation of a U.S. Strategic Bitcoin Reserve (SBR) could significantly impact Bitcoin’s price. As the U.S. stockpiles Bitcoin, it would likely spark similar moves from other nations, creating a surge in global demand. Bitcoin’s capped supply means that increased demand could push prices higher, potentially leading to an unprecedented rise in its value.
By positioning Bitcoin as a strategic asset, the U.S. would strengthen its economic resilience, signaling to other countries that Bitcoin is a legitimate store of value and hedge against inflation. This growing recognition could accelerate Bitcoin’s mainstream adoption, with governments and institutions across the globe rushing to build their reserves.
While concerns about government control and taxpayer funding remain, supporters argue that Bitcoin’s decentralized nature would help safeguard its core values. In the long run, the U.S. Strategic Bitcoin Reserve could not only enhance Bitcoin’s role in the global economy but also drive its price to new heights, making it a cornerstone of modern financial systems.