How will the US BTC strategic reserve arrive? Several path deductions

Although Trump did not sign any cryptocurrency-related executive orders after officially "taking office" today, the market is still eagerly looking forward to the establishment of a BTC strategic reserve in the United States, and he is personally optimistic about this (but the path may not be the same as everyone imagined) ).

This possibility was raised by Trump last summer and triggered endless imagination in the cryptocurrency market. Especially within 100 days after Trump officially "came to power" today, the market once predicted that the possibility of this matter coming true was greater than 50%. (Polymarket bets on data, which fell back to 36% at the time of publication).

Many skeptics have questioned the stability and security of BTC, but supporters believe that BTC reserves can strengthen the dollar and fight inflation. Commentators are divided over whether Trump could use executive power to create reserves and directly direct the Treasury to spend money, or whether an act of Congress would be required.

Next, I will take readers to look at the potential implementation paths of relevant reserves.

1. What is a strategic reserve?

Strategic reserves are reserves of key resources that can be quickly mobilized and used by the country in response to special circumstances such as emergencies, emergencies or wars. The most famous example is the U.S. Strategic Petroleum Reserve, the world's largest national oil reserve system (700 million barrels), created by an act of Congress in 1975 in response to the impact of the 1973-1974 Arab oil embargo on the U.S. economy. The U.S. has used the stockpile during wars or when hurricanes hit Gulf Coast oil infrastructure and the war in Ukraine. The United States also has strategic reserves of gold, minerals, grain, military supplies, etc.

2. How will the U.S. BTC strategic reserve operate?

The first question, can Trump create a BTC strategic reserve through executive power?

——Initial source

The initial source of the reserve is most likely BTC confiscated from criminals by the US government. Currently, there are approximately 200,000 BTC, worth approximately US$21 billion at current prices. Trump proposed in a speech in July that these BTC could serve as a starting point for the reserve, but it is unclear how they will be moved away from the Department of Justice.

Trump has not made it clear whether the government will increase reserves by buying more BTC on the open market.

——Funding source 1: ESF

Some believe Trump could use the Treasury Department's Exchange Stabilization Fund, the ESF, to create reserves via executive order. The fund can be used to buy or sell foreign currencies and may also be used to hold BTC. This option is more realistic and can be implemented quickly. The use of ESF within a certain range does not need to be approved by Congress one by one and has greater flexibility. The fund currently has more than 200 billion U.S. dollars and is mainly used to stabilize the U.S. dollar exchange rate and support international currency flows.

——Funding source 2: issuing new bonds

In addition, there is also a view that the government may issue new debt to purchase, but I personally think it is unlikely. Because the issuance of U.S. government debt requires congressional approval, and the U.S. now has debt ceilings several times a year, it is unlikely that both parties will agree to increase debt to buy BTC. The U.S. has too many spending tasks with higher priorities than BTC, such as pensions, medical insurance, War... However, in history, the United States has used national debt financing to purchase gold to increase its reserves, so there is a glimmer of hope here.

——Funding source 3: Selling gold

Finally, some supporters of BTC reserves imagine that the United States could sell part of its gold reserves and use the proceeds to purchase BTC. The biggest problem here is that the sale of gold by the United States may cause violent fluctuations in the global gold market, affecting the reserve security of all countries, which may in turn trigger instability in the international financial market, because gold is the collateral of many financial institutions, and it can be affected by every move. whole body. Moreover, the price of gold is relatively stable and as an internationally recognized scarce asset, it has good liquidity. It is not possible to sell gold for BTC. It is best to use both assets as reserves to increase the amount rather than selling them for one exchange. one.

——Funding source 4: Coin financing

In the new era where the U.S. government is struggling with debt and the president is taking the lead in issuing currency for his entire family, the idea can indeed be bigger. It is not impossible for federal government agencies to issue a new digital currency. Because it must be considered that if the U.S. government purchases Bitcoin on a large scale, it may have an intervention effect on the Bitcoin market, push up prices and form a bubble. After the market bubble bursts, it may cause the price of Bitcoin to plummet, and the government and many investors who are halfway there will face huge losses.

Therefore, the government has launched a project that allows everyone to invest Bitcoin or WBTC into an on-chain contract address, which corresponds to the issuance of a governance token but does not correspond to the right to redeem. Just like Trump’s $WLFI, this will most likely attract a lot of people. With human participation, the U.S. government can acquire Bitcoin without affecting market prices or incurring additional liabilities, which is the best solution.

——Funding source 5: Create a company similar to MSTR to raise funds

The U.S. government could establish a government-controlled company that would purchase Bitcoin through debt financing or other capital market instruments to provide diversified assets for the U.S. strategic reserve. Similar to $MSTR, it can be financed by issuing bonds, issuing additional equity, and convertible bonds, a three-pronged approach.

There are many cases where the U.S. government controls a company through the Treasury Department or the Federal Reserve. The most typical ones are Freddie Mac and Fannie Mae. Since 2008, these two institutions have actually become "government holding companies" after being rescued by the government, and the government has provided clear guarantees for their debts. As a corporate entity, the company issues bonds or other securities to the capital market for financing, and purchases and guarantees residential mortgage loans. In fact, its purpose is not simply to make profits for shareholders, but more for macroeconomic control - to increase the liquidity of the U.S. housing market and reduce loan interest rates.

The U.S. government provided huge loans to these two companies (U.S. Treasury and Federal Reserve) during the 2008 financial crisis, and became their major shareholders by acquiring their stocks after the crisis.

So you said it’s possible for the government to take a stake in $MSTR or start a similar company of its own? It is not completely impossible. If one day Bitcoin penetrates very deeply into the traditional financial system, it will be as important as the home mortgage assets of the year and its stability needs to be maintained.

——Potential purchase scale: 1 million units

Currently, the most concrete BTC reserve proposal circulating in Washington comes from pro-crypto Republican Senator Cynthia Lummis. She personally holds 5 BTC, and she proposed a bill in July that has yet to gain traction that would create a reserve run by the Treasury Department.

The bill envisions the Treasury Department creating a program to purchase 200,000 BTC annually over five years until reserves reach 1 million. This will account for approximately 5% of the total global BTC supply (approximately 21 million coins). The Treasury Department will use profits from Federal Reserve bank deposits and gold holdings to fund these purchases. BTC reserves will last at least 20 years.

Loomis' proposal has yet to gain traction in Congress, and its likelihood of implementation remains uncertain.

——Maybe the state level will go first

Another possibility is that the reserve will be established in stages. For example, it may start from one state (perhaps Pennsylvania, Texas, six states in the United States have proposed plans to establish BTC strategic reserves), and the state government can More flexible independent action, viewing BTC as a hedge against fiscal uncertainty or as a tool to attract crypto investment and innovation, before gradually rising to the federal level.

For example, last November, Pennsylvania introduced the "Pennsylvania BTC Strategic Reserve Act," which would authorize the state's Treasury Department to invest 10% of its $7 billion reserve in BTC.

A month later, Texas introduced a similar bill, the Texas Strategic BTC Reserve Act, proposing to establish a special fund in state finances to hold BTC as a financial asset for at least five years. .

——What is WLFI plotting?

Finally, the WLFI (WORLD LIBERTY FINANCIAL) project controlled by the Trump family has recently intensively purchased more than 50 million US dollars in cryptocurrencies with the raised money, including LINK, AAVE, BTC, ETH, ENA, and TRX, and may continue to purchase them in the future. With tens of millions of dollars, it is unclear how this project has any relationship with the potential U.S. strategic reserves. I seriously suspect that $WLFI is testing the possibility of the government selling coins.

3. What are the benefits of BTC reserves?

Since it wants to implement this idea, the Democratic Party must have a logical and self-consistent argument.

Trump’s view is that BTC reserves will help the United States dominate the global BTC market against competition from China.

Other proponents believe that by holding BTC reserves (which they believe will continue to appreciate in the long term), the United States can reduce its deficit without raising taxes, thereby increasing the strength of the dollar. Loomis said her plan would cut the U.S. debt in half within 20 years. "This will help us fight inflation and protect the dollar on the global stage." Some supporters believe that a strong dollar will allow the United States to gain more leverage in games with opponents such as China and Russia.

4. What are the risks of BTC reserves?

Cryptocurrency skeptics believe that unlike most other commodities, BTC has no practical use or intrinsic value and is not critical to the functioning of the U.S. economy. At only 16 years old, BTC is still too young and unstable to assume that its value will continue to rise in the long term. Additionally, cryptocurrency wallets are vulnerable to cyberattacks, and they also noted that given BTC’s volatility, any government purchases or sales could have a disproportionate impact on BTC prices.

5. Summary: I want to do it, but I have no money.

Since Trump's strategic reserve plan obviously has many obstacles, the most important thing is where to find additional money to purchase new reserves? Unless this problem is resolved, the U.S. federal government is unlikely to purchase additional new BTC, but we can fully expect to see state governments take the lead.

More importantly, with the promotion of Trump’s platform and more policy loosening (such as the loosening of major banking services, which is no less beneficial than Bitcoin reserves), the exposure of cryptocurrency has gradually increased, and the adoption rate has increased. Improvement is inevitable, and the United States will eventually accept cryptocurrency on a wider scale.