The 2024 US elections brought a lot of attention towards cryptocurrencies with Donald Trump painting his identity as a pro-crypto candidate. After the announcement of the US election results, the win of Donald Trump has become a huge highlight in the crypto landscape. You can notice the Trump Bitcoin correlation playing out positively for investors with the price of Bitcoin reaching the all-time peak of $100,000.
As a matter of fact, Trump had urged attendees at the Bitcoin conference in June 2024 to never sell their Bitcoin. Donald Trump also proposed the idea of a national Bitcoin reserve at the same conference. With Trump slated to take office in January 2025, the United States can witness the formation of a national Bitcoin reserve. Let us learn everything about the national Bitcoin reserve that has been grabbing headlines.
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Is the National Bitcoin Reserve Just an Election Promise?
The victory of President-elect Donald Trump in the 2024 elections sparked conversations about the possibilities for integration of cryptocurrency in the country’s economic strategy. During his election campaign, Trump came up with the idea of creating a national Bitcoin reserve and creating a dedicated role in the White House for cryptocurrency. After his win, the crypto industry and investors are waiting for materialization of numerous promises made by Trump in the 2024 campaign.
Some critics of the national strategic Bitcoin reserve have suggested that such a move only aims to cater to the political interests of Trump. As a matter of fact, some experts have suggested that the national Bitcoin reserve can pose economic risks the government and US citizens. It is also important to note that many big players in the crypto industry paid millions for the presidential campaign of Trump. Is the promise of a national Bitcoin reserve merely an election gimmick?
It would be too soon to assume that the idea of a national Bitcoin reserve will fade away after Trump takes office. You must know that Trump has proved his commitment to pro-crypto promises made during his campaign. The Republican candidate has announced that he will form a crypto advisory council with some of the country’s biggest industry experts.
Trump has also appointed pro-crypto lawmakers such as Scott Bessent as the nominee for the Department of the Treasury. He has also appointed venture capitalist David Sacks as the White House AI and crypto advisor. The President-elect has also entrusted David Sacks with the responsibility of creating a legal framework for the crypto space. The decisions taken by Trump after his victory suggest that promises of a national Bitcoin reserve might turn into reality.
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Understanding the Meaning of a Strategic Bitcoin Reserve
The term ‘strategic Bitcoin reserve’ practically explains itself as a stockpile of Bitcoin created with a strategy. Any strategic reserve is a collection of external assets that remains under the supervision of financial authorities. The basic concepts of a national Bitcoin reserve explained in simple words will draw similarities with reserves of gold or oil. Strategic national reserves help in addressing the need to pay balance of payments or influence the exchange rate by intervening in foreign exchange markets.
The national Bitcoin reserve will be almost same as the reserves of gold and foreign currency in central banks. The concept of a strategic Bitcoin reserve will add Bitcoin into a collection of assets present on the balance sheet of the United States. It will aim at diversification of the existing reserves, thereby providing a new direction to the economic policy of US government.
As of now, there is no clear plan for the national Bitcoin reserve project and has caused significant speculation. One of the notable concerns for the Bitcoin reserve is the question about the authority responsible for managing the reserve. Another prominent concern related to the Bitcoin reserve focuses on the method to pay for Bitcoin that will go into the reserve. The US government can purchase Bitcoin by selling off other assets such as bonds and gold, thereby increasing debt.
The reserve will also include Bitcoin seized by the US administration that will add almost 208,000 Bitcoin. Another option for adding Bitcoin to the reserve is expansion of the balance sheet of the Federal Reserve. The ‘printing money’ technique will also serve as one of the alternatives for creation of the national Bitcoin reserve.
Investigating Solid Measures for Creating the National Bitcoin Reserve
The definition of the national Bitcoin reserve and methods to create one showcase that there is no specific plan for the reserve now. One of the proven proposals that can guide the formation of the national Bitcoin reserve has been presented by Republican senator Cynthia Lummis. She is the one responsible for introducing the Bitcoin Act of 2024 in the Senate. The proposal of Cynthia suggests that the Treasury and the Federal Reserve should buy 200,000 Bitcoin annually for five years.
The proposal shows promises of transforming the United States into one of the Bitcoin national reserve countries with 1 million units in their reserve. With 1 million Bitcoin units in a national reserve, the United States will own around 5% of the global Bitcoin supply. In the subsequent stages, the government will maintain the reserve for 20 years. The proposal highlights that the reserve will work as a hedge against depreciation in the value of the US Dollar. It will serve as a valuable initiative for supporting future debt issues and strengthening national balance sheets.
The Bitcoin Act of 2024 proposes two different mechanisms to buy Bitcoin. In the first method, profits from the US central banking system will help in buying Bitcoin. The second method in the proposal suggests that central banks in each state will reevaluate their gold certificates. It will help in obtaining a better understanding of the value of gold in the existing market. Subsequently, the state central banks must direct the surplus to the Treasury that will use the funds to purchase Bitcoin.
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Learning from Examples of Other Countries
US citizens, investors, lawmakers and analysts might have many apprehensions about introduction of a national Bitcoin reserve. On the other hand, examples of other countries that have successfully created Bitcoin reserves can serve as the ideal guidance. You might have queries like ‘How long does national Bitcoin ATM take?’ after the institution of a Bitcoin reserve. The example of El Salvador can help you find the answers for many of your doubts regarding a Bitcoin reserve.
El Salvador is the first country that adopted Bitcoin as legal tender in 2021. It has accumulated around 5,900 Bitcoin which amounts to over $560 million. The Kingdom of Bhutan is the next big player with a Bitcoin reserve that has more than 12,000 Bitcoin. The United Kingdom is also another leader in collecting Bitcoin with a reserve that has more than $61,000 Bitcoin.
China is also one of the biggest Bitcoin holders without any official reserve. The country’s approach to expanding their Bitcoin reserve can be adopted in the United States. The government of China confiscated around 194,000 Bitcoin from a Ponzi scheme in 2020. The US government can also follow in the footsteps of China and use regulatory frameworks to crackdown on malicious agencies. It will help in grabbing large amounts of Bitcoin for the strategic national reserve of the country.
Exploring the Impact of the Bitcoin Reserve on the US Government
You might have doubts regarding the impact of the national Bitcoin reserve on the US government. It is important to learn about implications of the reserve for the risk profile of US Treasury and government debt. The national strategic Bitcoin reserve will help in serving as a hedge against inflation. The Treasury can use it as a reliable tool for diversification of their reserve strategy. However, the price volatility of Bitcoin calls for establishing strong risk management strategies to find a way through price swings.
The national Bitcoin reserve will also have an impact on the US government debt. Credit rating agencies will have to evaluate the risk profile of the US Treasury once again. Bitcoin may not perform as effectively as gold on the criteria of credit rating such as stability, safety and liquidity. The depreciation in credit ratings can result in higher yields on Treasury bonds thereby increasing the costs of debt. US debt instruments that have been traditionally considered as safe-haven assets are likely to face scrutiny by conservative investors.
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Final Thoughts
The promise of a pro-crypto government might have brought Donald Trump back into power in the 2024 Presidential elections. As the President-elect, Donald Trump has showed that he intends to keep his promises of creating a national Bitcoin reserve. The proposal for the national Bitcoin reserve explained that it would accumulate 1 million Bitcoin in five years.
Donald Trump believes that the national Bitcoin reserve will help the US government stay ahead of China. People who favor the Bitcoin reserve proposal suggest that it can reduce US national debt without increasing taxes. On the other hand, critics suggest that government involvement with Bitcoin can cause a chain reaction of purchasing Bitcoin. The chain reactions may ultimately lead to a massive crash in the value of dollar. Learn more about the national Bitcoin reserve and its implications for the United States now.
*Disclaimer: The article should not be taken as, and is not intended to provide any investment advice. Claims made in this article do not constitute investment advice and should not be taken as such. 101 Blockchains shall not be responsible for any loss sustained by any person who relies on this article. Do your own research!
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