The possibility of the U.S. establishing a BTC strategic reserve was proposed by Trump last summer, sparking endless speculation in the cryptocurrency market. Especially today, as Trump officially ascends, market predictions suggest a greater than 50% chance of this happening within his first 100 days (based on Polymarket betting data). Despite many skeptics questioning the stability and security of BTC, supporters argue that a BTC reserve could strengthen the dollar and combat inflation. Currently, opinions are divided on whether Trump can use executive power to create the reserve, directly instruct the Treasury to spend, or if Congressional legislation is required.

1. What is a Strategic Reserve?

A strategic reserve refers to a stockpile of critical resources that a country can rapidly mobilize and use during emergencies, unexpected events, or wartime. The most famous example is the U.S. Strategic Petroleum Reserve (SPR), which is the largest national-level oil reserve system in the world, holding about 700 million barrels of oil. It was created by a Congressional act in 1975 in response to the economic impact of the 1973-1974 Arab oil embargo. The U.S. has used this reserve during wartime or when the oil infrastructure along the Gulf Coast was hit by hurricanes, as well as during the Ukraine war. The U.S. also maintains strategic reserves of gold, minerals, food, and military supplies.

2. How Will the U.S. BTC Strategic Reserve Operate?

There are differing opinions among experts about whether Trump can create a BTC strategic reserve using executive power.

— Initial Source

The initial source of the reserve is likely to be BTC confiscated from criminals by the U.S. government. Currently, there are about 200,000 BTC, which would be valued at around $21 billion at current prices. Trump mentioned in a July speech that these BTC could serve as the starting point for the reserve. However, it is unclear how these BTC can be transferred out of the Department of Justice.

Trump has not clarified whether the government will purchase additional BTC from the open market to expand the reserve.

— Funding Source 1: ESF (Exchange Stabilization Fund)

Some believe Trump could use an executive order to tap into the U.S. Treasury’s Exchange Stabilization Fund (ESF) to create the reserve. This fund can be used to buy or sell foreign currencies and may potentially be used to hold BTC. This option is considered more feasible and can be executed quickly, as the ESF’s use within certain limits does not require individual Congressional approval. The ESF has over $200 billion and is primarily used to stabilize the dollar’s exchange rate and support international monetary flows.

— Funding Source 2: Issuing New Debt

Another viewpoint is that the government could issue new debt to buy BTC, though this is less likely. Issuing U.S. government debt requires Congressional approval, and given that the U.S. frequently faces debt ceiling issues, it is unlikely that both parties would agree to incur additional debt to buy BTC. The U.S. has many higher-priority spending obligations, such as pensions, healthcare, and defense. However, historically, the U.S. has used government bonds to purchase gold to increase reserves, leaving a glimmer of possibility in this regard.

— Funding Source 3: Selling Gold

Lastly, some BTC reserve supporters speculate that the U.S. could sell part of its gold reserves and use the proceeds to buy BTC. The biggest problem here is that selling gold could lead to significant volatility in the global gold market, potentially destabilizing the reserves of all countries and causing disruptions in international financial markets. Gold is widely used as collateral by many financial institutions, and any movement in its price could have a ripple effect. Moreover, gold is a stable asset with strong liquidity, and given its role as a globally recognized scarce asset, it’s unlikely that the U.S. would sell gold to replace it with BTC. Ideally, both assets would be maintained and increased as reserves.

— Potential Purchase Scale: 1 Million BTC

Currently, the most concrete BTC reserve proposal circulating in Washington comes from Republican Senator Cynthia Lummis, a supporter of cryptocurrencies. She personally holds 5 BTC and introduced a bill in July (which has not gained much attention) to create a reserve managed by the Treasury Department.

The bill envisions the Treasury creating a program to purchase 200,000 BTC annually over five years until the reserve reaches 1 million BTC. This would represent about 5% of the global BTC supply (approximately 21 million BTC). The Treasury would fund these purchases using profits from Federal Reserve deposits and gold holdings. The BTC reserve would be maintained for at least 20 years.

Lummis’s proposal has not yet gained Congressional attention, and its likelihood of implementation remains uncertain.

— Possibly Starting at the State Level

Another possibility is that the reserve’s creation could be phased, perhaps starting with one state (possibly Pennsylvania or Texas, as six states in the U.S. have already proposed plans to establish BTC strategic reserves). State governments could act more independently and flexibly, using BTC as a hedge against fiscal uncertainty or as a tool to attract crypto investment and innovation, gradually expanding this approach to the federal level.

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

A month later, Texas introduced a similar bill, the “Texas Strategic BTC Reserve Act,” which proposed setting up a special fund within the state Treasury 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 spent over $50 million on various cryptocurrencies, including LINK, AAVE, BTC, ETH, ENA, and TRX, with plans to potentially buy tens of millions of dollars more in the future. The potential connection between this project and the U.S. strategic reserve remains unclear.

3. What Are the Benefits of BTC Reserves?

Since this proposal is being advanced, there must be a logically consistent argument behind it.

Trump’s viewpoint is that BTC reserves would help the U.S. establish dominance in the global BTC market, especially in the face of competition from China.

Other supporters argue that by holding BTC reserves (which they believe will continue to appreciate in the long term), the U.S. could reduce its deficit without raising taxes, thereby strengthening the dollar. Lummis’s plan, for example, suggests that the U.S. debt could be halved within 20 years. “This will help us combat inflation and protect the dollar on the global stage.” Some supporters believe a strong dollar will give the U.S. more leverage in its strategic dealings with rivals like China and Russia.

4. What Are the Risks of BTC Reserves?

Cryptocurrency skeptics point out that, unlike most other commodities, BTC has no practical use or inherent value and is not critical to the functioning of the U.S. economy. BTC has only been around for 16 years, and it is still too young and volatile to assume that its value will continue to rise in the long term. Moreover, cryptocurrency wallets are vulnerable to cyberattacks. They also argue that, given BTC’s volatility, any government purchases or sales could have a disproportionate impact on BTC’s price.

5. Conclusion

Given the many obstacles facing Trump’s strategic reserve plan, the most important issue is how to raise additional funds to purchase new reserves. If this problem is not resolved, the U.S. federal government is unlikely to buy more BTC. However, we may see state governments take the lead in this regard.

More importantly, with Trump’s promotion of the idea and further regulatory relaxations (such as major banking service reforms), along with the increasing exposure of cryptocurrencies, adoption rates are bound to rise. Ultimately, the U.S. will likely accept cryptocurrencies on a much larger scale.

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