What is Bitcoin Strategic Reserve?

At the Bitcoin2024 conference held in July 2024, Trump promised in his speech to “never sell” the Bitcoin held by the government and any future acquisitions, insisting on the concept of a “strategic Bitcoin reserve.”

Source: aljazeera

On July 31, 2024, Wyoming Senator Cynthia Lummis introduced the “U.S. Bitcoin Strategic Reserve Act,” proposing to accumulate 1 million Bitcoins (5% of total supply) over the next five years through taxes, fees, and donations as a strategic reserve, to be held for at least 20 years. The proceeds from sales would be used to acquire more Bitcoin or pay off federal debt. The bill aims to strengthen the U.S. leadership in financial innovation and provide a hedge against economic volatility. It is currently under review by the Senate Banking Committee and may be signed into law by President Trump.

Source: lummis.senate.gov

The US Government Currently Holds Bitcoin

The US government is currently one of the largest holders of Bitcoin globally. Over the years, the US government has seized a large amount of Bitcoin through crackdowns on cybercrime, money laundering organizations, and dark web activities. Most of these Bitcoins come from law enforcement actions, highlighting the government’s significant involvement in the cryptocurrency space. According to data from bitcoinreasuries.net, this amounts to about 200,000 tokens, with an estimated value of approximately $21 billion at current prices. (As of December 5, 2024, the price of 1 BTC = $100,000)

Source: bbc

Source: bitcointreasuries

Impact of the Bill on the Crypto Market

1. Enhancing Bitcoin’s Legitimacy and Increasing Market Value

If the bill is passed, the government will officially recognize Bitcoin as a strategic asset. This would encourage more institutions and countries, especially large corporations, pension funds, and insurance companies from traditional industries, to adopt Bitcoin as a reserve asset, leading to continued market value growth.

Additionally, Bitcoin’s appreciation could drive the prices of other major crypto assets, such as Ethereum, Solana, and Avalanche, further boosting the overall market’s investment returns.

2. Promoting Deep Integration Between the Crypto Market and Traditional Financial Systems

This bill is expected to facilitate deeper integration between the crypto market and traditional financial systems, driving widespread adoption of cryptocurrency payments. Traditional financial products, such as funds, bonds, and stocks, may gradually support crypto assets, offering more financial support and diversified investment options. This would help crypto assets gradually integrate into mainstream investment markets and foster connections with real-world assets, such as real estate, commodities, and securities, leading to innovations like crypto asset securitization and crypto asset insurance.

3. Enhancing Global Cooperation and Cross-Border Regulation

Global cooperation in the crypto market will become more efficient with unified regulatory standards and increased transparency. This will not only facilitate cross-border transactions but also promote regulatory coordination and collaboration between different countries and regions, further driving market integration.

At the same time, the openness of global crypto regulation will strengthen, with more countries supporting cryptocurrency-related entrepreneurship and innovation, contributing to the industry’s sustainable development.

4. Promoting Interoperability Between Digital Currencies and Fiat Currencies

Once Bitcoin is recognized as a strategic asset, it could encourage governments and central banks to explore and launch more digital currency projects (CBDCs), promoting interoperability between fiat currencies and cryptocurrencies. This interoperability would increase the liquidity of cryptocurrencies, allowing them to better integrate into global payment and economic systems.

Speculated Timeline for the Bill’s Implementation

Bitcoin as a strategic reserve is a significant policy issue that cannot be quickly executed by the US president alone. After Trump’s inauguration, implementing the Bitcoin strategic reserve plan would require policy research and feasibility assessments through two potential routes:

Executive Order (Earliest in the second half of 2025)
Trump could directly purchase Bitcoin through an executive order, bypassing Congress and the Federal Reserve. However, this path lacks long-term stability and could be restricted by Congress or altered by future presidents.

Legislative Path (Earliest in the second half of 2026)
The legislative route is more complex and would require evaluation by the cryptocurrency committee, submission to Congress, and final approval by the president. This process might take longer and could be completed as late as the second half of 2026.

The following key dates could impact the market, and investors should focus on these:

January 20, 2025: Trump’s Inauguration
After officially taking office, Trump will begin implementing related policies, and the market should pay attention to the first executive orders.

Mid-2025: Completion of Policy Research
The cryptocurrency committee is expected to complete the feasibility study for the Bitcoin reserve policy in the first half of 2025, supporting subsequent actions.

Second Half of 2025 to Early 2026: Rule Formulation and Congressional Review
After the executive order is signed, the Treasury and other departments will start formulating specific rules, though there may be resistance from Congress during the implementation process.

While implementing the “Bitcoin Strategic Reserve” may take some time, it provides an important reference for central banks and financial institutions globally, potentially leading to new developments in the crypto market.

US States

Currently, at least 10 states are exploring similar legislation.

1. Pennsylvania

On October 23, 2024, the Pennsylvania House of Representatives passed Bill 2481, known as the “Bitcoin Rights Act,” with a vote of 176 to 26. This law positions Pennsylvania as a leader in digital asset regulation, ensuring that individuals and businesses have the right to store digital assets independently, operate blockchain nodes, and trade without municipal restrictions. The bill, introduced by Representative Mike Cabell, has bipartisan support.

On November 14, 2024, Republican Representatives Mike Cabell and Aaron Kaufer introduced HB 2664, the “Strategic Bitcoin Reserve Act.”

Once passed, this bill will allow Pennsylvania’s state treasurer to allocate 10% of the state’s general fund, emergency fund, and investment fund to Bitcoin and cryptocurrency exchange-traded products (ETPs).

According to the bill’s legislative memorandum, this could mean up to $970 million in Bitcoin investments, aiming to leverage Bitcoin’s potential as a hedge against inflation and a long-term growth asset.

Source: forbes

2. Texas

In December, Texas Representative Giovanni Capriglione introduced a bill calling for establishing a Bitcoin reserve in the state. As the second-largest state in the U.S. by both population and area, and the eighth-largest economy in the world, Texas is home to the largest concentration of Bitcoin miners in the U.S., providing strong support for the bill. Lawmakers plan to accumulate Bitcoin reserves for the state government by allowing Bitcoin miners to pay taxes in Bitcoin. This proposal is not only a state-level initiative but could also serve as a testing ground for a national Bitcoin reserve in the U.S.

3. Ohio

On December 17, Ohio Representative Derek Merrin introduced a bill to establish a strategic Bitcoin reserve in the state. The “Ohio Bitcoin Reserve Act” mandates the creation of a Bitcoin fund within the state treasury. It also grants the Ohio state treasurer the discretion to purchase the asset.

Oklahoma, Louisiana, Montana, and Arkansas have passed laws protecting rights related to Bitcoin mining, self-custody, node operation, and peer-to-peer trading.

Source: x

Source: x

Traditional Strategic Reserve Asset Types

Traditional strategic reserve assets typically include gold, foreign exchange reserves, government bonds, physical assets (such as real estate), and commodities. These assets are often used as tools to preserve value during economic crises and financial volatility, due to their high liquidity, global recognition, and ability to hedge against risks. However, with the rise of digital assets like Bitcoin, more and more countries and institutions are reassessing these traditional reserve assets and exploring the possibility of using cryptocurrencies as a new type of strategic reserve asset.

Bitcoin vs. Traditional Strategic Reserves

Gold, as a physical asset, does not generate income and comes with high storage and maintenance costs. In contrast, Bitcoin has low storage costs, requires no physical space, and is secured through wallets and decentralized networks. Bitcoin can be traded 24/7, and due to its scarcity and decentralized nature, it is not subject to political interference, making it a reliable store of value globally.

Risks of Strategic Reserves

1. Price Volatility

Bitcoin’s price is highly volatile and may experience significant fluctuations in the short term. For nations and businesses, this could lead to sharp appreciation or depreciation of assets. For instance, if Bitcoin’s price crashes and there is a need to liquidate or reallocate funds, it could result in substantial financial losses.

2. Security Risks

While Bitcoin itself ensures decentralization and high security through blockchain technology, nations or businesses holding Bitcoin must rely on technological infrastructure (such as digital wallets and private keys). If mismanaged or subject to hacking attacks, Bitcoin could be stolen, leading to severe losses.

3. Technological Dependency

Bitcoin’s operation depends on blockchain and network infrastructure. If these technologies face failures or attacks, it could disrupt Bitcoin transactions and storage. For nations and businesses, technological risks could affect the stability and reliability of their strategic reserves.

4. Environmental Impact

The Bitcoin mining process consumes vast amounts of energy, particularly in regions that rely on fossil fuels. Environmental concerns have become a significant social debate surrounding Bitcoin. Businesses and governments choosing Bitcoin as a reserve asset might face pressure from society, governments, and environmental organizations.

5. Non-Essential Commodity

One challenge of using Bitcoin as a strategic reserve is its lack of immediate practical use. Compared to resources like food, oil, and natural gas, which hold direct survival and production value in times of crisis, Bitcoin, as a digital asset, does not directly participate in production or provide everyday necessities. During economic or supply chain disruptions, resources like oil or food can quickly be converted into practical use to safeguard livelihoods and production.

Bitcoin primarily serves as a store of value. Although its scarcity and decentralized nature provide it with some value-preserving potential, it is unlikely to play a direct role in production or emergency needs in the short term.

Global Adoption Trends

1. Countries:

El Salvador: Purchasing 1 Bitcoin Daily

As the first country to officially adopt Bitcoin as legal tender, El Salvador enacted this legislation on September 7, 2021.

The government also launched an official Bitcoin wallet with zero transaction fees and preloaded $30 worth of Bitcoin to foster economic integration and strengthen its strategy.

In terms of public communication, President Nayib Bukele frequently uses social media to announce Bitcoin purchasing plans, building trust and awareness among the public regarding this strategy.

As of January 3, 2025, the country continues to purchase 1 Bitcoin daily, capitalizing on price declines to accumulate assets at favorable prices. The total Bitcoin holdings of El Salvador stand at 6,006 BTC. Despite the country’s relatively small holdings compared to global figures, its unwavering Bitcoin strategy is noteworthy. As a small economy, its bold attempt is an intriguing case study for other nations considering similar actions.

Source: treasuries.bitbo.io

Russia

Bitcoin holdings in Russia are primarily achieved through its abundant mining resources. While the government has not disclosed specific holdings, Russia’s Bitcoin mining industry accounts for about 11% of the global share, ranking third in the world. This provides a solid foundation for Russia to accumulate Bitcoin reserves. Under the pressure of Western sanctions, Russia is actively seeking ways to bypass the SWIFT system using Bitcoin and exploring new methods for cross-border trade.

In 2024, President Vladimir Putin signed a law officially legalizing Bitcoin mining, leveraging the country’s vast energy resources to support the industry. At the same time, Russia has proposed using cryptocurrency to pay for international trade transactions, highlighting the significant role Bitcoin plays in Russia’s financial sovereignty strategy.

Additionally, countries like Brazil, Poland, and Japan are also discussing proposals for establishing national Bitcoin reserves.

The motivations for sovereign nations to hold Bitcoin are varied, including:

1. Hedging Economic Sanctions and Enhancing Financial Sovereignty

Bitcoin’s decentralized nature enables sanctioned countries (such as Venezuela and Iran) to bypass the traditional financial system for international trade and fund movement. At the same time, holding Bitcoin helps these countries reduce dependency on the US dollar and enhance financial sovereignty. For example, El Salvador, by making Bitcoin legal tender, has reduced its reliance on the dollar.

2. Hedging Inflation and Fiat Currency Depreciation

Countries facing high inflation and currency devaluation, such as Argentina and Turkey, view Bitcoin as “digital gold,” using its scarcity to hedge against the risk of currency depreciation. Bitcoin, as a store of value independent of traditional monetary policies, has drawn attention from central banks in many developing countries.

3. Promoting Digital Economy Development and Attracting Foreign Investment

By embracing cryptocurrencies, countries like El Salvador are promoting their digital economy, attracting crypto businesses and investors, thereby boosting economic development and generating new foreign exchange and tourism revenue. Furthermore, a digital currency strategic reserve enhances a nation’s voice in international financial markets while promoting domestic economic digitization.

1. Listed Companies

According to Bitcointreasuries.net, as of January 3, 2025, over 50 publicly traded companies worldwide hold Bitcoin, spanning sectors such as technology, finance, mining, and blockchain. As Bitcoin increasingly becomes an important asset class, more and more listed companies are incorporating it into their asset allocations, highlighting its role in corporate strategy.

As the most influential digital currency globally, Bitcoin has also become part of the strategic reserves of large corporations. As of January 3, 2025, the top five companies holding the most Bitcoin are: MicroStrategy (446,400 BTC), Marathon Digital Holdings (44,394 BTC), Riot Platforms (17,429 BTC), Hut 8 Mining Corp (10,096 BTC), and Tesla (9,720 BTC). These companies are actively positioning themselves in the Bitcoin market through diversified strategies, demonstrating confidence in digital currencies and a commitment to long-term investments.

Integrating Bitcoin into their balance sheets offers companies the following advantages:

Inflation Hedge: Bitcoin’s fixed supply of 21 million coins gives it a strong inflation-resistant property, helping businesses stabilize asset value in a global environment of monetary easing.

Diversified Investment Portfolio: As an emerging asset class, Bitcoin enriches the company’s asset allocation, reducing reliance on a single asset and enhancing financial stability.

Enhanced Brand Image: Holding Bitcoin showcases the company’s embrace of innovative technologies and future economic models, enhancing market competitiveness and shaping a forward-looking brand image.

Source: bitcointreasuries

Summary

The “U.S. Bitcoin Strategic Reserve Act” has not yet been officially passed, with implementation expected to occur in about six months, potentially facing uncertainties in the process. However, once passed, it is anticipated to boost Bitcoin and the entire crypto market, promote integration between the crypto market and traditional financial systems, and strengthen global cooperation and cross-border regulation. Additionally, the Act may facilitate the interoperability between fiat currencies and cryptocurrencies.

As “digital gold,” Bitcoin, with its scarcity and inflation-hedging characteristics, is gradually becoming a new choice for global reserve assets. Unlike gold, Bitcoin offers greater liquidity and enables more convenient cross-border transfers, making it an ideal tool for responding to currency devaluation and economic uncertainty.

In recent years, more and more businesses and countries have included Bitcoin in their strategic reserves. For example, MicroStrategy and Tesla have adopted Bitcoin as a long-term asset reserve to hedge currency risks and create shareholder value. Similarly, countries like El Salvador have made Bitcoin legal tender and are exploring using Bitcoin reserves to enhance economic stability. In the future, large corporations, pension funds, and insurance companies in traditional industries may also incorporate Bitcoin into their strategic reserves.