Donald Trump will do something “crazy” or “something amazing” regarding Bitcoin Strategic Reserve Policy

It’s no secret that Donald Trump was dead against Bitcoin and cryptocurrencies a few years ago.

During his first term as US president, Trump said that cryptocurrencies are “not money,” and that their value is “highly volatile and dependent on nothing.”

Fast forward to 2024, and the Republican politician has changed his tune.

During his re-election campaign, Trump was the keynote speaker at a Bitcoin conference. He launched his own cryptocurrency venture (World Liberty Financial) and received millions of dollars in donations (in the form of Bitcoin, Ether, and XRP) from supporters, including a handful of pro-crypto billionaires.

Since his pledge to make America the “crypto capital of the planet,” Trump’s promises have contributed to enacting pro-crypto policies Help push the value of Bitcoin to new records (Up to US$108,000 ($173,000) in mid-December).

Trump has also appointed cryptocurrency advocates to key roles in his administration.

However, one of Trump’s most controversial policies is the creation of a “strategic bitcoin reserve” — which essentially requires the United States to store and hold bitcoin for a long period of time.

At this point, there are not many details about what the strategic reserve will look like.

Some analysts expect the value of the highly volatile cryptocurrency to continue to rise, especially if the US government uses taxpayer money to purchase large quantities.

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What is a strategic reserve?

When people talk about “strategic reserves,” they most likely think of oil.

One of the most famous examples is the US Strategic Petroleum Reserve (SPR), an emergency stockpile of crude oil created by the government of Gerald Ford in 1975.

This came in response to the Arab oil embargo, which caused great damage to the American economy (with high gasoline prices, inflation, and unemployment).

More recently, in 2022, these crude oil inventories came in handy — when the Biden administration released a record 180 million barrels of Strategic Petroleum Reserve to cushion the impact of higher oil prices caused by Russia’s invasion of Ukraine.

China also has strategic reserves containing millions of tons of copper, aluminium, zinc and other minerals that are essential for the real estate and technology industries.

Canada also gets special mention for being the only country with a strategic reserve of maple syrup, the supply of which fell to 3.1 million kilograms last year, its lowest level in 16 years.

The idea is that these commodity stocks can be released during emergencies, to reduce the impact of supply shortages and inflation shocks.

It’s pretty clear that Bitcoin, which has only been around for 15 years, has nothing in common with oil, industrial metals, and maple syrup.

While reserve supplies of oil can be used, for example, to fuel tanks and fighter planes during national emergencies, Bitcoin’s usefulness as an emergency resource is questionable.

While government purchases of Bitcoin can help cryptocurrency investors by raising prices, its benefits to the economy are difficult to discern.

Practical application of Bitcoin reserve

Trump told a crowd of supporters at a Nashville Bitcoin conference in May that the US government would never sell its Bitcoin holdings if he won the election.

“For too long, our government has violated the cardinal rule that every bitcoin user knows by heart: never sell your bitcoin,” he said at the time.

But the United States already owns about 200,000 bitcoins worth more than $21 billion ($33.6 billion).

This was a result of the US government’s seizure of bitcoin from criminal gangs, including its high-profile shutdown of the illegal drug market Silk Road.

At this point, the most realistic proposal for a Bitcoin reserve comes from Cynthia Lummis, a pro-crypto Republican senator. (She previously interviewed to be Trump’s Interior Secretary, but was unsuccessful.)

In July, it circulated a bill in Washington (which has not yet gained traction in the House of Representatives), which would create a Bitcoin reserve in the United States.

The Wyoming senator’s bitcoin bill, if enacted into law, would require the Treasury Department to purchase 1 million bitcoin tokens over a five-year period — with financing that would come from Federal Reserve deposits and gold supplies.

The United States would end up owning about 5% of the global supply of bitcoin — a maximum of about 21 million — under her proposal, and the government would have to preserve the bitcoin supply for at least 20 years.

Critics say Loomis’ bill, if seriously considered by Congress, would face significant hurdles — not least because it would likely involve the U.S. government adding to its already exorbitant $36 trillion national debt.

The recent drama in the House of Representatives has shown that any proposal to increase spending and raise the debt ceiling (even to avoid a government shutdown) will face stiff opposition.

Even from within Trump’s own party, 38 Republicans crossed the stage to vote with Democrats to reject the spending bill supported by the incoming president.

Given that Republicans have a slim majority in the House (220 seats to Democrats’ 215) — and the fact that they are not a unified group — it is unlikely that the Bitcoin Strategic Reserve will be anywhere near the top of their legislative priorities.

Additionally, if the Trump administration needed to finance Bitcoin purchases by issuing new Treasury debt, it would likely face strong resistance from the US Federal Reserve.

Last week, Federal Reserve Chairman Jerome Powell said the US central bank was not looking to hold bitcoin in its reserves.

“We are not allowed to own bitcoin,” Powell said.

Inflation protection or a “crazy” idea.

Earlier this month, Trump told CNBC: “We’re going to do something great in crypto because we don’t want China, or anyone else…but other people are embracing it, and we want to be on top of it.”

Basically, the argument is that if the United States doesn’t hoard Bitcoin, China and other geopolitical rivals will.

So, fear of missing out (FOMO) and potential geopolitical risks (if US adversaries amass huge supplies of cryptocurrencies) are factors to take into consideration.

Ms Loomis claims her proposed legislation could see the US cut its debt in half within 20 years.

“What this does is help us protect ourselves from inflation and protect the US dollar on the global stage,” she told Fox Business in November.

“Although there may be short-term fluctuations, a Bitcoin reserve like this will serve as an important and stable store of value over the long term,” she also wrote in a letter published in The Wall Street Journal.

But that’s assuming that Bitcoin’s value continues to rise in the long term (which is not guaranteed, despite what its true believers say).

On the other hand, former Treasury Secretary Larry Summers dismissed Trump’s Bitcoin reserve idea as a “politically motivated” move to prop up its value and reward the president-elect’s major donors.

“Some of what is being said, the idea that we should have some sort of national bitcoin reserve, is crazy,” he said in an interview with Bloomberg in early December.

“Of all the prices that should be supported, why would the government choose to support a bunch of Bitcoin, by accumulating a sterile stock.”

“There is no reason to do this other than to please generous contributors to special interest campaigns.”

While Bitcoin is hovering near record highs, it has seen dramatic sell-offs, or “crypto winters,” in the past.

Most recently, its value fell by more than 70 percent between November 2021 and November 2022.

Although it has since risen above $100,000, this outcome (as well as the outcome of the US election, and the cryptocurrency policies that will be introduced) was by no means certain.

Given the large price swings and ongoing volatility, there is always a risk that a taxpayer-funded purchase of Bitcoin could threaten — rather than protect — American financial security.

What happens to the price is anyone’s guess.