How likely is the existence of the Bitcoin Strategic Reserve and how could it affect the price of Bitcoin?

Thanks to this year’s march in Bitcoin (Bitcoin)which recently broke through the $100,000 price level, the concept of Bitcoin’s strategic reserve has quickly transformed from an obscure campaign issue into an economic idea worthy of serious consideration. There’s even legislation, the Bitcoin Act of 2024, outlining how it could become a reality as soon as next year.

But how likely is this to happen? What is its effect on the price? Bitcoin? Let’s take a closer look.

What is Bitcoin Strategic Reserve?

From a conceptual standpoint, the Bitcoin Strategic Reserve is similar to the Strategic Petroleum Reserve, which was created in 1975 in response to the energy crisis of that era. The goal at the time was to build a stockpile of 1 billion barrels of oil, to protect the US economy from potential external supply shocks.

Likewise, the Bitcoin Strategic Reserve is being created in response to the economic problems currently facing the US government, including the massive $35 trillion national debt. According to Michael Saylor, founder and CEO of… Accurate strategyThe Bitcoin Strategic Reserve will help stabilize the US economy, strengthen the US dollar, and solidify the US’s position as a global leader in the digital economy.

If the price of Bitcoin continues to rise over the next decade, the Bitcoin Strategic Reserve may eventually be used to pay off the $35 trillion national debt. As Saylor recently suggested, the Bitcoin Strategic Reserve has the potential to create as much as $81 trillion in new wealth for the US Treasury.

Why has this concept gained so much support?

The concept of a Bitcoin Strategic Reserve first came into public consciousness in July 2024, during a Bitcoin conference in Nashville, when US Senator Cynthia Lummis (R-Wyoming) detailed how it would work. Since then, it has taken on a life of its own, with the personal support of Donald Trump.

As the Trump administration sees it, the creation of the Bitcoin Strategic Reserve aligns well with the goal of making America the “cryptocurrency capital of the world.” It fits with Trump’s plans to support Bitcoin mining Industry within the United States

Image source: Getty Images.

The current version of the Bitcoin Strategic Reserve, as set out in the Bitcoin Act of 2024, would require America to purchase 1 million bitcoins over the next five years, equivalent to roughly 5% of the world’s total bitcoin supply.

The appeal of Bitcoin’s strategic reserve goes far beyond the rallying cry of “Make America Great Again.” It is also accepted by fiscal conservatives, who call on America to rein in its spending and pay down its debts. Since Bitcoin is commonly referred to as “digital gold,” the concept of a Bitcoin strategic reserve also has appeal for anyone calling for a global resurgence of the American economy. Gold standard.

But will that really happen?

Although there are legitimate reasons for a strategic Bitcoin reserve, the math behind it may not work. For example, according to one estimate, for the Bitcoin Strategic Reserve to have any realistic chance of helping pay down the $35 trillion national debt, Bitcoin’s market value would need to rise beyond its current level of $2 trillion. It will need to rise to a value of 1 quintillion dollars.

Furthermore, the actual logistics of how the reserve operates are unclear. If the plan were to simply buy all of Bitcoin with current dollars, it could lead to runaway inflation and a larger national deficit. So, one idea is to sell gold reserves held by the US government, and then use those proceeds to buy Bitcoin.

There are a lot of discussions that need to take place to make the Bitcoin Strategic Reserve a reality. Currently, prediction markets give a 33% chance of this happening within the first 100 days of Trump’s presidency.

In my view, it is more likely that a strategic reserve of Bitcoin will be created at the state level first. Ten US states have already proposed some form of a Bitcoin reserve, including Texas, Florida and Pennsylvania. The Texas proposal is particularly interesting, because it suggests that the state might be able to build up a bitcoin reserve simply by encouraging bitcoin miners in the state to pay their taxes in bitcoin.

Impact on Bitcoin

Given the influential role of the United States in the global economy, the creation of a strategic reserve of Bitcoin will likely encourage other countries to start purchasing Bitcoin in large quantities. Already, a handful of countries have made plans to create a Bitcoin reserve. Some have suggested that China and Russia could get in on the act, if this turns into a “Bitcoin arms race” between rival superpowers.

This is why the Bitcoin Strategic Reserve can cause the price of Bitcoin to rise. It would unleash an unprecedented wave of Bitcoin buying by governments around the world. This will help accelerate the mainstream adoption of Bitcoin as the world’s number one digital currency.

Watch what’s happening in states like Texas. Once some states figure out the logistics of how the Bitcoin Strategic Reserve actually works, then action could be taken at the federal level. If all goes according to plan, the Bitcoin Strategic Reserve could become the massive catalyst that launches Bitcoin on an epic rise for years.