Key Points
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The Trump administration is renewing its push to establish a Strategic Bitcoin Reserve.
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If a reserve is formed, it’ll be strongly positive for Bitcoin.
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But the political and procedural obstacles to creating the reserve are likely to be onerous.
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Anyone who has priced Bitcoin (CRYPTO: BTC) as if Uncle Sam were about to start hoarding it at scale might be in for a bit of an unpleasant surprise. Sixteen months after President Donald Trump issued an executive order to create a Strategic Bitcoin Reserve, the effort is still a work in progress.
The initial order created the reserve on paper using coins seized during legal proceedings. It didn’t allocate capital for purchasing or get Congress to pass any legislation. So with that in mind, let’s get caught up with the latest attempt to make the reserve a reality.
There’s not much happening yet
The U.S. government is estimated to hold 323,693 Bitcoins, worth $21.2 billion. That’s about 1.5% of the total possible supply of Bitcoin, so the U.S. is a major holder. Those holdings are spread across many federal agencies, which makes them difficult to manage and to determine how many there are.
The White House crypto advisor, Patrick Witt, claims that Congress must formally back the reserve for it to function, and, as no bill mandating its creation has passed, the reserve will probably remain unimplemented for now. Non-legislative approaches to creating the reserve have been stymied by certain existing regulations and laws.
Regarding the legislative route, Sen. Cynthia Lummis’ Bitcoin Act would direct the Treasury Department to buy 1 million Bitcoins over five years and hold those coins for at least 20 years, but it has been stalled in committee since last spring, and it might not be important enough to get a spot on the Congressional calendar before the end of the year.
And, given the balance of power in Congress, after the midterm elections, there may not be any window of opportunity whatsoever to advance a bill mandating the creation of the reserve anyway. So it’s probably not a good idea to base your investment thesis for buying Bitcoin on its inclusion in the U.S. reserve in the near future.
The upside could be big
If the reserve is actually ever created, or if the Bitcoin Act or something similar is ever signed into law, it’d be a huge and enduring catalyst for Bitcoin.
Most of Bitcoin’s total supply has already been mined.
A sovereign buyer locking away close to 5% of its supply for a minimum of two decades, on top of what Bitcoin exchange-traded funds (ETFs) and corporate treasuries already hold, would contribute to a slow-motion supply shock. If the U.S. ever truly treats Bitcoin as a strategic asset like gold, other governments would need to decide whether to jump on the bandwagon.
The coin’s price would likely permanently re-rate upward. But don’t hold your breath for that to happen.
Regardless of what the U.S. does, it’s still worth owning Bitcoin for its supply dynamics, which guarantee that the asset will be harder to produce and in shorter supply in the future than it is today. If the government decides to sequester more of it, that’ll be the icing on the cake.
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Alex Carchidi has positions in Bitcoin. The Motley Fool has positions in and recommends Bitcoin. The Motley Fool has a disclosure policy.
