Should Bitcoin be a strategic reserve?

Bitcoin’s price has been relatively stable in recent weeks after some significant volatility in late July and early August. Bitcoin nearly hit $70,000 on July 29, a move driven in part by former president Trump’s speech supporting the US “stockpile” BTC at the Bitcoin 2024 conference.

The former president wasn’t alone in his support for this idea. Independent candidate RFK, Jr. proposed the US target a four million BTC strategic reserve to be on par with gold holdings, and US Senator Cynthia Lummis announced legislation that, among other things, would have the government purchase one million BTC to acquire 5% of the total supply and strengthen US finances.

While these proposals vary in scope and ambition, they share a common theme: leveraging Bitcoin to enhance the financial standing of the US. But are these proposals even feasible?

A groundbreaking idea with many unanswered questions

It’s important to note the significance that the idea of the US or other sovereign nations stockpiling BTC as part of thir strategic reserves has now moved from fringe theory to a discussion in mainstream political discourse. This is a massive development in support of bitcoin being viewed as digital gold and crypto’s acceptance as an emerging asset class.

But while the concept of a BTC reserve sounds promising, it raises numerous questions about practicality, global implications, and the long-term effects on Bitcoin itself. Some of the key questions that will need to be considered include:

• How would holding BTC as a strategic reserve asset impact US government finances and the broader financial system?

• What are the implications to Bitcoin and geopolitics if there’s an “arms race” by governments to acquire BTC?

• If the US or other large economies held a large portion of BTC’s supply, what would the impact be to Bitcoin’s role as a network free from government control?

Impact to crypto’s investment case

While these questions will need to be addressed over time, from an investment perspective, the introduction of BTC as a strategic reserve by the US or any other country is one of the strongest endorsements of its long-term value that we have seen. The fact that discussions like this are taking place at high levels of government signals that BTC is no longer seen as just a speculative asset but as a legitimate store of value with staying power. This recognition could accelerate the trend of individuals, institutions, and even governments adding BTC or other crypto assets to their portfolios.

In the near term, the strategic reserve discussion is just one of many developments investors should be paying attention to, especially as short-term uncertainties like the Fed’s plans for rate cuts and the Mt. Gox overhang fade away. It may take governments years or longer to hold BTC on their balance sheets, but we are seeing the adoption of crypto continue to accelerate among corporations, public pensions, and other large institutional investors. These developments, while less headline grabbing, are the ones helping to build a foundation that will allow the crypto asset class to grow in the years and decades to come.