 "U.S. creates strategic bitcoin reserve worth $17 billion")
The establishment of a “Strategic Bitcoin Reserve” in the United States is more evidence of President Donald Trump’s support for the cryptocurrency industry.
Trump issued an executive order establishing the reserve earlier this month, comparing it to “a digital Fort Knox” and the stockpiling of gold bars at the US military facility.
Countries throughout the world hold gold reserves because it is seen as a safe-haven asset, protecting against financial instability such as rising inflation.
On Friday, the metal reached $3,000 per ounce for the first time, propelled by an uncertain economic outlook in the wake of Trump’s tariffs.
Gold reserves can help also stabilise a country’s currency, while bars are used as collateral for loans and transactions.
How will US bitcoin reserve work?
It will be funded by about 200,000 bitcoins, totalling $17 billion, confiscated in the United States as a consequence of civil and criminal prosecutions.
The reserve will be basically secured indefinitely.
Additional bitcoin can be added to the reserve as long as the move is “budget-neutral,” meaning it does not cost the taxpayer.
Announcement fails to impress
The price of bitcoin initially slid after Trump signed the executive order but has since stabilised.
Analysts have blamed the lack of support on a failure to immediately buy more bitcoin.
Impact Shorts
More ShortsDessislava Aubert, an analyst at crypto data provider Kaiko, told AFP that “legally” the US government must return bitcoin to all victims identified as suffering from a hack.
According to Aubert, “a big chunk” of the bitcoin held by the United States – estimated at around 198,000 tokens – would have to be returned to victims of a hack at crypto exchange Bitfinex in 2016.
Sector watchers are also waiting to see if other digital tokens will be added to the reserve, which is possible according to the executive order.
Trump has said that bitcoin’s nearest rival, ether, along with three other tokens – XRP, Solana and Cardano – could be added.
Reason to copy gold reserve?
Critics of the US bitcoin reserve point out that, unlike gold, cryptocurrencies are risky assets and have no intrinsic value.
However, Sacks believes that by storing bitcoin over time, the government would protect itself from the cryptocurrency’s massive short-term volatility.
Meanwhile, Stephane Ifrah, an investment director at crypto platform Coinhouse, said that bitcoin, like gold, can profit from its rarity thanks to a limited 21 million tokens.
An advantage of the bitcoin reserve is its transparency, since the level of tokens will be known at all times – unlike the amount of gold placed in Fort Knox.
Additionally, with the bitcoin reserve, “we’re dealing with a rare asset that’s much more suited to today’s world”, Ifrah told AFP.
Prominent cryptocurrency critic, Molly White, believes the “true reason” for the reserve “is a way to drive interest in the crypto industry”, which could financially benefit investors.
Trump has been accused by some of showing a conflict of interest, having vowed ahead of being elected to make the United States the “bitcoin and cryptocurrency capital of the world”.
The Financial Times reported that Trump earned $350 million from launching a meme coin, $TRUMP, to coincide with his inauguration.
The Wall Street Journal has reported that the Trump family discussed acquiring a possible stake in the Binance platform – a report denied by the crypto exchange’s founder.
Other country plans
Brazil is also considering the creation of a cryptocurrency reserve, an idea recently ruled out by the Swiss central bank.
Governments around the world are partaking in cryptocurrency activity, notably by selling digital assets seized in court cases, as was the case in Germany last year with 50,000 bitcoins.
El Salvador made bitcoin one of its official currencies, reversing the decision this year owing to a lack of take-up by citizens.
Bhutan holds nearly $900 million worth of bitcoin, equivalent to nearly 30 percent of the kingdom’s gross domestic product.
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