The creation of a strategic reserve of Bitcoin (BTC) is one of the promises made by Donald Trump that has resonated the most in the bitcoiner community. This is a proposal put on the list of debates by the American public at the beginning of the year, which is gaining strength as it gained the support of several legislators after the entry into the scene of a bill presented by Senator Cynthia Lummis. .
Lummis’ plan, presented last July, is for the Federal Reserve (Fed) to invest in bitcoin. His bill proposes the purchase of one million bitcoins (5% of the currency’s total circulation) in the next five years. “The appreciation capacity that BTC has would be taken advantage of,” Lummis explained in an interview, reiterating the potential of the digital currency to appreciate as much or more than gold.
The regulation presented by the Republican senator is awaiting debate. Hence the call made by the legislator, in the context of the US elections and the victory of Donald Trump, to move forward with the project.
Since the Republican Party has won the majority in Congress, the passage of this bill could be more agile than in previous legislative sessions. It is thus expected that the transition of power that will take place next January will facilitate the approval process.
In this way, as the discussions progress, and with the endorsement of President Trumpthe doors would be opened to establish a Bitcoin reserve. A fact that – in the opinion of many – could redefine the global financial landscape, aligning the United States with emerging global trends. in digital currency management.
Nevertheless, Some legal barriers still need to be resolvedrelated to the laws currently in force in the United States.
Paul H. Kupiec, senior researcher at the American Enterprise Institute (AEI), spoke about this; and Alex J. Pollock, senior fellow at the Mises Institute. In an article published in The Hill, one of the main political websites in the United States, analysts they pointed out what they consider the main difficulties of Lummis’ proposal.
They cite first of all the Federal Reserve Lawwhose rules “restrict the Reserve’s open market investments from being subject to obligations of the US government or instruments guaranteed by the federal government or its agencies.”
Consequently, this law would have to be amended to allow the Federal Reserve to purchase bitcoins. An amendment that for Kupiec and Pollock It would make way for other virtual assets to enter the scene.
If Congress were to consider changing the law, other cryptocurrencies and special interest assets would surely push to be included as eligible Fed investments. That legislation would create enormous pressure to use the Fed’s monetary powers to purchase those assets, allocate credit and extend implicit subsidies.
Paul H. Kupiec and Alex J. Pollock.
They also add that holding bitcoins would generate “a large operating loss” for the Federal Reserve. “Bitcoin does not pay interest, but the Federal Reserve has to pay interest on the money it borrows to finance its investments,” they note. At the current exchange rate, every dollar borrowed to hold bitcoins would cost the Federal Reserve 5.4 percent in annual interest.
They also remember that the Fed does not have “excess reserves” to buy BTC as indicated in the bill:
“The total balance of the Fed’s disbursed capital and surplus account is negative at $145 billion. Since September 2022, the Fed has had to borrow $145 billion just to finance its own spending. If the Fed is going to invest in Bitcoin, it would have to borrow even more money. Or you could sell some of your deeply underwater investments and record a big loss. Neither of the two alternatives makes sense.”
They conclude, therefore, that any federal government investment in Bitcoin would be “leveraged speculation on the price of a volatile asset.” That is why they find it difficult for the Fed and the Treasury accept the proposal to invest in BTC.
Institutional conflicts are expected
Taking into account the experts’ statements, everything indicates that beyond the legal restrictions (which would be resolved with amendments), the inclusion of bitcoin in the reserves will also have to be faced. to a series of institutional conflicts.
An amendment and new law would force both the Fed and the Treasury to include digital currency, but these institutions “could view this rule as harmful.” An approach that takes on a different nuance according to analysts at the Bitcoin Policy Institute (BPI), if you look at bitcoin just as a way to diversify reserve assets.
in a report where he analyzes the advantages of including BTC in reserves Of the central banks, the BIS gives the example of El Salvador, whose central bank has publicly revealed the addition of bitcoin to its sovereign reserves. In this case they observe that bitcoin represents just under 10% of the reserves. A percentage that they describe as adequate, although they consider that the optimal allocation of bitcoin reserves should range between 2% and 5%.
Despite the advantages that many highlight about investments in bitcoin, by virtue of their properties as a refuge asset In the long term, everything indicates that the main obstacle will be overcome central bank resistancewhich mostly they are skeptical to diversify assets by adding BTC.
Bitcoin is the asset that has appreciated the most in the last 10 years. Source:River.
Pronouncements such as that of the Swiss National Bank give examples of this. «We have not yet decided if we want to invest in bitcoin. Actually, for good reasons,” said the president of the organization, Thomas Jordan, a few months ago. This, even though Switzerland stands out for having one of the most friendly regulations for cryptocurrencies.
One of the reasons has to do with the principles that govern central banks around the worldand from which the Federal Reserve does not escape.
«Foreign reserves are international payments. They have to be liquid and sustainable. And we have to be able to sell and buy them,” Jordan said, remembering that another of the limitations has to do with bitcoin volatility. The constant price changes of BTC collide with the rules that govern the management of central banks’ reserves, which seek to avoid market volatility and protect principal capital.
What is foreseen then is a debate that will pit those who support those who reject the idea of the reserve in bitcoin. An indicator that the implementation of the plan may take time. Especially if we consider that, despite his promises, trump has not made new statements on this topic.
5 steps to include bitcoin in the United States reserves
If he manages to advance on these points, Trump could establish a clearer path to bitcoin inclusion in reserves of the United States. However, the success of these actions will also depend on the political dynamics and the responses of financial institutions.
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