In summary
- Senator Cynthia Lummis pushes for a strategic US Bitcoin reserve, backed by President-elect Donald Trump.
- The proposal proposes that the government acquire up to 1 million BTC over five years, using funds from the Federal Reserve without creating new debt.
- Critics fear this will centralize Bitcoin, giving the government significant control over the decentralized asset.
Now that Donald Trump is set to become the next president of the United States, a strategic Bitcoin reserve may be approved. The idea was hinted at by Trump and several other US politicians in July and early August, but lost steam following a Bitcoin price crash.
One of those prominent voices is Senator Cynthia Lummis, a Republican from Wyoming who has been called the “Bitcoin Senator” for her strong support of the Cryptocurrency industry. Lummis shared plans for a strategic reserve at the Bitcoin conference in Nashville in July, and told Decrypt this week that it may happen now that Trump has won the election.
“President Trump has proven that he will be the most pro-Bitcoin and pro-cryptocurrency president in our nation’s history,” he said, “and under his leadership, we are better positioned than ever to build a brighter economic future by creating a strategic reserve of Bitcoin”.
WE ARE GOING TO BUILD A STRATEGIC BITCOIN RESERVE 🇺🇸 🇺🇸 🇺🇸
— Senator Cynthia Lummis (@SenLummis) November 6, 2024
Lummis has “led the charge” to create the reserve, which he says will “boost the US dollar’s position as the world’s reserve currency for decades to come.”
The path towards its creation is already underway with the introduction of the yet to be approved Act to Promote Innovation, Technology and Competitiveness through Optimized Investment at the National Level, simply known as the “Bitcoin Law.”
The bill proposes a “decentralized network of secure Bitcoin vaults operated by the United States Department of the Treasury,” Lummis explained. It would establish a framework for the US government to acquire up to 200,000 Bitcoin annually for five years, potentially adding up to 1 million BTC, nearly 5% of the cryptocurrency’s total possible supply.
At Bitcoin’s current price of approximately $76,400, this would cost the country more than $76 billion. However, the purchase period would last five years, and the price of Bitcoin is known to be volatile. Furthermore, a government entity declaring plans to acquire nearly 5% of the total Bitcoin supply, and then beginning to do so, would likely impact the price.
Lummis claims this would be paid for by diversifying the existing funds within the Federal Reserve, which consist of bonds, loans and other assets like gold, which are currently around $7 trillion, rather than creating additional debt.
“The Bitcoin Strategic Reserve would reflect the Treasury Department’s existing responsibility for managing the nation’s gold reserves, operating independently of the Federal Reserve System,” Lummis explained. “Our goal was to establish it as a modern parallel to our gold reserve, serving as a digital-age hedge against economic uncertainty, while maintaining the Treasury’s historic role in protecting critical national reserves.”
Interestingly, the US government already owns billions of dollars worth of Bitcoin seized in criminal cases. “This puts significant reserves of Bitcoin into government custody,” a Coinbase representative told Decrypt.
According to Arkham Intelligence, the US government currently holds nearly $16 billion worth of Bitcoin, along with other digital assets. It is unclear whether these funds would be absorbed by the proposed strategic reserve. Earlier this year, the government began moving these funds, with Trump promising that under his presidency, the government would not sell seized Bitcoin.
Lummis claims that the new strategic Bitcoin reserve would also operate under a similar “never sell your Bitcoin” ethos as Trump noted.
“The Bitcoin Act creates a minimum holding period that requires any Bitcoin acquired under the legislation to be held in reserve for 20 years,” he told Decrypt, “At the end of the 20-year holding period, the United States would reassess its position and I would make a decision on what to do from there.”
The bill was introduced to the Senate by Lummis in July, but failed to advance beyond that stage. Still, the act must be reviewed and approved by the Senate and House of Representatives, and finally approved by the president.
“The next Congress is the perfect time to bring this legislation and other sensible digital asset bills to fruition,” Lummis added.
But will it happen? Cody Carbone, president of crypto lobbying group The Digital Chamber, said Trump’s intent on the matter seems clear, although when and how still need to be worked out.
“I think it’s very realistic now,” Carbone told Decrypt. “The President-elect has made his intentions clear and supports this policy.”
“The ideal would be to obtain legislation to guarantee permanence through administrations, but that seems difficult,” he continued. “Questions remain about whether a stockpile will include new Bitcoin purchases or simply carry over existing government holdings. However, I think it’s safe to say that the Trump administration will hold onto its Bitcoin and hopefully increase its supply.”
However, not all cryptocurrency enthusiasts are happy with the proposed plan. There are concerns about the centralization of Bitcoin within the US government, which goes against the kind of independent ethos that has defined the leading cryptocurrency.
“Going down this path could well centralize the asset, giving government oversight to an asset that prides itself on being decentralized,” said Patrick Gerhart, President of Banking Operations at Telcoin who previously spent a decade working on political campaigns and initiatives for US senators. “Then I would have more control over the product and its place in the market.”
While the current plan would be to hold Bitcoin for 20 years, at the end of this period any sizable sale could significantly impact the market, especially if the government held 5% of the total supply. For this reason, combined with the general caution related to cryptocurrencies, Gerhart explained that there could be some difficulty in passing this law.
“You would have to convince a lot of skeptical senators and representatives that this is a good idea,” he said. “Considering how new this product is and the need for better understanding and oversight of it, I think it would take some time to get this idea off the ground.”
Edited by Andrew Hayward
Editor’s note: This story was updated after publication to include comments from Carbone and to clarify details of the law’s Bitcoin purchase plan.
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