At the Bitcoin Nashville conference in the Tennessee city, Senator Cynthia Lummis proposed a “strategic Bitcoin reserve” for the US. Though the proposal was certainly met with enthusiasm from the clearly biased crowd at the conference, is it feasible? What even is a strategic Bitcoin reserve and how would it work? We’re going to cover all of that below, let’s dive in.
A Strategic Bitcoin Reserve?
A strategic reserve, whether Bitcoin or another asset, is a stock of systemic importance, which can be used to manage disruptions in supply. The Strategic Petroleum Reserve (SPR) is one of the best examples of a strategic reserve. It was created as a response to the 1973-74 oil embargo, and the SPR has been used many times for a range of reasons. The most recent reason why the SPR was used was to reduce inflationary pressures on energy prices after Russia’s invasion of Ukraine.
The above example is a good one to show how a strategic reserve can be useful, but it would work a lot differently for a fairly intangible asset like Bitcoin compared to something like petroleum. In general, the idea of the Bitcoin reserve is to help the US reduce its federal debt.
How it Would Work
The draft bill proposed by Lummis, under the working title of “Bitcoin Act of 2024,” proposes that the Treasury would “establish a decentralized network of secure Bitcoin storage facilities distributed across the U.S.,” with the locations being thoroughly vetted and assessed before establishment.
The draft also proposes that the Treasury establishes a “Bitcoin Purchase Program” of up to 200,000 BTC a year over a five-year period, for a total of 1 million in the reserve. The Bitcoin would then be held for at least 20 years with dispositions only for the purpose of paying off federal debt. After that period, no more than 10% of the Bitcoin could be sold during any two-year period.
The draft has a variety of ways in which the Bitcoin purchases would be financed, with the US gold reserves being one such way. The plan also calls for the setting aside of $6 billion from any net earnings remitted by the Federal Reserve to the Treasury from 2025 through 2029.
Is it Realistic?
It’s no secret that the US has been printing money for some time now, and as such is the case, they have a sizable amount of debt. Since September 2022, the US Federal Reserve has had to borrow $145 billion just to fund its own expenses, which isn’t exactly a good thing. Not to mention the interest they owe on their own debt, which is also nothing to sneeze at. Setting aside $6 billion from net earnings, as mentioned above, isn’t very realistic when there aren’t any net earnings.
In order to create a strategic Bitcoin reserve, the US would have to borrow money to do so. The US Federal Reserve simply doesn’t have the resources to actually purchase the Bitcoin required to execute the plan, at least not without possibly damaging their own economy and/or creating even more debt for themselves. Ostensibly, it doesn’t make much sense to print more money to buy an asset that supposedly combats the inflation incurred by printing more money.
Now, there’s a point to be made in that the US already has a reserve of Bitcoin, which it has obtained through confiscations from various criminal activity. With over 200,000 BTC to its name, the US is on its way to the 1 million BTC target proposed by Senator Lummis, but adding another 800k BTC would certainly be an expensive venture, and even one that could end up adding to the debt rather than reducing it.
Closing Thoughts
Though the idea of a strategic Bitcoin reserve is a nice one, especially for those that own Bitcoin, it’s not very feasible, at least for the US. There are certainly other countries that have, and might, add Bitcoin to their national holdings and or reserves as a way to improve their economic prospects. But for the US, their place as a global reserve currency, in conjunction with their debt, makes the idea of using Bitcoin as a reserve pretty unlikely for the foreseeable future.
