The US election results are dominating discussions in the crypto industry. Donald Trump's victory has propelled Bitcoin to unprecedented levels. In fact, in recent days, investors have been holding their breath as the value of one Bitcoin has approached $100,000. Other altcoins are also joining in on this euphoria, setting new records. This includes not only Solana, but also Ripple's currency, XRP, which has seen triple-digit growth.
The crypto sector, already elated by the election of a pro-crypto president who aims to disrupt financial regulation, is now waiting for the Republican candidate to fulfill a number of promises he made during his 2024 campaign.
Experts caution that it remains to be seen whether the tycoon will actually be able to honor the announcement. But for now, it appears the industry's wishes are being met. SEC Chairman Gary Gensler, who has long been skeptical and sometimes hostile towards cryptocurrencies, has already announced that he will step down as Commissioner of the Securities and Markets Commission at noon on January 20, the same day President Trump takes office. There is. Meanwhile, Republicans recently nominated Scott Bessent as their nominee for Treasury Department.
Bessent said in an interview with Fox Business earlier this year that cryptocurrencies are “about freedom, and the crypto economy is here to stay.” These assets are attracting young people who have never been involved in a movement. [stock market]”However, one of the promises that most excites the industry and investors is the potential creation of a Bitcoin Strategic Reserve Fund in the United States. President Trump mentioned the project in June during the Bitcoin 2024 conference in Nashville, Tennessee. This proposal resonated deeply with the industry.
What is Strategic Bitcoin Reserve?
Strategic reserves are a set of external assets that are readily available and under the control of monetary authorities. They aim to meet balance of payments financing needs or intervene in foreign exchange markets to influence exchange rates, to name just a few examples. In this way, Bitcoin reserves are similar to gold or foreign exchange reserves held by central banks. There are also strategic reserves of basic raw materials such as oil.
The pioneering cryptocurrency will be incorporated into the North American country's mix of assets on its balance sheet, with the aim of diversifying its reserves. However, the project is not clearly defined and there is still much speculation about this issue, starting with the basic question of which authority will be responsible for its management. Is it the Federal Reserve? Or is it another institution? And an equally important question concerns how to pay for it. Bitcoin could be purchased after selling other assets such as gold and bonds to increase debt or expand the Federal Reserve's balance sheet, colloquially known as “printing money” There is.
This reserve also includes bitcoins previously seized by the U.S. government. Approximately 208,109 pieces, worth nearly $20 billion at current market prices. These include cryptocurrencies seized in 2013 from Ross Ulbricht, the founder of Silk Road, a dark web that operated solely on Bitcoin. Users may traffic drugs or hire hitmen. During the campaign, Donald Trump promised to commute Ulbricht's life sentence upon his arrival at the White House.
What does a proposal look like?
The most concrete proposal so far is from pro-cryptocurrency Republican Sen. Cynthia Lummis, who proposed the Bitcoin Act of 2024, the Innovation, Technology and Competitiveness Through National Optimized Investments Act. (enhancement) was submitted to the Senate. The project stipulates that the Treasury and the Federal Reserve will purchase 200,000 Bitcoins annually for five years until reaching 1 million units. This is equivalent to approximately 5% of the world's total Bitcoin supply (approximately 21 million coins). The reserves would then be maintained for a minimum of 20 years. The idea is that this reserve will act as a hedge against a devaluation of the U.S. dollar, strengthen the nation's balance sheet, and support future debt problems.
In this bill, the proposed virtual currency purchase mechanism has two components. One is that the surplus that the Federal Reserve returns to the Treasury (i.e., the profits of the U.S. central banking system) is used to buy Bitcoin. Meanwhile, it proposes that state central banks revalue their holdings of gold securities to better reflect the metal's value in the current market. The difference must then be delivered to the Treasury, which must then use the funds to purchase Bitcoin.
Noel Achenson, author of the newsletter “Crypto is Macro Now,” explains that on the Fed's balance sheet there is a certificate representing the gold held by the Treasury. The total valuation is approximately $10.5 billion. However, this price is based on the legal price, which has remained constant at $42 per ounce since 1973. At current prices, the gold in storage is worth about $643 billion.
Beyond the federal government, states are also moving to hold their own Bitcoin reserves. Pennsylvania Congressman Mike Cavell recently introduced a bill to create a Strategic Bitcoin Reserve that would allow the Treasury to invest up to 10% of its funds in Bitcoin. The purpose of this law is for virtual currencies to act as a hedge against inflation. However, the details of the proposed regulations are still unclear.
What did other countries do?
El Salvador is a pioneer in the creation of strategic crypto reserves. In fact, the Central American country adopted Bitcoin as its legal tender for the first time in September 2021. The government has since acquired up to 5,944 bitcoins, worth more than $560 million at current market prices, according to the country's Bitcoin Authority. This is followed by the Kingdom of Bhutan, which owns 12,218 Bitcoins worth $1.2 billion, according to Arkham Intelligence data. The company details that the crypto nation's wealth comes from a bitcoin mining operation (which uses the nation's terrain to generate electrical energy) run by the country's investment arm, state-owned conglomerate Druk Holdings. states.
Other countries with pioneering cryptocurrencies have accumulated their cryptocurrencies primarily through confiscation, as is the case with the United States. But in recent years, beyond the North American nation, other states have also been collecting Bitcoin. In fact, there are 61,245 tokens in accounts in the UK, worth over $6 billion.
Experts also point out that China is one of the largest holders of this cryptocurrency. In November 2020, authorities seized 194,775 Bitcoin from participants in the PlusToken Ponzi scheme. The PlusToken Ponzi scheme is a scam operating in an Asian country that promises “constant” double-digit returns to victims. The perpetrators of this scam amassed billions of dollars worth of virtual currency and used it to buy real estate and luxury cars for themselves and their relatives. However, it is unclear whether the Chinese government still owns these seized bitcoins or whether they have since been sold, according to Arkham Investments.
What do analysts say?
Experts consulted by EL PAÍS disagree on the feasibility of implementing this project. Luis Galvia, head of the Financial Risk Graduate Program at the Madrid-based Catholic Institute of Management (ICADE), puts it bluntly: Diversification is very important,” he emphasizes.
Carlos Salinas, a master's professor in blockchain and digital asset investment at IEB, believes the promise to create a Bitcoin reserve is one of the main factors behind the asset's price surge. However, although he does not completely rule it out, he doubts whether the United States will be able to accumulate such large amounts of Bitcoin. And if the proposed legislation actually sees the light of day, other countries such as Russia, China, Brazil, and India will not want to be left out either. “At Bitcoin’s last high in 2021, we saw FOMO. However, in the current bullish phase, [dealing] Use organizational FOMO. “We don't know how big this will get,” he warns.
Javier Molina, senior market analyst at eToro, said Bitcoin will never be seen as a store of value like gold, and there will never be mass adoption of the currency by governments, at least in the short term. I suspect that I am deaf. and medium term. “The idea that Bitcoin could someday play a similar role to gold as a store of value, like a ‘digital gold’, may be interesting, but a scramble for digital reserves by governments is unlikely. “I think it's still a long way off,” he says.
David Tercero Lucas is Professor of Economics at ICADE. Specializes in crypto assets and digital currencies. He said Bitcoin shares certain characteristics with traditional assets, such as gold, for example, given its scarcity and independence from centralized organizations, but is not typical of a trusted reserve asset. He emphasized that other important features were missing. “Gold has a thousands of years of history as a store of value. It is widely accepted and has industrial uses that enhance its utility. Currencies such as the dollar are backed by strong national and financial systems. “Bitcoin, on the other hand, is highly volatile and its value depends more on speculative expectations than tangible fundamentals,” he elaborates.
Therefore, according to this expert, it is risky to sell gold to buy this virtual currency, especially since its ability to act as a strategic reserve in situations of crisis has never been verified in the long term. That's what it means. He also points out that one of the requirements in the Bitcoin Act, which states that the asset cannot be sold for 20 years, does not provide economic resilience in the short term. In fact, this contradicts the purpose of strategic reserves, which are supposed to be available to stabilize the economy in emergencies.
Santiago Calvo, a professor of economics at the University of Valencia, agrees with this analysis. He warned that the proposed legislation in the United States would set a dangerous precedent, warning that “Bitcoin has not historically had a stable value.” While he recognizes the cryptocurrency's growing acceptance among investors, he believes in the legitimacy of the Federal Reserve to block approval of the project. He also points out that the crypto market's lack of transparency, lack of maturity, and high level of risk make it unreliable as a reserve asset.
The expert consulted by EL PAÍS who is most wary of the launch of a strategic reserve is Manuel Villegas, digital asset analyst at Julius Baer. For him, there's still a lot of noise in this idea. “The market expected a lot, but I don't think it fully understands that this is the reality yet.” [a serious] suggestion. There is a lot of speculation about what will happen. “But the Fed is an independent authority, and Jerome Powell has not been very kind on this issue in recent months,” he cautions. Moreover, unlike SEC Chairman Gary Gensler, the Fed Chairman had already made clear at the last Fed meeting that he had no intention of resigning and that President Trump could not fire him.
Add to this another factor: market concentration. According to Villegas, buying 200,000 bitcoins per year in an illiquid market like the current one could cause the price to rise too much. On the other hand, it is also possible that a large portion of the supply of this virtual currency will be concentrated in the hands of the United States. [We also must add] 3% held by MicroStrategy [which already has about $17 billion worth of bitcoin on its balance sheet] That includes holdings in Marathon and BlackRock,” he concluded.
Bitcoin investors and the industry are elated at the prospect of further skyrocketing in value for this pioneering cryptocurrency, but prediction markets indicate this project will not come to fruition: the US will have its own Bitcoin The probability of holding strategic reserves is only 30% in the polymarket.
Translated by Avik Jain Chatrani.
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