What to know about the potential of a national bitcoin reserve that has the crypto market so excited

• Crypto bulls are eager to see Trump establish a “strategic Bitcoin reserve.”

• Proponents say the United States could manage its debt if it bought and held Bitcoin now.

• Still, sources told BI they expected obstacles to realizing the reservation.

The rise of Donald Trump as the first “cryptocurrency president” has the industry riled up in anticipation of a golden age for cryptocurrencies.

Among a slew of expected changes, crypto enthusiasts are particularly eager to see Trump follow through on the pledge he made in July to create a national bitcoin stockpile.

With Trump now set to return to the White House in January, that promise has set bitcoin on a string of record highs, with few signs of an imminent slowdown.

“I think it’s exciting in the sense that it certainly gives credibility to cryptocurrency and bitcoin,” Scott Mason, a senior policy advisor at Holland & Knight with expertise in blockchain and technology, told Business Insider. crypto.

What would a Bitcoin reserve be used for?

The same week that Trump pledged to create a national stockpile, Wyoming Sen. Cynthia Lummis laid out the main blueprint for what that might look like.

Under the so-called BITCOIN Act, the United States would accumulate 1 million bitcoins over 20 years, with the goal of owning about 5% of the total supply.

“Bitcoin has been appreciating since its inception. It would be an asset that could help solidify the US dollar as the global reserve currency and serve as a reserve that could be used to significantly reduce the national debt,” he said. -she explained Thursday.

The industry is excited about this idea. Assuming that the limited supply of the token causes the price to rise, accumulating some bitcoin today could allow the United States to offset increasing debt problems in the years to come.

It is also assumed that the appreciation of bitcoin will offset the weakening of the dollar in the event of a further surge in inflation.

“This is the type of action that would cost us very little financially, but could have a profound impact on our financial health going forward,” crypto bull Anthony Pompliano wrote in a LinkedIn post. calling on the United States to print $250 billion to harvest more bitcoins.

However, not everyone is convinced.

Ananya Kumar, deputy director for the future of money at the Atlantic Council’s Geoeconomic Center, is uncertain about Bitcoin’s role as a hedge against inflation. Unlike gold, she said the currency always tends to follow the stock market.

If the United States invests in a volatile asset, it risks having downstream effects on the economy, she told BI.

Under Senator Lummis’ proposal, the United States would convert gold certificates held by the Federal Reserve to their current fair market value before selling them and using the proceeds to purchase bitcoin.

That’s not inconsequential, Kumar said: “It’s incredibly inflationary, and you’re going to have to rethink how the Fed works. You’re sort of adding a time component to all of this.”

Other questions remain, such as whether the American public – most of whom do not own bitcoin – will welcome the idea.

Whatever the obstacles, investors are largely optimistic that a reserve will arrive next year. According to the Kalshi betting market, there is a 64% chance of this happening before 2026.

But it may all depend on Congress, where support appears to be lacking at present, said crypto billionaire Michael Novogratz.

“Although Republicans control the Senate, they don’t have 60 seats,” the Galaxy founder told Bloomberg TV, while questioning the need for a reservation.

For those hoping the new administration can create the reserve through executive action, that will require guardrails that may be too large for an executive order to manage, Mason said.

“Who controls the scale? Who controls the ability to buy and sell?” he told Business Insider.

Congress will ultimately have to work with the Federal Reserve and Treasury, and that could take some time. Kumar and Mason said they did not expect Capitol Hill to prioritize the reservation. Even in terms of crypto legislation, other bills will likely come first.

What would happen to Bitcoin?

Novogratz predicted that the event would amount to such a paradigm shift that it would send bitcoin to $500,000. His predictions are based on the idea that other countries would feel pressure to follow suit and establish their own bitcoin reserves.

The same theory explains why Matt Mena, crypto research strategist at 21Shares, previously told BI that bitcoin could hit $1 million “almost overnight.”

“Such a move would trigger a rush by other countries to gain an advantage over the United States and its neighbors, spurring global competition to build up reserves,” he said by email. “In this scenario, the total market capitalization of Bitcoin could easily exceed that of gold.”

Kumar doesn’t expect the impact of the reservation to be that direct. Crypto bulls can take a cue from the fact that countries tend to have oil reserves and the price of oil can be affected by this. increase or reduce their stock.

However, the difference is that oil is of strategic importance during major supply disruptions, while the importance of bitcoin as an asset that governments can own is still debated.

Read the original article on Business Insider