Author: James Butterfill, Head of Research at CoinShares
Source: CoinShares Translated by: Shan Ouba, Jinse Finance
We believe that the passage of the 'Bitcoin Law' will have a more far-reaching long-term impact on Bitcoin than the launch of ETFs. Although the inflow of ETP funds reached a record $44.2 billion in 2024, more than four times the previous year, indicating the successful launch of ETFs, we have not yet seen a significant increase in institutional investor interest in Bitcoin as an asset class.
Through extensive engagement with institutional clients, CoinShares has observed that one of the main barriers to investing in Bitcoin is its credibility among peers. Many are concerned about being mocked for suggesting the inclusion of Bitcoin in their portfolios, even though many of them already hold Bitcoin in their personal accounts.
The passage and implementation of the 'Bitcoin Law' will earn Bitcoin the endorsement of the world's largest government, significantly reducing the stigma faced by institutional investors. If other governments follow suit, this development could lead to a massive influx of assets into Bitcoin in the coming years.
Exploring Bitcoin as a Strategic Reserve
Many countries are considering including Bitcoin in their strategic reserve assets to diversify their financial assets and hedge against economic uncertainty. Here are some notable examples:
United States
• President-elect Donald Trump: Signed an executive order to retain existing Bitcoin reserves.
• Senator Cynthia Lummis: Introduced the 'Bitcoin Law', proposing that the US Treasury purchase up to 1 million Bitcoins over five years.
Currently, the US is pursuing two different paths to establish a strategic Bitcoin reserve. The first and most impactful, politically challenging path is the Bitcoin Law proposed by Senator Cynthia Lummis.
Under this law, the US would establish a strategic Bitcoin reserve and issue US dollar-denominated bonds to purchase 1,000,000 Bitcoins, or slightly less than 5% of the total fully diluted Bitcoin supply, at an average of 200,000 Bitcoins per year over the next 5 years. These funds would be prohibited from being sold for the next 20 years, except to repay US debt. If passed, the 'Bitcoin Law' would become US law, meaning it would compel both the current and future governments to act accordingly.
This would be a landmark event for Bitcoin and could trigger a global wave of Bitcoin purchases by other countries. Given the game theory incentives around Bitcoin acquisition, it would be extremely risky for any country to not follow the world's largest economy in adopting a potential new monetary standard.
While the impact of this law would be enormous, the likelihood of its passage may be quite slim. Getting such a proposal through Congress would be a massive political challenge, and Trump may not see it as a priority worth expending scarce political capital.
The second and more likely path to establishing a strategic Bitcoin reserve is a recently leaked draft executive order that directs the Treasury to do the following:
Take possession and retain all Bitcoins currently owned by any US government agency.
Incorporate Bitcoin as a new reserve asset in the Treasury's Exchange Stabilization Fund (ESF)
Use $21 billion from the ESF to purchase additional Bitcoins and hold them in the ESF
As long as it does not violate the law, the US President can issue executive orders he deems necessary without consulting Congress. Therefore, Trump could decide to issue this order on his own. An executive order is an American policy matter, meaning future governments can revoke or overturn it at their discretion.
Implementing a strategic Bitcoin reserve through an executive order is more likely than through legislation. Its impact would also be smaller and less forward-looking. However, regardless of the method of implementation, the global signaling effect would be evident: Bitcoin is no longer an underground asset unsuitable for serious asset allocators, but a major global reserve asset used by the world's largest government to diversify its investments.
European Union
MEP Sara Skyttedal called for the EU to reject the digital euro and establish a strategic Bitcoin reserve, warning the ECB against the "totalitarian temptation". However, there is no broad consensus within the EU on her views, and the ECB has been critical of Bitcoin and the broader digital asset space.
El Salvador
President Nayib Bukele: In 2021, El Salvador became the first country to adopt Bitcoin as legal tender, aiming to enhance financial inclusion and attract foreign investment.
Brazil
Congressman Eros Biondini: Proposed a bill to establish a sovereign strategic Bitcoin reserve (RESBit), targeting 5% of Brazil's international reserves, to hedge against global risks.
Russia
MP Anton Tkachev: Proposed establishing a national Bitcoin reserve to counter economic sanctions and ensure financial stability.
Poland
Presidential candidate Sławomir Mentzen: Advocated for establishing a strategic Bitcoin reserve and implementing crypto-friendly regulations to position Poland as a crypto-haven.
Argentina
President Javier Milei: A vocal proponent of Bitcoin, criticized the central banking system, and sees Bitcoin as a means to return monetary control to the private sector.
Japan
MP Satoshi Yamada: Inquired with the government about the status of global national Bitcoin reserves and suggested that Japan consider converting a portion of its foreign exchange reserves to Bitcoin.
Canada
Pierre Poilievre: The Conservative Party leader has been a prominent advocate of Bitcoin, emphasizing its potential as an inflation hedge and a decentralized alternative to the traditional monetary system.
Prime Minister Justin Trudeau: Criticized Poilievre's stance on cryptocurrencies, calling the promotion of Bitcoin an irresponsible act.
As a thought experiment, we examined the top 20 countries with gold strategic reserve assets and hypothesized that they might follow the US example and sell 5% of their reserves to diversify into Bitcoin.
Our estimate suggests this would amount to the purchase of $110 billion worth of Bitcoin, representing 5.5% of the total supply.
At first glance, it may seem counterintuitive to hold Bitcoin as an alternative to the US dollar, given that Bitcoin is in direct competition with the dollar. However, regardless of whether the US government likes it or not, the US dollar is gradually losing its reserve currency status, raising questions about the effectiveness of post-Bretton Woods monetary policies. As we have consistently advised our clients, the transition to a "Bitcoin standard" would be highly disruptive to the global economy. But in essence, it is no different from holding gold as a strategic reserve - a method already adopted by governments around the world.
Theoretically, holding a diversified strategic reserve asset could help address government debt issues. Dismissing Bitcoin solely because it competes with the US dollar would be overly simplistic, and we do not agree with those who claim the dollar is not in crisis. In fact, as we emphasized in our 2025 outlook, central banks are diversifying their reserves, and the dollar's share has declined from 71% in 2000 to 59% in 2022 according to IMF data.
If the United States includes in its strategic reserve assets, its credibility will be greatly enhanced, and it may have a profound impact on the price of and the global economy. More and more countries are considering as a strategic reserve, which indicates that is gradually being seen as one of the most robust and immutable assets globally.
