Considered a Trump ally, Republican Senator Cynthia Lummis plans to push for a Bitcoin Strategic Reserve Act in the next Congress, which would have the U.S. establish a 1 million BTC reserve, about 5% of the current BTC supply. At current market prices, this purchase would cost around $90 billion. If the bill is passed, investor demand for BTC could drive the cost even higher.
Lummis Urges Selling Gold for BTC
However, Cynthia Lummis recently suggested that by selling a portion of the Federal Reserve's gold reserves, a 1 million BTC reserve could be established without increasing the government's deficit. She noted that the U.S. already has financial assets convertible to BTC, namely gold certificates, which would have a neutral impact on the U.S. balance sheet.
Trump had called for establishing a national BTC reserve before the election, planning to use 200,000 BTC seized by the government as a foundation. Cynthia Lummis' proposal would further bolster the BTC strategic reserve, with her bill requiring the BTC to be held for at least 20 years, and assuming its value growth would help reduce the national debt.
However, even with Trump in the White House and what is considered the most crypto-friendly Congress in history taking office, some market observers still believe this proposal will face significant hurdles. A Polymarket wager shows a 30% chance of Trump establishing a BTC reserve.
Theoretically, the Federal Reserve has enough gold reserves to buy 1 million BTC while retaining a large gold holding. According to the Fed's balance sheet, the Treasury currently holds about $11 billion worth of gold certificates, calculated at the statutory price of $42.2222 per ounce set since 1973.
At the current spot price, this gold reserve is worth around $675 billion. However, large-scale government gold sales could depress market prices.
Debate Over a BTC Strategic Reserve
Notably, the pros and cons of the U.S. establishing a BTC strategic reserve have sparked debate. Galaxy Digital founder Michael Novogratz believes the likelihood is low, but if it happens, BTC prices could surge to $500,000 as other countries may feel compelled to establish similar reserves.
MicroStrategy founder Michael Saylor recently stated that a U.S. BTC strategic reserve is the "manifest destiny" of the country, akin to past gold and land acquisitions. He is optimistic Cynthia Lummis' 1 million BTC reserve bill will pass, calling it the greatest trade of the 21st century.
However, Lightspark co-founder and chief strategy officer, and MIT Digital Currency Initiative founder Christian Catalini argued that if Trump implements a BTC reserve strategy and fires the Fed chair, it could mark the end of the Federal Reserve's global monetary policy leadership role.
In Catalini's view, the worst-case scenario is that a BTC strategic reserve would signal doubts about the dollar and the U.S.'s sustainable debt servicing ability, a disastrous strategic blunder that would be a gift to Russia and China, who have long sought to undermine the dollar's global dominance. Issuing a reserve currency is an "exorbitant privilege", and losing this status would mark the end of America's global superpower status.
