What is the concept of a strategic reserve of 1 million BTC?
According to the World Gold Council, as of the third quarter of 2024, the Federal Reserve's gold reserves totaled 8,133.46 tons (about $530 billion), ranking first in the world, while 1 million BTC currently has a market value of nearly $100 billion, which is almost equivalent to 19% of the US gold reserves!
Source:World Gold Council
With the rise of Trump and more and more institutions/enterprises, and sovereign states beginning to consider setting up a "Bitcoin strategic reserve", will Bitcoin's "Knox moment" arrive? Can it become part of the global reserve asset system like gold?
The next ten years may be the key time window for this answer to be revealed.
"Strategic reserve asset", what does it mean?
At the Bitcoin 2024 conference held in July 2024, Trump publicly promised in his speech to "never sell" the Bitcoin held by the government and future acquisitions, and to persist with the concept of "strategic Bitcoin reserves".
Now, with Trump's election and the recent appointment of crypto-friendly figures to key positions such as the US Treasury Secretary, SEC Chairman, and White House Crypto Czar, the idea of the US incorporating Bitcoin into its strategic reserves is undoubtedly one step closer to being realized.
Source:Bloomberg
So what exactly is a "strategic reserve asset"?
Simply put, a "strategic reserve asset" is a critical asset held by a national or regional government, aimed at addressing economic volatility, financial crises or geopolitical risks, and maintaining the country's financial stability, economic security and international competitiveness. They typically have high value and widespread acceptance, security and stability, and liquidity.
At the corporate level, "strategic reserve assets" can also help companies/institutions achieve financial stability, enhance risk resistance, and support their long-term growth strategies, especially during periods of economic volatility, strategic reserve assets are often the first line of defense for companies against risks.
Traditional strategic reserve assets mainly include:
Gold: Widely regarded as a stable value storage tool due to its scarcity and anti-inflation ability;
Foreign exchange reserves: Mainly US dollar-denominated reserve currencies, an important means of supporting international trade and payments;
Special Drawing Rights (SDRs): Allocated by the International Monetary Fund (IMF) to supplement the official reserves of member countries;
This also means that assets that can become "strategic reserves" must have comprehensive advantages such as value stability, global recognition, and convenient circulation, and Bitcoin, as an emerging digital asset, is gradually meeting these conditions and is beginning to be seen as a potential alternative to gold.
It is worth noting that in addition to Trump's "promise", on July 31, 2024, US Senator Cynthia Lummis also submitted the "American Bitcoin Strategic Reserve Act of 2024" to the US Congress, which explicitly requires the "US Treasury Department to purchase 1 million BTC within 5 years and hold them for at least 20 years, unless used to repay outstanding federal debt", and even plans to require the Federal Reserve to "use a certain amount of net income each year to purchase Bitcoin".
The goal of this plan is to ensure that the US government can hold a large amount of Bitcoin over the next twenty years, providing the country with a long-term financial hedging tool. The bill has been submitted to the US Senate Banking, Housing and Urban Affairs Committee and needs to be discussed and voted on, and then sent to Trump for signature after passing both houses.
Source:congress.gov
Why Bitcoin, besides gold and foreign exchange?
To some extent, gold reserves are not absolutely the more the better.
First, gold as a physical asset does not generate interest or income, and also lacks liquidity income, which is also the main reason why Buffett has always held a negative attitude towards it - "Gold does not pay you interest, so it does not have the effect of compound interest".
More importantly, maintaining gold reserves incurs high management and maintenance costs, especially for the vast majority of countries, how to effectively manage and protect gold reserves has become an unavoidable fiscal burden, such as the world-famous Federal Reserve's main gold warehouse "Fort Knox", in order to ensure the security of gold storage, has invested an astronomical amount of resources:
Not only is it located in the strategic heartland of Kentucky, USA, but it is also deeply buried underground, surrounded not only by thick steel and concrete walls and 24/7 security equipment, but also permanently guarded by thousands of soldiers, making the storage of gold reserves not only a security need, but also a long-term and expensive fiscal investment.
Source:US Mint
In comparison, the storage cost of Bitcoin is almost negligible, requiring no physical storage space and no need for expensive protection facilities, just relying on secure wallets, multi-signature technology and the decentralized network verification system to achieve efficient storage and management.
At the national level, the storage cost of Bitcoin is mainly concentrated in technology and network maintenance, far lower than the physical protection cost of gold, which also means that even if Bitcoin does not generate direct income, its holding cost is still significantly lower than gold, leaving more room for asset net growth.
At the same time, the trading of physical gold often involves complex processes such as physical delivery, storage, and transportation, which may take days or even weeks, and the gold market is usually limited by the trading time and geographical restrictions of the traditional financial system, Bitcoin can be traded 24 × 7 on exchanges, covering the global market.
In addition to gold, foreign exchange reserves (such as the Euro, Yen, etc.) as fiat currencies issued by other countries, their value not only depends on the economic conditions of the issuing country, but may also be affected by geopolitical risks, while the scarcity of Bitcoin is not affected by monetary policy intervention, avoiding the risk of devaluation due to excessive issuance, and allowing any holder (whether individual, institution or sovereign state) to freely store, transfer and trade globally.
This decentralized feature ensures that Bitcoin is not affected by political and economic interference, and even in times of global turmoil, its value storage function can still play a stabilizing role.
Enterprises/Institutions and Sovereign States are Becoming BTC "Pixiu"
For this reason, the Bitcoin, which now has a total market value of $2 trillion, is gradually being seen as a potential reserve tool due to its lack of physical storage, global circulation, high transparency and anti-inflation characteristics. More and more companies/institutions, and even sovereign states, are beginning to explore incorporating Bitcoin into their strategic reserve asset systems.
U.S. Government: One of the Largest Bitcoin Holders in the World
Surprisingly, the U.S. government is actually one of the largest Bitcoin holders in the world. Over the years, the U.S. has seized a large amount of Bitcoin through law enforcement actions from cybercriminals, money laundering organizations, and Dark Web markets, and still holds about 200,000 bitcoins, worth nearly $20 billion as of the time of writing.
As the "most crypto-friendly president" in U.S. history (at least in public statements), it remains to be seen whether Bitcoin will be incorporated into the federal reserve asset system during Trump's next 4 years. However, it can be certain that the Bitcoin held by the U.S. government may no longer be sold off as frequently as in the past, but may gradually explore its longer-term strategic significance.
Source:Arkham
El Salvador: Daily DCA of 1 BTC
El Salvador is the first country in the world to establish Bitcoin as legal tender, having passed the relevant legislation as early as September 7, 2021. It has since launched the Chivo digital wallet and pre-loaded $30 worth of Bitcoin for each resident who downloads the wallet, not only integrating Bitcoin into the national economic system, but also demonstrating its firm "Bitcoinization" path.
Moreover, whenever the crypto market experiences violent fluctuations, El Salvador's President Nayib Bukele often announces Bitcoin purchases on social media, injecting confidence into the market. Currently, El Salvador continues to buy 1 BTC per day, and after rounds of "buy the dips", as of December 10, its BTC holdings have reached 5,959.77 BTC, with a holding value of about $577 million.
Although this holding is not considered large globally, as a small economy, this firm Bitcoin strategy is noteworthy and provides a unique case study for other countries.
Source:Bitcoin Office
MicroStrategy, "All in" on Bitcoin
In addition to sovereign states, the publicly traded company MicroStrategy is undoubtedly the absolute representative in the field of Bitcoin "hoarding" - its "buy, buy, buy" strategy for Bitcoin has long been a high-profile move, and its holdings have already exceeded the reserves of any sovereign state publicly disclosed.
The news of MicroStrategy's public Bitcoin purchases can be traced back to August 11, 2020, when it spent $250 million to purchase 21,454 bitcoins, with an initial cost of about $11,652 per bitcoin. It then embarked on an unstoppable path of increasing its holdings, and the most recent publicly disclosed purchase was on December 9, when it purchased 21,550 bitcoins for about $2.1 billion, at an average price of $98,783 per bitcoin.
As of December 8, 2024, MicroStrategy has acquired 423,650 BTC at a cost of about $25.6 billion, at an average price of $60,324 per bitcoin. At the current price of $97,000, the holding has an unrealized loss of about $15.5 billion.
"Hodling" Bitcoin, Tesla
On December 20, 2020, after Microstrategy's Michael Saylor suggested that other CEOs emulate him, Elon Musk first expressed interest in buying Bitcoin, and soon after, in late January 2021, Musk changed his Twitter bio to #Bitcoin, and Tesla eventually announced the purchase of $1.5 billion worth of Bitcoin in February 2021.
Tesla then sold 10% of its Bitcoin in the first quarter of 2021, according to Musk, to "test liquidity and prove that Bitcoin's liquidity is sufficient to make it a viable alternative to cash on the balance sheet".
According to Arkham data, as of the time of writing, Tesla's Bitcoin holdings have reached 11,509 BTC, with a holding value of about $1.1 billion.
Source:Arkham
Other Countries and Mainstream Enterprises/Institutions: Bitcoin Reserves Heading Towards Mainstream
It is worth noting that the strategic value of Bitcoin is gradually being transmitted from the national level to the corporate and institutional level. Although the reserve layout of countries will directly affect the policy environment, enterprises are the main practitioners of adoption. Therefore, Bitcoin is not only a hedging tool, but is also gradually becoming a strategic component of corporate balance sheets.
Recently, tech giants like Microsoft and Amazon have also been actively encouraged by investors to incorporate Bitcoin into their balance sheets. MicroStrategy's founder Michael Saylor has even directly suggested to Microsoft's board of directors to invest in Bitcoin, believing that this move can significantly increase the company's value and create long-term returns for shareholders.
At the same time, the National Center for Public Policy Research, a conservative think tank in the U.S., has also proposed that Amazon should invest 1% of its total assets in Bitcoin, with the aim of enhancing shareholder value and hedging against the risk of traditional currency devaluation.
From an objective perspective, the incorporation of Bitcoin into the balance sheets of mainstream institutions and traditional enterprises can indeed bring the following multiple advantages to the enterprises:
Anti-inflation capability: The scarcity of Bitcoin with a fixed total supply of 21 million endows it with strong anti-inflationary properties, which can help enterprises stabilize asset values in the environment of global monetary easing and fiat currency depreciation;
Diversified investment portfolio: As a new asset class, Bitcoin provides enterprises with opportunities for rich asset allocation, reducing their dependence on a single asset class and enhancing overall financial resilience;
Enhance corporate brand and market image: Holding Bitcoin not only reflects the enterprise's support for innovative technologies and future economic models, but can also enhance the enterprise's competitiveness in the market and create a more forward-looking brand image;
However, in the process of incorporating BTC into the balance sheet, enterprises need to solve two key issues: how to safely custody large-scale assets, and how to efficiently execute OTC (over-the-counter) transactions to avoid market impact.
This makes professional custodial and OTC service providers an indispensable part of the equation. Taking the custodial service of Hong Kong's first licensed exchange OSL as an example, it designs independent wallets for each client and is protected by a bankruptcy-isolated trust structure to ensure the absolute security of the client's BTC.
In addition, OSL has currently collaborated with leading insurance giants like Canopius to expand its insurance coverage to $1 billion, covering a variety of potential asset loss scenarios such as cyber attacks, fraud, and technical failures.
In terms of OTC, as a regulated and licensed compliant platform, OSL can achieve near-instant fiat settlement thanks to its close cooperation with major Hong Kong banks, and its deposit and withdrawal processes strictly follow rigorous mechanisms, greatly reducing the risk of bank account freezing.
Bitcoin in the Next Decade: Speculative Asset or Global Strategic Reserve?
Today, Bitcoin has grown from a marginalized asset to an emerging candidate for a global strategic reserve, with more and more powers, from sovereign states to mainstream institutions/traditional enterprises, redefining its role. Its scarcity, decentralized nature, and high transparency make it widely regarded as "digital gold".
Although its price volatility remains a focus of external debate, the adoption of Bitcoin is progressing at an undeniable pace. If the "strategic reserve asset" concept proposed by Trump becomes a reality, the status of BTC will undoubtedly closely follow that of gold, and its strategic significance may even surpass gold:
While gold has physical scarcity, its distribution and trading depend on a complex logistics and regulatory system, whereas Bitcoin, relying on blockchain technology, requires no physical storage or transportation, and can achieve borderless rapid circulation. This feature makes it more suitable as a reserve asset for states and institutions in the global financial system, and it can undertake more strategic responsibilities.
Against this backdrop, the potential of Bitcoin as a global strategic reserve asset will be fully unleashed in the next decade, and its application scenarios may also be further expanded.
Whether it is a national-level "long-term hoarding" plan or a corporate/institutional "buy and hold" strategy, the global influence of Bitcoin is expanding at an undeniable pace. Global national leaders, as well as globally renowned companies like MicroStrategy, Microsoft, and Amazon, have become the best advocates for Bitcoin, greatly promoting the acceptance of cryptocurrencies in the global market.
From this perspective, whether providers of "key bridge" digital asset financial services like OSL can help enterprises and institutions overcome challenges from custody to trading across the entire process is undoubtedly crucial. As more and more enterprises/institutions and countries/regions deploy Bitcoin, the infrastructure construction in this field will undoubtedly play a more important role in the future.
"The light boat has crossed the mountain." Whether Bitcoin can become the strategic reserve asset of the United States or other countries in the next 4 years, it has already won an important victory on the path of adoption.
