US Strategic Bitcoin Reserve, Purpose, Function and Benefits

President Trump's executive order establishes a U.S. Strategic Bitcoin Reserve using seized assets, aiming to bolster the cryptocurrency sector and position the U.S. as a leader in digital finance.

Table of Contents

Context: US President Donald Trump has signed an executive order establishing a Strategic Bitcoin Reserve and a US Digital Asset Stockpile.

About US Strategic Bitcoin Reserve (SBR)

Strategic Bitcoin Reserve (SBR) is a newly established national reserve of Bitcoin.
It is the first official Bitcoin reserve held by a government as a strategic asset.
The reserve will not be used for sale or trading but instead will function as a store of value for the US government.
President Trump has also mentioned four other coins apart from Bitcoin which would be part of the digital asset stockpile – Ethereum, XRP, Solana and Cardano.

Purpose of the Strategic Bitcoin Reserve

To strengthen US financial resilience by holding decentralized digital assets.
Position the US as a leader in the global crypto economy.
Prevent premature selling of Bitcoin that has cost taxpayers over $17 billion in lost value.
Ensure proper management and security of forfeited Bitcoin holdings.

How Will the US Strategic Bitcoin Reserve Function?

Source of Bitcoin Holdings: The reserve will not purchase Bitcoin but will be capitalized with Bitcoin that has been:
- Seized in criminal or civil asset forfeiture cases by agencies like the US Department of Treasury and the Department of Justice.
- Transferred from other US government agencies that own Bitcoin.
- It is estimated that the US government currently holds 200,000 BTC.
Management of the Reserve: The US Treasury Department will oversee the reserve.

Policy on Selling Bitcoin

US will NOT sell Bitcoin from the reserve.
Bitcoin will be maintained as a long-term reserve asset, similar to gold reserves.
The US Digital Asset Stockpile, separate from the SBR, will contain other cryptocurrencies that can be sold.

About Strategic Reserve

A strategic reserve is a stock of a critical resource that can be released during a crisis or supply disruption.
Eg. the U.S. Strategic Petroleum Reserve, the world’s largest supply of emergency crude oil, which was created by an act of Congress in 1975 after a 1973-74 Arab oil embargo throttled the U.S. economy.

Strategic Reserves of Other Countries

India’s Strategic Petroleum Reserves (SPRs): Collection of oil stockpiles which the government can use to respond to supply disruptions in the global oil market.
- India’s SPRs have a total capacity of 5.33 million metric tonnes (MMT) of crude oil.
- Locations: Visakhapatnam, Mangalore and Padur.
- Under Construction: Chandikhol (Odisha) & Padur-II (Karnataka)
Canada: It has the world’s only strategic reserve of maple syrup.
China: It also has strategic reserves of petroleum, metals, grains and even pork products.

Functioning of the Bitcoin Reserve

Establishment: Currently unclear if it would require executive powers or Congress approval. Some suggest an executive order to manage Bitcoin through the U.S. Treasury’s Exchange Stabilization Fund.
Composition of Reserve: Could include bitcoin seized from criminal actors by the government. That stands at around 200,000 tokens, worth about $21 billion at the current price.

Benefits of Such Reserve

Global Market Dominance: It will increase U.S. control over the global Bitcoin market, especially against competitors like China.
Economic Advantage: Could reduce U.S. fiscal deficit and strengthen the U.S. dollar.

Risks

Volatile Nature: Bitcoin’s value is uncertain due to volatility and lack of intrinsic use.
Security: Vulnerability to cyber-attacks and market fluctuations.