By Stefanie Wyaco, Matthew A. Catania, and Gregory Bailey.
President-elect Donald Trump’s election victory sparked a renewed interest in integrating cryptocurrency into the U.S. government’s economic strategy. During his campaign, Trump proposed the idea of building a national Bitcoin stockpile and creating a dedicated White House role for cryptocurrency. This role could take several forms, including a single advisor or a larger advisory council, and might even extend to managing a Bitcoin reserve.
A New White House Role
A White House crypto advisor or council would play a pivotal role in shaping the nation’s cryptocurrency policies. This figure would likely collaborate with Congress to draft and pass legislation, with the goal of creating a regulatory framework for cryptocurrency in the U.S. Potentially operating under the National Economic Council, the advisor or council would work in close coordination with regulatory agencies, signaling the administration’s commitment to fostering innovation while addressing current regulatory inefficiencies.
The potential creation of a Bitcoin or crypto reserve would add a new layer of complexity. Managing such a reserve would require deep coordination among the Federal Reserve, Treasury, CFTC, and SEC. While the CFTC and SEC have put forth crypto-related advisory notices and orders appearing to regulate certain activity, the industry still lacks clear consistent guidance despite the SEC taking enforcement actions—all of which is likely to change under the Trump Administration. Whereas the Federal Reserve oversees the country’s monetary policy, supervises and regulates financial institutions, conducts payment and settlement safety and efficiency, and promotes consumer protection. Much like the Federal Reserve, a Bitcoin reserve would serve as a strategic asset, with monetary authorities regulating its use for purposes like consumer protection, financial stability, and enforcing debt policies.
One of the central questions surrounding the creation of a Bitcoin reserve is how to handle exchanges, which play a crucial role in the trading and liquidity of cryptocurrencies. Two types of exchanges are often discussed: centralized and decentralized. Centralized exchanges, operated by a single entity, offer a degree of consumer protection, such as Know Your Customer (KYC) requirements through identity verification and Anti-Money Laundering (AML) requirements through transaction monitoring, suspicious activity reporting, proof of funds requests, and restrictions in certain jurisdictions. These measures help centralized exchanges comply with applicable consumer protection laws and financial reporting obligations, and attract institutional investors, while offering a broad range of supported cryptocurrencies.
Decentralized exchanges, on the other hand, operate on blockchain technology and allow for peer-to-peer trading, and often require purchasing native tokens for the transaction fees. Decentralized exchanges also offer more privacy, including anonymity and minimal data collection due to the lack of KYC requirements, which aligns with Bitcoin’s original purpose. The blockchain technology is supported by secure cryptography encryption, which creates a unique publicly available signature for each transaction such that the subsequent blocks are linked to previous transactions and cannot be modified without modifying the entire chain. This is an efficient method to automate decentralized transactions with smart contracts, reduces middlemen transaction fees, and offers near-instant settlement of funds.
Deciding how the government plans to interact with these types of exchanges and potentially integrate a Bitcoin reserve, whether via an exchange or not, will be pivotal for the crypto space moving forward. A government Bitcoin reserve could serve as a potential stabilizer and exchange, regardless of Bitcoin’s classification status, whether as an asset, commodity, or currency. However, national reserves may trigger global competition for additional reserves that can cause higher demands with less supply. Therefore, a formal role overseeing a reserve, policy implications, and regulations would be a logical step.
What a National Bitcoin Reserve Would Look Like
U.S. Senator Cynthia Lummis of Wyoming has already proposed a plan for building a national Bitcoin reserve, and she intends to revisit it in January 2025. Senator Lummis’ plan envisions the accumulation of one million Bitcoins over the next 20 years, with the goal of positioning the cryptocurrency as a hedge against inflation and as a complement to the U.S. dollar. Senator Lummis’ proposal would convert a portion of the Federal Reserve’s gold certificates into Bitcoin assets.
Proponents of a reserve argue it will reduce the national debt, free up U.S. dollars for other uses, and position Bitcoin as a long-term financial asset. Already, some investors and organizations are moving toward a similar strategy. Tether, for example, a leading stablecoin issuer, has amassed a large reserve of U.S. Treasury bills, indirectly backing Bitcoin and supporting its use as a stable asset. Tether tokens, USDT, are stablecoin assets tied to real-world currencies on a one-to-one basis. Stablecoins are blockchain based currencies that are tied to fiat currencies. Stablecoins are intended to reduce volatility for traders and businesses, especially crypto exchanges, wallets, and payment processors. Tether, or the like, could indirectly support a Bitcoin reserve by providing stable dollar-backed liquidity and foster Bitcoin-backed lending.
Challenges Ahead: Congressional Approval and Public Skepticism
While the momentum for a national Bitcoin reserve is growing, the path to implementation will face significant hurdles, particularly when it comes to securing Congressional approval. Lawmakers will need to address concerns around inflation, economic volatility, and the broader implications of such a reserve on the U.S. financial system. Public skepticism about cryptocurrency, combined with regulatory uncertainty, and active litigation may slow progress, despite the seemingly crypto-friendly administration.
Nevertheless, the increasing institutional and governmental interest in cryptocurrencies world-wide suggests that the conversation around Bitcoin as a strategic asset will only intensify. How the new administration navigates these discussions, and whether Congress shares the same enthusiasm, will shape the future the global crypto market and the United States’ role in it.