The U.S. election results have sparked a whirlwind of excitement in the cryptocurrency space. With Donald Trump’s unexpected victory, Bitcoin has soared to unprecedented heights, nearing the $100,000 mark. This surge has investors and enthusiasts holding their breath. Other cryptocurrencies like Solana and Ripple’s XRP have joined the rally, with XRP even recording triple-digit growth.

The crypto sector, already celebrating the election of a pro-crypto president who plans to slash financial regulations, is now abuzz with speculation about the ambitious promises Trump made during his campaign. Among these, one proposal stands out: the creation of a strategic Bitcoin reserve for the United States.

While experts warn that Trump’s ability to fulfill these promises remains uncertain, the crypto world is optimistic. In a symbolic move, SEC Chairman Gary Gensler—long seen as a crypto skeptic—has announced his resignation, effective the moment Trump takes office. Meanwhile, Trump has nominated Scott Bessent, a vocal crypto supporter, to head the Department of the Treasury. This shift in leadership has further fueled hopes of a new crypto-friendly era.

What Is a Strategic Bitcoin Reserve?

A strategic reserve is a collection of assets, controlled by monetary authorities, designed to meet critical financial needs or stabilize markets. Countries often maintain reserves of gold, foreign currencies, or essential commodities like oil. Trump’s proposal would add Bitcoin to this list, diversifying the U.S.’s financial reserves and potentially cementing its role in the future of digital finance.

If implemented, this would be similar to how central banks currently manage gold reserves. However, the specifics remain unclear. Key questions include which authority would manage this reserve—the Federal Reserve or another institution—and how it would be funded. Options include selling existing assets like gold, issuing more debt, or even “printing money” by expanding the Fed’s balance sheet.

Interestingly, the U.S. already possesses a considerable amount of Bitcoin—about 208,109 tokens valued at nearly $20 billion. These assets stem from seizures, including the infamous 2013 Silk Road case. Trump’s campaign has also hinted at pardoning Ross Ulbricht, Silk Road’s creator, further intertwining his presidency with Bitcoin’s narrative.

The Bitcoin Act of 2024: A Framework for the Reserve

One of the most detailed proposals for a Bitcoin reserve comes from pro-crypto Senator Cynthia Lummis. Her Bitcoin Act of 2024 outlines a plan for the Treasury and Federal Reserve to purchase 200,000 bitcoins annually over five years, totaling one million tokens—around 5% of Bitcoin’s total supply. These reserves would be held for at least 20 years, serving as a hedge against the devaluation of the U.S. dollar and bolstering the country’s balance sheets.

The Act proposes two funding mechanisms: using profits returned by the Federal Reserve to the Treasury and revaluing gold certificates held by state central banks. Currently, these certificates are valued at an outdated price of $42 per ounce, while gold’s market price is significantly higher. This reassessment could unlock hundreds of billions of dollars to fund Bitcoin purchases.

State-Level Initiatives

The push for Bitcoin reserves isn’t limited to the federal government. Pennsylvania Representative Mike Cabell has introduced legislation to allow the state treasury to invest up to 10% of its funds in Bitcoin. This initiative aims to hedge against inflation and diversify the state’s portfolio, though its specifics are still under development.

Global Precedents

While the U.S. considers its Bitcoin strategy, other countries have already ventured into crypto reserves. El Salvador, the first nation to adopt Bitcoin as legal tender, has acquired nearly 6,000 bitcoins. Bhutan, leveraging its abundant hydroelectric power for mining, holds over 12,000 bitcoins. Meanwhile, countries like the UK and China have accumulated significant amounts of Bitcoin through confiscations.

Expert Opinions: A Mixed Bag

Analysts have mixed views on the feasibility and implications of a U.S. Bitcoin reserve. Some believe it’s a logical step in diversifying national reserves. Luis Garvía, a financial risk expert, sees Bitcoin’s inclusion as “absolutely reasonable” given its growing importance.

Others, like Carlos Salinas, note the impact of Trump’s proposal on Bitcoin’s price, though they doubt the U.S. can amass the amounts proposed. Javier Molina, a senior market analyst, remains skeptical about Bitcoin’s ability to serve as a stable store of value, likening it to “digital gold” but stressing its volatility.

David Tercero-Lucas, an economics professor, argues that Bitcoin lacks the key traits of reliable reserve assets, such as stability and widespread acceptance. He highlights the risks of selling gold to buy Bitcoin, especially since Bitcoin’s role as a strategic reserve remains untested in crises.

Challenges Ahead

Despite the enthusiasm, several hurdles remain. Jerome Powell, chair of the Federal Reserve, has expressed skepticism about Bitcoin and its role in monetary policy. Powell’s independence as Fed chair means Trump cannot easily push this agenda through.

Market dynamics also pose a challenge. Purchasing 200,000 bitcoins annually in the current market could significantly drive up prices, concentrating Bitcoin’s supply in U.S. hands. This could lead to unintended consequences, including accusations of market manipulation.

A Visionary Proposal or Overhyped Speculation?

While Trump’s Bitcoin reserve proposal has energized the crypto community, prediction markets suggest skepticism, estimating only a 30% likelihood of its realization. The initiative, if implemented, could reshape global finance, encouraging other nations to follow suit. However, its execution faces significant political, economic, and logistical barriers.

For now, the crypto world watches and waits, with Bitcoin investors riding the wave of optimism sparked by Trump’s pro-crypto promises. Whether this wave leads to lasting change or fades as another political headline remains to be seen.