The establishment of a "Strategic Bitcoin Reserve" in the U.S. serves as additional evidence of President Donald Trump’s backing for the crypto industry.
Earlier this month, Trump signed an executive order to create the reserve, which White House cryptocurrency czar David Sacks compared to "a digital Fort Knox." He drew parallels to storing gold bullion at the U.S. military installation.
Countries around the globe keep gold in their reserves because this precious metal is considered a sanctuary asset, shielding them from economic turmoil like soaring inflation.
On Friday, the price of gold exceeded $3,000 per ounce for the first time, driven up by an unstable economic forecast due to Trump's tariffs.
Gold reserves may also assist in stabilizing a nation's currency, whereas bullion serves as security for loans and exchanges.
What would the U.S. Bitcoin reserves function like?
The project will be financed with approximately 200,000 bitcoins, which have an estimated value of roughly $17 billion altogether. These coins were confiscated in the U.S. through various civil and criminal proceedings.
The reservation will be virtually protected for an unspecified period.
Extra bitcoins can be included in the reserve provided that this move remains "budget-neutral," hence not burdening the taxpayers.
Announcement fails to impress
Initially, the price of Bitcoin dropped following Trump’s signing of the executive order; however, it has since stabilized.
Experts have attributed the insufficient backing to not promptly purchasing additional Bitcoin.
Dessislava Aubert, an analyst at crypto data provider Kaiko, told AFP that "legally" the US government must return bitcoin to all victims identified as suffering from a hack.
As per Aubert, "a significant portion" of the bitcoins possessed by the United States -- believed to be approximately 198,000 coins -- would need to be handed back to the individuals affected by a hacking incident at the cryptocurrency exchange Bitfinex in 2016.
Sectors observers are likewise anticipating whether additional digital tokens might join the reserves, as this possibility was highlighted in the executive order.
Trump has said that bitcoin's nearest rival, ether, along with three other tokens -- XRP, Solana and Cardano -- could be added.
What is the reason for copying the gold reserves?
Critics of the US bitcoin reserve argue that, unlike gold, cryptocurrencies are considered high-risk investments and lack inherent worth.
Nevertheless, Sacks thinks that by holding onto bitcoins for an extended period, the government could safeguard itself against the significant short-term fluctuations of the cryptocurrency.
Meanwhile, Stephane Ifrah, an investment director at crypto platform Coinhouse, said that bitcoin, like gold, can profit from its rarity thanks to a limited 21 million tokens.
A benefit of the Bitcoin reserves lies in their transparency, as the number of tokens can always be tracked — which contrasts with the undisclosed quantity of gold stored in Fort Knox.
Moreover, with the bitcoin reserve, "we're handling a scarce asset that aligns better with the modern era," Ifrah stated to AFP.
Molly White, a well-known detractor of cryptocurrencies, argues that the actual purpose of the reserve is "to stimulate interest within the crypto sector," potentially leading to financial gains for investors.
Some have accused Trump of facing a potential conflict of interest after he pledged before his election to turn the United States into the "bitcoin and cryptocurrency capital of the world."
According to The Financial Times, Trump generated $350 million by introducing a meme coin named $TRUMP in conjunction with his presidential inauguration.
According to The Wall Street Journal, the Trump family considered potentially obtaining a share in the Binance platform; however, this was refuted by the cryptocurrency exchange’s founder.
Other country plans
Brazil is mulling over the establishment of a cryptocurrency reserve, a concept that was recently dismissed by the Swiss central bank.
Governments across the globe are engaging in activities related to cryptocurrencies, particularly through the sale of digital assets confiscated during legal proceedings. For instance, this occurred in Germany where they auctioned off 50,000 bitcoins that were seized previously.
El Salvador adopted Bitcoin as an official currency but reversed this decision this year due to low adoption rates among its residents.
The Kingdom of Bhutan possesses approximately $900 million in Bitcoin, which constitutes around 30 percent of the nation's gross domestic product.
