If Trump really announces Bitcoin as a strategic reserve asset, what impact will it have?

Author: Kaori, BlockBeats

Last weekend, rumors spread widely that Trump would announce BTC as a strategic reserve asset for the U.S. at the Bitcoin 2024 conference, accompanied by Bitcoin quickly returning to $68,000, which boosted market sentiment significantly. Everyone is looking forward to seeing this "crypto president" make another bold move at the Bitcoin conference this weekend.

What is a National Strategic Reserve Asset

A national strategic reserve asset refers to the assets held by a country to cope with economic uncertainties, external shocks, or other emergencies. These assets typically include traditional safe-haven assets like gold, foreign exchange reserves represented by the U.S. dollar, euro, and yen, reserve assets allocated by the International Monetary Fund (IMF) such as Special Drawing Rights (SDR), as well as government bonds, deposits denominated in foreign currencies, and other highly liquid assets.

The composition and management of reserve assets play a crucial role in a country's economic stability and its relationship with international financial institutions like the IMF.

Dennis Porter, co-founder of Satoshi Action Fund and also a participant at the Bitcoin conference, stated on social media that the most likely direction for Bitcoin to become a U.S. strategic reserve asset is to become part of the U.S. Treasury's Exchange Stabilization Fund (ESF).

The ESF is a special fund operated by the U.S. Treasury established under the Gold Reserve Act of 1934, with the primary goal of stabilizing the value of the U.S. dollar. The ESF provides the Treasury with tools to conduct monetary and gold operations to influence exchange rates and promote stability in the foreign exchange market. Nowadays, Bitcoin is widely regarded as a foreign currency in the U.S.

10x Research analyst Markus analyzed that the U.S. government currently holds about 212,847 Bitcoins, valued at approximately $15 billion, while its total gold reserves amount to about 261.5 million troy ounces, valued at around $600 billion. If the Bitcoin holdings were to double (to $15 billion), it would be nearly equivalent to the net inflow of funds into Bitcoin spot ETFs year-to-date ($16 billion), which would undoubtedly have a more significant signaling effect.

On July 25, pro-crypto Wyoming Republican Senator Cynthia Lummis planned to announce Bitcoin strategic reserve legislation at the Bitcoin conference. Although the specifics of the bill are unclear, according to someone who has seen the draft, the bill aims to instruct the Federal Reserve to purchase Bitcoin and hold it as a reserve asset, similar to how the U.S. central bank holds gold and foreign currencies, to help manage the U.S. monetary system and maintain the stability of the dollar's value.

Lummis hinted at a major announcement on her X account: "Big things are happening this week, stay tuned."

Asset manager Bryan Courchesne recently discussed the potential for Bitcoin to become a strategic reserve asset for the U.S. government under a future Trump administration on CNBC. According to this asset manager, adopting Bitcoin as a reserve asset would be challenging but not impossible. Courchesne pointed out that the U.S. Department of Justice holds 200,000 Bitcoins, making the U.S. government the largest holder of Bitcoin, second only to the anonymous creator Satoshi Nakamoto. The Department of Justice could simply transfer the Bitcoins to the U.S. Treasury, paving the way for the Treasury to begin accumulating and holding this scarce asset long-term.

If Trump indeed announces at the conference that Bitcoin will be designated as a national strategic reserve asset, what impact will it have on Bitcoin and the crypto industry?

If True, Its Status Would Rival That of Real Gold

The first and foremost impact would be on price; as one of the largest economies in the world, changes in U.S. policy have a significant influence on global financial markets. The news of Bitcoin becoming a strategic reserve asset would trigger a strong market reaction, leading to a sharp increase in demand for Bitcoin and consequently driving up its price.

This would also greatly enhance its mainstream recognition, as other countries and institutions might follow the U.S. lead in incorporating Bitcoin into their reserve assets, further solidifying Bitcoin's position in the global financial system. As more countries and institutions adopt Bitcoin as a reserve asset, its nature would lead holders to prefer long-term holding, potentially reducing the volatility of the Bitcoin market.

However, before that, we need to recognize that for an asset to become a national strategic reserve asset is not determined by a single individual. Even if Trump is elected as the new president, he cannot unilaterally make Bitcoin a strategic reserve asset. This process will involve extensive deliberation among policymakers, economists, and financial experts, and will require approval from Congress and coordination with the Federal Reserve and the Treasury.

Once everything is settled, to protect and manage its strategic reserve assets, the U.S. may develop and implement clearer and stricter cryptocurrency regulatory policies. These policies could have far-reaching effects on the entire cryptocurrency market, prompting other countries to strengthen their own cryptocurrency regulations.

As the importance of Bitcoin increases, the relevant infrastructure and technology will also be further developed. This includes more secure storage solutions, more efficient trading systems, and more comprehensive legal and regulatory frameworks.

The role of Bitcoin as a strategic reserve asset could change the structure of existing financial markets. The title of "digital gold" would challenge the status of traditional assets (such as gold and government bonds) in reserve assets, leading to changes in portfolio diversity and risk management strategies.

Regardless of the final outcome, the crypto industry has undoubtedly entered a more mainstream social view through politics.