How Likely Is the Strategic Bitcoin Reserve and How Will It Impact Bitcoin's Price?

Thanks to this year's rally in Bitcoin (CRYPTO: BTC), which recently broke through the $100,000 price level, the concept of a strategic Bitcoin reserve has rapidly transformed from an arcane campaign issue into an economic idea worthy of serious consideration. There's even a piece of legislation, the Bitcoin Act of 2024, that lays out how it might become a reality as soon as next year.

But just how likely is this to occur? And what would be its impact on the price of Bitcoin? Let's take a closer look.

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What is the strategic Bitcoin reserve?

From a conceptual standpoint, the strategic Bitcoin reserve is similar to the Strategic Petroleum Reserve, created in 1975 in response to the energy crisis of that era. The goal at the time was to build a stockpile of 1 billion barrels of petroleum, to cushion the U.S. economy against potential external supply shocks.

Similarly, the strategic Bitcoin reserve is being created in response to economic problems currently facing the U.S. government, including a massive national debt of $35 trillion. According to Michael Saylor, founder and Executive Chairman of MicroStrategy, the strategic Bitcoin reserve would help stabilize the U.S. economy, strengthen the U.S. dollar, and establish the U.S. as the global leader in the digital economy.

And, if Bitcoin's price continues to soar over the next decade, the strategic Bitcoin reserve might eventually be used to pay down the $35 trillion in national debt. As Saylor recently suggested, the strategic Bitcoin reserve has the potential to create as much as $81 trillion in new wealth for the U.S. Treasury.

Why has the concept garnered so much support?

The concept of the strategic Bitcoin reserve first broke into the public consciousness in July 2024, during a Bitcoin conference in Nashville, when U.S. Senator Cynthia Lummis (R-Wyoming) outlined details of how it would work. Since then, it has taken on a life of its own, with personal support coming from Donald Trump.

As the Trump administration sees it, the creation of the strategic Bitcoin reserve dovetails nicely with the goal of making America "the crypto capital of the world." And it fits into Trump's plans to support the Bitcoin mining industry within the U.S.

Image source: Getty Images.

The current version of the strategic Bitcoin reserve, as laid out in the Bitcoin Act of 2024, would require America to buy 1 million Bitcoins over the next five years, roughly equal to 5% of the total supply of Bitcoin in the world.

The appeal of the strategic Bitcoin reserve goes far beyond the rallying cries of the "Make America Great Again" crowd. It also appeals to fiscal conservatives, who are calling on America to rein in its spending and pay down its debt. And, since Bitcoin is typically referred to as "digital gold," the concept of the strategic Bitcoin reserve also has appeal for anyone calling for a return of the U.S. economy to the gold standard.

But will it actually happen?

While there are legitimate reasons for a strategic Bitcoin reserve, the math behind it may not work. For example, according to one estimate, for the strategic Bitcoin reserve to have any realistic chance of helping to pay down the $35 trillion national debt, the market cap of Bitcoin would need to soar well past its current level of $2 trillion. It would need to skyrocket to a value of $1 quintillion.

Moreover, the actual logistics of how the reserve would work are unclear. If the plan is simply to buy all this Bitcoin with existing dollars, then it might lead to runaway inflation and an even bigger national deficit. So one idea is to sell gold reserves held by the U.S. government, and then use those proceeds to buy Bitcoin.

There's a lot of discussion that needs to take place to make the strategic Bitcoin reserve a reality. Right now, prediction markets are giving it about a 33% chance of happening within the first 100 days of the Trump presidency.

From my perspective, the creation of a strategic Bitcoin reserve is far more likely to happen at the state level first. Ten U.S. states have already proposed some form of a Bitcoin reserve, including Texas, Florida, and Pennsylvania. The Texas proposal is especially interesting, because it suggests that the state might be able to build up a Bitcoin reserve simply by encouraging Bitcoin miners in the state to pay their taxes in Bitcoin.

Impact on Bitcoin

Given the influential role of the U.S. in the global economy, creating a strategic Bitcoin reserve would likely encourage other nations to start buying Bitcoin in bulk. Already, a handful of nations have hatched plans for a Bitcoin reserve. And some have suggested that China and Russia could get into the act, if this turns into a "Bitcoin arms race" between rival superpowers.

That's why the strategic Bitcoin reserve could send Bitcoin's price soaring. It would set off an unprecedented wave of Bitcoin buying by governments around the world. And it would help speed up the mainstream adoption of Bitcoin as the world's premier digital currency.

Keep your eyes on what's happening in states such as Texas. Once a few states figure out the logistics of how a strategic Bitcoin reserve would actually work, that's when action can happen at the federal level. If all goes according to plan, the strategic Bitcoin reserve could become the mega-catalyst that launches Bitcoin on an epic rally for years.

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Dominic Basulto has positions in Bitcoin. The Motley Fool has positions in and recommends Bitcoin. The Motley Fool has a disclosure policy.