US President Donald Trump has announced that work has started on creating a crypto reserve and detailed the tokens to be used.
Bitcoin, Ethereum, XRP, SOL and ADA are tokens Trump listed to be included in the reserve, announced via a post on his social media platform Truth Social. Since the announcement, the price of Bitcoin has increased substantially though other coins have not fared so well.
This development follows his executive order, “Strengthening American Leadership in Digital Financial Technology”, which was signed in January and created a working grou tasked with exploring the creation of a “strategic national digital assets stockpile.”
Essentially a federal crypto reserve, this stockpile aims to reduce the country’s debt while making the US “the crypto capital of the world”, according to Trump.
This concept first gained attention when Wyoming Senator Cynthia Lummis introduced related legislation last July. US national debt currently exceeds $36.2trn, though Lummis believes this can be halved in 20 years.
To execute this plan, the US government would be required to purchase 200,000 Bitcoins annually using physical gold reserves and hold them for 20 years.
“We know that since inception Bitcoin has grown about 55% per year, but that number is not infinitely sustainable; it is going to start declining. So on a decline curve, it will go 45%, 35%, 25%, and we have projected it out,” Lummis explained.
“In 20 years, we believe that a $1m reserve 20 years from now would be half of our current national debt.”
It isn’t only at the federal level that politicians are looking to implement this idea, as 11 states have introduced legislation to establish strategic Bitcoin reserves. Among these is Utah, which has been tipped as the most likely to implement the idea first due to its 45-day legislative calendar.
While on paper the plan is credible, some experts have raised concerns about the cost of the idea. Journalist Jim Stewart is one of those and voiced his opinion of the project on his blog.
He wrote: “In the last five years, the price of Bitcoin has gone from about $7,500 to over $100,000. If the price of Bitcoin increases another 10x over the next five years, the cost to the US could be more than $300bn- but we couldn’t sell it until 2049.”
In reality, nobody can know exactly what the cost of Bitcoin will be in three months never mind 20 years.
Since Trump became President for the second time, Bitcoin’s price has been as unpredictable as ever. On 5 December, Bitcoin reached $100,000 per coin for the first time, a record attributed to Trump as he named his pro-crypto administration appointments.
Despite the administration making numerous beneficial changes to how the government interact with the crypto space, Bitcoin’s price dropped by 25% at the end of February.
These concerns over Bitcoin’s volatility, liquidity and security have led the European Central Bank (ECB) to dismiss the idea of adopting a similar approach.
In January, ECB President Christine Lagarde, said: “I think there is a view around the table of the Governing Council and the General Council that reserves have to be liquid, that reserves have to be secure, that they have to be safe, that they should not be plagued by the suspicion of money laundering or other criminal activities.
“As a result, I am confident that Bitcoin will not enter the reserves of any of the central banks of the General Council.”
