Representation of the Bitcoin cryptocurrency is seen with American flag in the background in this … [+]
Next year, Donald Trump’s presidency is expected to bring a number of changes to many aspects of U.S. affairs, including a warmed up sentiment toward bitcoin (BTC). On the world’s largest prediction platform Polymarket, for example, the odds of Trump creating a Strategic Bitcoin Reserve during his first 100 days in office have jumped from 22% on November 10 to 38% at the time of writing.
The increase came shortly after the introduction of the Pennsylvania Bitcoin Strategic Reserve Act last week. Furthermore, the Satoshi Action Fund advocacy group — which is behind the new strategic reserve initiative and also helped the state with the Bitcoin Rights bill introduced last month — has shared with Fox Business that it’s also speaking with 10 other states about similar legislation.
If passed into law, both bills would have significant ramifications for bitcoin markets. Namely, Pennsylvania’s Strategic Reserve bill aims to allow the state to invest up to 10% of certain funds, including the General Fund, the Rainy Day Fund, and the State Investment Fund, into bitcoin. According to the state’s 2023 Treasury Annual Investment Report, these funds manage approximately $51 billion in assets combined, so an allocation of 10% would represent an estimated $5.1 billion investment in bitcoin.
Similarly, the “Boost Innovation, Technology, Competitiveness through Optimized Investment Nationwide” — or the BITCOIN Act — introduced by Senator Cynthia Lummis earlier this year, proposes that the U.S. creates a Strategic Bitcoin Reserve. The reserve will be built by purchasing bitcoin as well as keeping the BTC that have been seized by U.S. authorities instead of selling them — that’s at least 69,370 BTC to date. The BITCOIN Act calls for annual purchases of up to 200,000 BTC for five years, for a total of 1,000,000 BTC.
At current prices, this means that if the bill passes, approximately $6.4 billion worth of bitcoin — that would have been sold otherwise — will no longer hit the market. On top of that, there will be an additional $18.2 billion bid every 12 months for five years straight. Including the potential allocation from Pennsylvania, there is a potential for $23.3 billion worth of bitcoin being purchased in the open market if or when the bills are passed into law.
To put this in perspective, the combined bitcoin amount to be purchased between the two bills above, assuming current prices, would be approximately 256,000 BTC. That’s equivalent to almost an entire month’s worth of bitcoin trading volume at Coinbase, the largest U.S. crypto exchange, which traded an average of 309,000 BTC per month over Q3 this year.
Introducing purchase orders of this magnitude would significantly impact supply and demand dynamics, and ultimately — the price of bitcoin. Additionally, there’s also the 69,370 confiscated BTC that would no longer weigh down on exchange order books if the BITCOIN Act is passed.
More buy-side demand would have upward pressure on prices, and the same goes for having less sell-side supply. Beyond the market impact, the approval of any of the two aforementioned bills would have major ramifications for other sovereign portfolios, sparking conversations about bitcoin allocations among the largest asset managers in the world.
Now that the election has passed, all eyes are on whether or not Trump will follow through with his bitcoin promises, with the Strategic Reserve likely being at the heart of most bitcoin-related conversations for months to come.
