On the surface, the newly announced Strategic Bitcoin Reserve sounds like the perfect catalyst for sending Bitcoin (BTC -0.08%) higher for years to come. Now that it has the support of the U.S. government, shouldn’t the world’s most popular cryptocurrency soar in value?
Unfortunately, it’s more complex than that. In fact, in the days following the official announcement of the Strategic Bitcoin Reserve, the price of Bitcoin actually fell. So what in the world is going on here, and what does it mean for Bitcoin?
An underwhelming Strategic Bitcoin Reserve
The first thing that you need to know is that many crypto market participants found the official announcement of the Strategic Bitcoin Reserve underwhelming at best. On the campaign trail, President Donald Trump had embraced the idea of a Bitcoin-only reserve. And he appeared to support a version of the Strategic Bitcoin Reserve, proposed by U.S. Senator Cynthia Lummis (R-Wyoming), that calls for the U.S. government to buy 200,000 Bitcoins per year, for the next five years. That was the type of aggressive action that was supposed to make America the “crypto capital of the world.”
However, this version of the Strategic Bitcoin Reserve is really more of a consolidation of existing Bitcoin held by the government, much of which has been confiscated. The official White House announcement suggests that the U.S. government might buy new Bitcoin, but it would need to do so in a “budget-neutral” way. In short, the U.S. government will not use taxpayer funds to buy Bitcoin, and there’s no real timetable when the much-promised buying of new Bitcoin might commence.
The Trump White House also appeared to muddle its message about Bitcoin. The whole point of the reserve was supposed to acknowledge Bitcoin as a strategic asset essential to the nation’s future, along the lines of gold or petroleum.
However, on a parallel path, the government is also creating a United States Digital Asset Stockpile that will include a mix of different altcoins. A week before the formal announcement of the Strategic Bitcoin Reserve, President Trump seemed to indicate that Ethereum, XRP, Solana, and Cardano could be included. Right now, the exact cryptocurrencies that will be included is very much in flux, and that only adds to the uncertainty about what was actually created.
Pushback from the crypto industry
Even before the formal announcement of the Strategic Bitcoin Reserve on March 6, there was pushback from the crypto industry. When news broke that other cryptos might be included, Coinbase Global CEO Brian Armstrong pointed out, “Just Bitcoin would probably be the best option … “
Others called the move a “Trump Pump” and a desperate attempt to juice up crypto prices, which have been declining ever since the inauguration in January. And still others suggested that some of the cryptos named by Trump would never actually be included, once Congress got involved.
The big picture outlook for Bitcoin
That being said, Bitcoin still looks a safe buy right now, even if crypto market participants are less than enthusiastic about the Strategic Bitcoin Reserve. Regulators appear to be onboard with the notion that Bitcoin is a commodity, not a security. It has a long track record of outperforming the overall market, and has been compared to “digital gold” for its ability to act as a long-term store of value and hedge against inflation and economic uncertainty.
Image source: Getty Images.
None of the other cryptocurrencies — XRP, Solana, Ethereum, and Cardano — can make those same claims. At one time or another, all of these have faced potential regulatory oversight from the SEC for being securities. In fact, XRP still has not fully resolved its four-year legal battle with the SEC. In many ways, then, these four cryptocurrencies can be thought of as highly speculative tech stocks fully capable of going to zero at any time.
The good news is that, even if the U.S. federal government takes long than expected to start buying new Bitcoin, plenty of other sovereign governments might launch strategic Bitcoin reserves of their own. Right now, Brazil appears to be the frontrunner now, having introduced legislation last year. And a number of U.S. states — including Texas and Florida — are moving forward with Bitcoin reserves of their own.
So the big picture here is that new Bitcoin buying pressure is coming soon. The key will be getting some sort of congressional action to codify the Strategic Bitcoin Reserve into law. Trying to manage the strategic direction of the crypto industry with a bunch of executive orders is simply too chaotic.
At the end of the day, I’m loading up on Bitcoin, but remaining cautious on the other cryptocurrencies named as part of the United States Digital Asset Stockpile. As long as the U.S. government continues to support crypto, there is a path to Bitcoin soaring in value for years to come.
