Momentum builds for a strategic national bitcoin reserve. But what does that mean?

A strategic national bitcoin reserve, which Donald Trump championed during his presidential campaign, has better odds than ever of being created as bitcoin continues its bull run, surpassing $100,000 for the first time on December 4.

As currently imagined, a bitcoin reserve would see the US government intentionally stock up on the originally cryptocurrency — with no plans to sell.

Industry insiders consider Trump’s nomination of crypto-friendly Paul Atkins as the chair of the SEC and David Sacks’ appointment to the newly created position of White House AI & Crypto Czar to be bullish signs for the president-elect fulfilling that promise.  

Several industry heavyweights, including Coinbase’s Brian Armstrong, point to bitcoin’s rise and the incoming pro-crypto administration as increasingly the likelihood of a bitcoin reserve. Armstrong and other crypto execs have met with Trump, hoping to form a crypto council and establish the reserve, Reuters reported.

MicroStrategy Executive Chair Michael Saylor has gone further, saying that the US “should sell gold and buy bitcoin.”

Efforts to create a bitcoin reserve are already underway, thanks to Republican Sen. Cynthia Lummis from Wyoming, who in July introduced the BITCOIN Act (aka the Boosting Innovation, Technology, and Competitiveness through Optimized Investment Nationwide Act). Lummis’ proposal includes a plan to acquire 1 million bitcoin by purchasing up to 200,000 coins annually over five years.

“Bitcoin is transforming not only our country but the world and becoming the first developed nation to use Bitcoin as a savings technology secures our position as a global leader in financial innovation,” Lummis told Sherwood News in an email. “This is our Louisiana Purchase moment that will help us reach the next financial frontier.”

The senator said that as families across Wyoming struggle to keep up with soaring inflation, and with the national debt reaching new heights, “it is time for us to take bold steps to create a brighter future for generations to come by creating a strategic bitcoin reserve.”

Lummis isn’t alone. Earlier this month the Satoshi Action Fund, a nonprofit that advocates for bitcoin adoption, started a 60-day $500,000 fundraising effort “to go towards passing ‘Strategic Bitcoin Reserve’ legislation and ending Chokepoint 2.0.”

Yet fundamental questions about a potential crypto reserve remain unanswered. For starters, who would custody the digital assets? And could the government even legally retain the bitcoin it’s seized instead of selling it?

Is it a bitcoin reserve or stockpile? 

Elected officials (including Trump) and proponents have used the words “reserve” and “stockpile” interchangeably, but they could carry different meanings.

For some experts, calling a government store of crypto a “reserve” lends it legitimacy and puts it on par with the nation’s strategic gold reserve.

Peter C. Earle, a senior economist at the American Institute for Economic Research, said that a reserve typically refers to government holdings set aside to manage monetary stability — foreign-currency reserves, gold, and other precious metals — and is usually tied to constitutional or regulatory requirements.

On the other hand, a stockpile typically refers to physical inventories of goods or commodities that are kept to address emergencies or market disruptions, like a stockpile of corn in case of a bad harvest season.

“Making matters a bit more complicated, America’s stockpile of oil is called the strategic petroleum reserve,” Earle said.

Though many have tried to parse the difference between a reserve and a stockpile, some experts say it really doesn’t matter. 

“While some good arguments can be made that there is a difference, at this point, it’s not clear,” Eric Peterson, the director of policy at the Satoshi Action Fund, said. “Ultimately, both a reserve and a stockpile will lead to the USA buying and holding bitcoin.

“I would say it’s a near certainty a state will purchase bitcoin for their rainy day or general fund before the end of 2025,” Peterson said. 

What’s the purpose of a bitcoin strategic reserve anyway?

Proponents of the reserve, including the Satoshi Action Fund, argue that, like gold reserves, a bitcoin reserve would offer “a hedge against currency devaluation and economic uncertainty.” The group wrote on its website that bitcoin’s finite and decentralized nature would make it “resilient to inflation and geopolitical risks” as well. 

There’s also the argument that a reserve, as a store of value, could ultimately reduce the national debt, Andrew O’Neill, S&P Global Ratings’ managing director of digital assets, said.

Trump promised to “never sell” any of the US’s bitcoin, but can he stop the sales of crypto seized from criminal activity?

In his keynote speech at the Bitcoin 2024 conference, Trump said:

“For too long our government has violated the cardinal rule that every bitcoiner knows by heart: never sell your bitcoin. If I am elected, it will be the policy of my administration, United States of America, to keep 100% of all the bitcoin the US government currently holds or acquires into the future.”

Indeed, the US is currently sitting on a massive stash of bitcoin. But under current law, is Trump’s plan even feasible?

The US government holds 198,000 bitcoin, which is worth about $20 billion as of early December, Arkham Intel data shows. This makes the US the largest government bitcoin holder, per CoinGecko, followed by China and the UK.

On December 2, the US government transferred 19,800 bitcoin confiscated from the dark-web market Silk Road to Coinbase Prime. This is the partner the US Marshals Service (part of the Department of Justice and which manages and disposes of assets) selected in July to “provide custody and advanced trading services for the agency’s ‘Class 1’ (large cap) digital assets,” the announcement said.

If the government halts the sale of these seized assets, as Trump suggested, could it use the proceeds to instead start building the bitcoin reserve?

Not so fast.

Using confiscated crypto assets to partly fund the reserve instead of liquidating the coins at auction — as the government has done before — would require new legislation, experts said. There is also one crucial distinction. 

“It’s important to clarify the USMS does not sell seized cryptocurrency but rather forfeited cryptocurrency,” said Joanna Summers, chief recovery officer at Asset Reality and former assistant chief in the USMS asset-forfeiture division. 

Once the USMS receives a so-called interlocutory sales order or a final order of forfeiture, it’s required to sell the crypto or any other assets. In this case, the sale occurs while the legal proceedings are ongoing, with the court authorizing the liquidation of assets.

“Seized assets, by contrast, are still awaiting adjudication,” Summers said. “If adjudicated in favor of the government, the USMS will proceed to a sale that will be carefully planned.” In other words, forfeited assets belong to the government after criminal activity has been proved, while seized assets are just in the government’s custody. 

“Think of the analogy to arrest and conviction,” said Stefan Cassella, CEO of Asset Forfeiture Law and former deputy chief of the DOJ’s Money Laundering and Asset Recovery Section. “An arrest takes a person into custody while criminal charges are pending. He is convicted only after trial and a jury finds him guilty.”

Proceeds generated from the sale of forfeited assets — whether they be real estate, art, jewelry, cars, or crypto — are used to operate the Asset Forfeiture Program, compensate victims, and support various law-enforcement initiatives, Summers said.

The last time the government sold confiscated Silk Road assets was in March 2023, selling 9,861 bitcoin worth $215.7 million, court filings recorded. Now, if a bitcoin strategic reserve were to materialize, Summers said only forfeited cryptocurrency from cases with no victims could be transferred to the reserve.

But again, that comes with a caveat.

“This would require new legislation and policy changes to allow the government to designate certain forfeited cryptocurrency for ‘official use,’” she said. “Currently, no such policy exists, but it is a possibility that could be developed in the future.”

Satoshi Action Fund’s Peterson echoed the sentiment, adding that halting the sales could be done through executive policy. But because executive orders don’t require congressional approval, they are not legislation.

So for now, despite rumors about a massive government sell-off, which could affect bitcoin’s price, and talks about using these assets for the reserve, the assets just sit there. 

Who would custody the bitcoin in the reserve? 

The custody of the coins is also crucial. While many say Coinbase or another platform could safeguard the assets, some are floating the idea of creating an entirely new entity.

Patrick Gruhn, the former head of FTX Europe, for instance, said that while solutions for custody could include institutions like Coinbase or Anchorage Digital, the government “may want to have a custom, very secure and sovereign structure for managing such a large and delicate asset.

“This would help reduce risks associated with third-party custodians, such as the risk of loss through hacking or operational faults,” Gruhn said.

Sen. Lummis’ proposal refers to “a decentralized network of secure bitcoin storage facilities distributed across the United States, collectively to be known as the Strategic Bitcoin Reserve for the cold storage of government bitcoin holdings.”

This would suggest that the reserve wouldn’t be dependent on a single custodian, S&P Global Ratings’ O’Neill said.

“If the proposal were to progress,” he said, “it will be important to assess details that emerge around the physical security for those keys and the signatures required to transact on them.”

Yaël Bizouati-Kennedy is a financial journalist who’s written for Dow Jones, The Financial Times Group, and Business Insider, among others.