Bitcoin enthusiasts have long touted the creation of a strategic Bitcoin reserve as a hedge against inflation that can reduce the national debt and reinforce the United States’ position as a global financial leader.

Its implementation could also unleash several damaging effects on the US economy, with consequences rippling across the globe. BeInCrypto spoke with Haider Radique, the Chief Marketing Officer at OKX Exchange, to break down the risks of creating a strategic Bitcoin reserve.

Strategic Bitcoin Reserves Grow in Popularity

The concept of a strategic Bitcoin reserve has gained notable popularity over the years, both in the United States and worldwide. 

A strategic reserve is a stock of crucial resources acquired by the federal government that can be used to address significant supply disruptions. Many crypto enthusiasts have been campaigning for governments to adopt Bitcoin as a strategic reserve.

In the United States, 15 states have already introduced or passed bills to do just this. Republican Wyoming Senator Cynthia Lummis was one of the first politicians to introduce this type of legislation at a federal level.

Lummis calls for the US Treasury to acquire one million Bitcoin over five years in her proposed BITCOIN Act. The Bitcoin reserve would be kept intact for at least 20 years.

Countries like Germany, Switzerland, Russia, Brazil, and Poland have also taken steps in the same direction. However, several major players in the finance industry fear intense economic instability and pervasive market volatility if a strategic Bitcoin reserve is created. ‭

This fear is particularly relevant if the United States were to establish such a reserve, given its role as the custodian of global trade and issuer of the world’s reserve currency.

“On its face, the idea of a‬‭ Bitcoin National Reserve seems like a good one – it would serve as an endorsement of Bitcoin‬‭ by the United States, and it would certainly have the potential to ignite markets in the short term.‬‭ But if you look under the hood, there may be a number of downsides that should cause the‬‭ industry to pause and reflect on potential negative long-term consequences,” Radique told BeInCrypto.

Understanding how a reserve works is vital to comprehend the associated risks. 

Bitcoin Stockpiles vs. Strategic Bitcoin Reserve

With Donald Trump as the new US president, Bitcoin enthusiasts are bracing themselves for a real shot at creating the long-awaited reserve.

Two weeks ago, Trump signed an executive order to establish a national digital stockpile. The order called for the creation of a working group to explore this possibility. The group has until July to submit a report on the criteria for such a stockpile.

Some participants in the crypto community were disheartened by this move, given that the nature of the order was particularly distinct from a Bitcoin reserve. While the concept of a stockpile derives from seized assets mainly produced from illicit activity, a reserve implies purchasing additional Bitcoin. 

The United States already has the biggest Bitcoin stockpile in the world. The federal government holds at least 198,800 BTC acquired through government seizures, currently valued at approximately $19 billion. Countries that trail behind it are China, the United Kingdom, El Salvador, and Ukraine.

A Bitcoin reserve, by contrast, would require the purchase of more Bitcoin. Lummis proposes this approach in her BITCOIN Act. According to her plan, Bitcoin would be directly linked to the US dollar in order to bolster the currency. Essentially, this vision entails a monetary system where Bitcoin takes on an active role.

The pressing need to introduce such a drastic change to the United States’ current monetary system remains unclear.

Debate Over Bitcoin’s Role as a Reserve Asset

Returning to the definition of a strategic reserve, the federal government purchases these commodities in times of economic need. Most economists refer to the Strategic Petroleum Reserve as a key example of the concept. 

In 1975, President Gerald Ford created the reserve when Arab members of the Organization of Petroleum Exporting Countries (OPEC) imposed an oil embargo against the United States that sent shockwaves throughout the American economy. 

The legislation mandated the storage of up to one billion barrels of petroleum, recognizing its critical role in the economy. Without petroleum, economic activity would cease. 

These reserves continue to serve a critical purpose. In response to the Russian invasion of Ukraine, President Biden recently tapped into these reserves to ease the strain on energy prices.

On the other hand, Bitcoin does not serve a critical purpose that warrants this sort of urgent stashing, nor is its use crucial to the functioning of the US economy. Its role as a strategic asset remains largely unclear. 

Furthermore, acquiring large amounts of Bitcoin would likely lead to significant market volatility rather than economic stability. If the United States were to purchase large quantities, it would quickly reduce the supply available on the market.

“‬‭If the US government decided to acquire large swathes of Bitcoin, the short term liquidity in‬‭ markets would be constrained, which could entail massive volatility in both directions. We should remember that the vast majority of Bitcoin addresses‬‭ –nearly 72% according to CoinMarketCap– are long-term holders of more than one year. A mass‬‭ acquisition of Bitcoin could therefore constrain liquidity further in the short term,” Radique explained. 

These sharp movements in Bitcoin supply would also worry investors.

Impact on Dollar Confidence

If the United States were to create a strategic Bitcoin reserve, investors could interpret this as the federal government deciding to back the US dollar with the digital asset rather than gold. In other words, the US would send signals of a loss of confidence in the current dollar-based system.

In a recent opinion article, Nic Carter used this argument to advocate against creating a Bitcoin reserve.

“The US considering a near term abandonment of the current, relatively stable monetary system and replacing it with a monetary standard not based on gold, but a highly volatile, emerging asset, would cause utter panic among its creditors. In my view, if we even got close to a Lummis-style reserve, markets would anticipatorily start to go berserk, and Trump would be forced to withdraw the policy,” he stated. 

The same effect would occur if the United States chose to sell part of its Bitcoin reserves. 

Liquidation Risks

If the United States were to purchase additional Bitcoin, it would also choose when to sell it.

“‬‭Despite the emergence of bipartisan support for crypto in the US political system recently,‬‭ government policy can change quickly. Therefore, as circumstances change over time, the‬‭ concentration of large amounts of Bitcoin on a country’s balance sheet could represent a‬‭ liquidation risk,” Radique told BeInCrypto. 

Previous instances where governments sold portions of their Bitcoin stockpile holdings have shown how such actions can significantly impact the market.

“We only need to look to last year, when the German government‬‭ sold‬‭ around‬‭ 50,000 BTC, to see what such a move could do to markets. This is often cited as a key‬‭ downside of a strategic Bitcoin reserve by critics,” Radique added.

Germany sold all of its Bitcoin holdings last July to comply with a federal law that mandates the liquidation of seized digital assets. The large Bitcoin sell-off in a short period caused the price of Bitcoin to drop.

‭In November, a similar situation occurred in the United States when the government transferred over $2 billion in Bitcoin to third-party wallets. This move sparked price drops and raised concerns among investors about potential future auctions.

Questions would also arise over the implications of the federal government’s ownership over such large amounts of Bitcoin.

Concerns Over Centralization

For many, the idea of a strategic Bitcoin reserve could appear to conflict with one of Bitcoin’s core principles: decentralization.

This philosophy, which lies at the heart of Bitcoin, ensures that no single entity can control the entire network. However, if the US government were to start acquiring Bitcoin in large volumes, it could spark concerns about centralization.

If the US Treasury were to control a significant portion of the Bitcoin supply, it could influence the market. Such control might allow the government to impact Bitcoin prices, which goes against its decentralized nature.

Overregulation risks also arise as institutional adoption of digital assets expands across public and private sectors. 

“It is our collective responsibility as Bitcoiners to advocate for this‬‭ technology to be as accessible as possible while preserving its original philosophy and peer-to-peer utility,” said Radique.

‭As the debate over the adoption of a strategic Bitcoin reserve continues, a measured approach will benefit its implementation.

The Case for Patience

One reassuring aspect of this ongoing debate is the understanding that expediting the process might be unnecessary. Since Bitcoin is not an essential commodity for the proper functioning of the US economy, establishing a strategic reserve is not an immediate priority.

Bitcoin has existed for less than two decades. Allowing the market more time to mature also reduces the asset’s volatility in the long run.

“Bitcoin has gone from a little-known cypherpunk invention to a global cultural phenomenon and‬‭ accessible, institutionalized asset in a remarkably short time,” Radique explained.

By taking a wait-and-see approach, Bitcoin could evolve into a more reliable and liquid asset, making it a viable option for the US government to include in its portfolios in the future.

The post OKX Chief Marketing Officer Highlights Economic Dangers of a US Strategic Bitcoin Reserve appeared first on BeInCrypto.

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On Monday, the crypto market experienced what was billed as the largest liquidation event in history, destroying upwards of $2 billion in positions. Amid calls for the colloquial ‘altcoin season,’ analysts are divided on whether February is the month or if crypto markets must wait until April.

The arguments and projections refer to past market crashes, such as those in 2020 and 2022, and how the sector responded.

Analysts Weigh In on the Crypto Market Recovery Timeline

BeInCrypto reported on Monday’s historic $2 billion liquidation event, provoked by US President Donald Trump’s tariffs. As it happened, the president reached an agreement with Canada and Mexico, prompting some level of recovery in the market.

However, analysts remain unconvinced that a full-blown market recovery is here, even as others call for an altcoin season.

Mathew Hyland, a blockchain analyst, shared his insights on the market downturn, emphasizing that recovery will take time. He highlighted that although Bitcoin (BTC) did not break down, altcoins suffered significantly, resulting in the historic liquidation event. He says this indicates the extent of damage sustained by the altcoin market.

According to Hyland, while the massive liquidation event signified the market’s bottoming out, it is not yet ripe for a bounce back.

“Considering this was the largest liquidation event in Crypto history, it likely means the low is in. However, in 2020 & 2022, it took over two months for the full recovery to take place,” Hyland said.

The controversial analyst also pointed out that December highs for most altcoins may not return for at least two months, if not longer. Based on this outlook, Hyland cautions traders to temper their expectations, adding that even V-shaped recoveries like in 2020 took weeks with several dips along the way.

Another technical analyst, CryptoCon, echoed Hyland’s sentiments. He described the event as a major shakeout for overleveraged traders. While the analyst acknowledges that the cycle is well on track, he did not suggest an imminent recovery.

“What happened to a good-performing February? Still inbound, the cycle is well on track. It is clear that certain entities do not want people longing altcoins from their bottoms at 100X for the entire bull market,” the analyst stated.

CryptoCon’s outlook aligns with several other analysts, including Rover, who hold that the trajectory remains intact. In a post on X, CryptoRover highlighted that altcoins would go “parabolic” soon.

Arguments for Altcoin Season in February

Meanwhile, like CryptoCon, sentiment for February remains positive among other analysts, including Merlijn The Trader. In a related post, the analyst predicts that February will signal the start of an altcoin season and, therefore, market recovery. The analyst cites historical data suggesting that altcoin rallies have consistently begun in February, and this cycle should be no different.

“Altcoin season starts in February! History doesn’t lie, and neither do the charts,” said Merlijin in a post.

Others point to Bitcoin’s dominance as a key indicator, noting that the top is almost in for this metric, setting the stage for an altcoin season. Similarly, Coinvo, an analyst, reiterated the sentiment.

“Altcoin season has always started in February, and this cycle will be no different,” chimed Coinvo.

Another crypto analyst, DevKhabib, offered a contrasting perspective, highlighting February as a good month for Bitcoin. The analyst identified the $91,000 level as a crucial support floor for the Bitcoin price. He emphasized that the price rebounded strongly, expressing optimism about the market’s future.

“$91,000 seems to be a strong support for BTC as we bounced directly off it. Let us hope we continue to range above $94,000 so the market can recover a little bit. February usually is green, and I think we will still get a bullish February. A bad beginning makes a good ending,” the analyst expressed.

Moreover, according to data from IntoTheBlock, the range between $95,620 and $98,505 represents significant support for Bitcoin price

Any efforts by the bears to push the price below this level would be met by buying pressure from approximately 1.74 million addresses who bought BTC at an average price of $97,195.

Disclaimer

In adherence to the Trust Project guidelines, BeInCrypto is committed to unbiased, transparent reporting. This news article aims to provide accurate, timely information. However, readers are advised to verify facts independently and consult with a professional before making any decisions based on this content. Please note that our Terms and Conditions, Privacy Policy, and Disclaimers have been updated.

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President Donald Trump signed an executive order on February 3, calling for the creation of a sovereign wealth fund. 

This follows his previous order establishing a national digital asset stockpile, signaling an increased focus on strategic financial reserves.

Bitcoiners Eye Trump’s Sovereign Wealth Fund

The executive order directs the Secretary of the Treasury and the Secretary of Commerce to devise a comprehensive plan within 90 days for creating the fund. 

“The United States can leverage such returns to promote fiscal sustainability, lessen the burden of taxes on American families and small businesses, establish long-term economic security, and promote US economic and strategic leadership internationally,” the order read.

For context, sovereign wealth funds are state-owned investment funds that manage surplus reserves. These are typically sourced from trade surpluses, commodity revenues, or fiscal excesses. 

These funds are invested in a diverse range of assets, including stocks, bonds, real estate, and infrastructure, both domestically and internationally. The goal is to ensure long-term financial stability and economic growth.

Although the executive order did not explicitly mention Bitcoin (BTC) or other cryptocurrencies, the announcement sparked enthusiasm among Bitcoin advocates because of Senator Cynthia Lummis’ response. Lummis, a well-known advocate for the Strategic Bitcoin Reserve and chair of the Senate Banking Sub-committee on Digital Assets Committee, reacted to the news on X (formerly Twitter).

“This is a ₿ig deal,” she posted.

Her use of the “₿” symbol fueled hopes of Bitcoin’s inclusion in the fund.

“After Trump signs the order, US will buy Bitcoin for sovereign wealth fund and they will call it as strategic Bitcoin reserves,” one user replied on X.

Notably, the market odds of Trump establishing a Bitcoin reserve in the first 100 days on the prediction platform Polymarket improved to 18% after the order. The odds plummeted from 48% on Inauguration Day to 13% by February 1.

Trump’s earlier executive order on the digital asset stockpile also broadly defined “digital assets” without explicitly mentioning Bitcoin.

“The term “digital asset” refers to any digital representation of value that is recorded on a distributed ledger, including cryptocurrencies, digital tokens, and stablecoins,” the order stated.

Crypto Momentum Grows at State Level

Meanwhile, amid the speculation, several US states are advancing their own cryptocurrency initiatives. Oregon, New Jersey, Mississippi, and Indiana have recently introduced bills to foster crypto adoption and regulatory clarity.

Oregon’s HB2071 grants blockchain users specific rights. It prevents state and local governments from restricting digital asset activities. It also exempts certain blockchain transactions from the Oregon Money Transmitters Act.

New Jersey Assembly Bill 2249 (Digital Asset and Blockchain Technology Act) establishes a regulatory framework for digital asset businesses and creates a Digital Asset Enforcement Fund for oversight.

Mississippi’s HB 1590 (Blockchain Basics Act) prohibits state and local governments from implementing central bank digital currency (CBDC) and safeguards self-custody rights. It also exempts crypto transactions under $200 from capital gains tax and removes licensing requirements for mining and staking operations.

Indiana House Bill 1156 protects the right to use, store, and accept digital assets. It prevents local restrictions on crypto transactions and ensures digital asset mining is classified as a permitted industrial activity.

Indiana has also previously introduced House Bill 1322, which promotes blockchain adoption and Bitcoin investment strategies.

Disclaimer

In adherence to the Trust Project guidelines, BeInCrypto is committed to unbiased, transparent reporting. This news article aims to provide accurate, timely information. However, readers are advised to verify facts independently and consult with a professional before making any decisions based on this content. Please note that our Terms and Conditions, Privacy Policy, and Disclaimers have been updated.

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