Everything you wanted to know about Bitcoin Strategic Reserve

Lately, the idea of a Bitcoin Strategic Reserve (BSR) has surfaced in many news reports. The idea that the US could use Bitcoin as a strategic reserve has proven fundamental to propelling the price of bitcoin through the 100K barrier.

In this thread, I will explain what a Strategic Reserve is and how a Bitcoin Reserve is relevant.

1. Definition of a Strategic Reserve
2. The current proposal: B.I.T.C.O.I.N. Act
3. Implementation details: how could it be done
4. Price expectations from a BSR launch
5. Other implementations around the world
6. Opinions and thoughts from other stakeholders
7. Market expectations
8. Links and documents

1. Definition of a Strategic Reserve

A strategic reserve is a stockpile of critical resources set aside by a government, large institution, or other entity for use in exceptional circumstances — such as emergencies, severe supply disruptions, wars, or periods of extreme market volatility.
Unlike regular inventories that cycle through daily usage, strategic reserves are intentionally maintained as a buffer against uncertainty, ensuring stability and security in times of crisis.

Strategic reserves have a few characteristics that are unique and make them different from standard storage:

Long-Term Storage: strategic reserves are typically stored for extended periods and released only when severe disruptions occur.
Critical Nature of Resources: The commodities or assets involved are essential to national security, economic stability, or societal well-being.
Controlled Access: governments or top-level governing bodies usually oversee the maintenance, release, and replenishment of these reserves, guided by well-defined protocols.

For example, the United States currently has two principal strategic reserves.

Strategic Petroleum Reserve (SPR): after the oil crisis in the '70s, the US government decided to create a stockpile of oil administered by the US Department of Energy to be used both to protect the US economy against extreme market price fluctuations or as a reserve to provide power to the domestic industrial activities in case of a supply chain problem, or war. Currently, the SPR has more than 390 barrels of oils (the maximum allowed capacity of the reserve is more than 700 million barrels) held in 4 salt caves along the Gulf of Mexico for a valuation of about more than 27 billion USD, with the WTI trading at around 75$ per barrel.
Gold Reserve : The US has the largest gold reserve in the world, with about 8,133.5 metric tons, totalling almost 700 billion USD in value. Nearly 65% of those reserves are held at the United States Bullion Depository at Fort Knox.
The Federal Government owns the gold. The government has issued "Gold Certificates" to the Federal Reserve Banks for a total amount of $11 billion. These certificate serves The Federal Reserve Banks as a small portion of collateral for the Federal Reserve Notes. The Federal Reserve doesn't own gold.

The US government has many other Strategic Reserves, including natural gas, grains, food, and cheese (it used to have raisins reserves until 2015).

2. The current proposal: B.I.T.C.O.I.N. Act

Cynthia Lummis, a Republican senator from Wyoming, introduced the idea of a Bitcoin Strategic Reserve in July. She has advocated for the US government to consider Bitcoin as part of its long-term strategic reserves. In the US Senate, she named the bill B.I.T.C.O.I.N. (Boosting Innovation, Technology and Competitiveness through Optimized Investment Nationwide) Act.

Quote

July 31, 2024
WASHINGTON, D.C. – Following her announcement of a historic proposal to supercharge the US dollar and pay down the national debt by establishing a strategic Bitcoin reserve, today US Senator Cynthia Lummis (R-WY) officially introduced the Boosting Innovation, Technology and Competitiveness through Optimized Investment Nationwide (B.I.T.C.O.I.N.) Act in the US Senate.
"As families across Wyoming struggle to keep up with soaring inflation rates and our national debt reaches new and unprecedented 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," said Lummis. "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. This is our Louisiana Purchase moment that will help us reach the next financial frontier."
The B.I.T.C.O.I.N. Act establishes a strategic Bitcoin reserve to serve as an additional store of value to bolster America's balance sheet and ensure the transparent management of Bitcoin holdings of the Federal Government. Specifically, the legislation would:

Establish a decentralized network of secure Bitcoin vaults operated by the United States Department of Treasury with statutory requirements ensuring the highest level of physical and cybersecurity for the nation's Bitcoin holdings.
Implement a 1-million-unit Bitcoin purchase program over a set period of time to acquire a total stake of approximately 5% of the total Bitcoin supply, mirroring the size and scope of gold reserves held by the United States.
Be paid for by diversifying existing funds within the Federal Reserve System and Treasury Department.
Affirm self-custody rights of private Bitcoin holders and emphasize that the strategic Bitcoin reserve shall not infringe upon individual financial freedoms.

Source

Her proposals and public statements outline a vision in which the US treats Bitcoin similarly to other strategic assets — such as gold — in its treasury holdings, which is getting an equal share of the world reserves of Bitcoin and gold under the US government control.

After the Trump election, the idea gained traction:

The Bitcoin Strategic Reserve would be enacted via a taxpayer-neutral operation, enabling the government to acquire 1 million bitcoins, hodling it for at least 20 years:

The reserve would be funded by marking the Fed's gold certificates to market value and selling them.
The government would use the surplus to buy bitcoin without using taxpayer money.
The Department of Justice would transfer the 208,000 bitcoins from the Silk Road case to the SBR.
The government will buy 200,000 bitcoins annually for four consecutive years.
The minimum hodling period would be of 20 years.

The "new" idea concerns repricing the Federal Reserve Certificates at mark-to-market valuations: the certificates were issued at a statutory gold price of $42.22/oz in 1973 and could now be valued at over $2,600/oz.

The gains obtained by this adjustment would enable spending without creating new debt, resulting in a neutral move regarding taxpayers' money.

3. Implementation Details: how could it be done

There are a few ways to transfer bitcoin to the Strategic Reserve:

Transfer bitcoins seized to the Treasury Department. The Department of Justice owns 208,000 bitcoins seized from the Silk Road trial. The bulk of the SBR could be instated by transferring those coins to the FED.
Open Market Purchases: the government would buy the bitcoin in the market, presumedly via a partnership with Coinbase. This would be the fastest way of obtaining bitcoins, yet the less efficient. For sure, the slippage (i.e. the price movement caused by the buying pressure) in this would be the highest.
Strategic Partnership with US Miners: this would be an ingenuous way of doing so. The government could buy the bitcoins mined in the US at an average price. This would benefit the miners with a stable price and the government limiting the market impact. The government could also collect taxes from mining firms directly in BTC and offer these subjects grants to tilt their electricity balance toward carbon neutrality via renewable energy sources or even facilitate ERCOT-style agreements with local grids (ERCOT: "Electric Reliability Council of Texas") agreement between the energy companies and miners to switch off miners during peak energy demand from the electric grids. This perfectly aligns with Donald Trump's vision of the industry.

:

Creating this kind of partnership with the private sector would benefit both the parties involved and the industry as a whole.

4. Price Expectations from a BSR launch

The launch of a Bitcoin Strategic Reserve would have an enormous impact on market price.
This would happen through different mechanisms:

Direct market impact: the buys would impact the market, directly affecting sellers. This could be somewhat mitigated through sophisticated buying strategies, as we have seen, but would dramatically change market microstructure anyway.
Indirect Market Impact: the launch of the first BSR would have very strong signalling toward other sovereign authorities, opening the race for the second BSR announcement. There will be a flywheel spinning, attracting other National Bank toward buying bitcoin, like today, there is a race to buy gold.
Model-induced Buying: the opening of BSR-induced buying is necessary to propel Bitcoin in the next phase of growth, something that is necessary for all the bullish models around (be it Stock to Flow, Power Law or S-Curve approach) to see their prediction come true. As long as those models are not "negated," the framework is bullish.

Having said that, assessing the precise impact of a BSR is quite tricky, but of course, the effect would be gargantuan.

A couple of predictions:


	Novogratz: 500K	Adam Back: Millions

As a ballpark, we could estimate the US buying impact based on what happened with the ETF launch. If the ETF propelled the price from 40K in January 2024 to 100K in December 2024 with 30 Billion in inflows, then 1 million bitcoins, or 100B inflows from the launch of the US SBR, could propel the market from 100K to 300K. This would account only for the first factor, leaving out the impact from factors 2 (Indirect Buying) and 3 (Model Induced Buying).

5. Other implementations are all around the world

Several countries have either established or are considering the creation of strategic Bitcoin reserves.

Amongst the established Bitcoin Reserves:

El Salvador: In September 2021, El Salvador became the first country to adopt Bitcoin as a legal tender. Since then, the government has accumulated approximately 5,940 bitcoins, valued at around $582 million as of November 2024. They perform both open market purchases (they are buying one bitcoin per day since) and mining operations.
Bhutan: The Kingdom of Bhutan has been mining Bitcoin using its hydroelectric resources since 2019. More info can be read here: Bhutan Built A Bitcoin Mine On The Site Of Its Failed 'Education City'.
As of November 2024, Bhutan holds about 12,211 bitcoins worth over $1 billion.
Contrary to other nations, Bhutan has been quite active in the market, regularly selling the bitcoin they mined.

Some other nations have proposed to instate a domestic SBR:

Brazil: In November 2024, Eros Biondini, a Brazilian Congressman, proposed a bill to create a Sovereign Strategic Reserve of Bitcoins (RESBit). The proposal involved buying bitcoin up to 5% of Brazil's international reserves. The initiative seeks to reduce the fluctuation of Brazilian real estate in order to protect the economy and develop resilience.
Poland: Presidential candidate Sławomir Mentzen has advocated for the establishment of a strategic Bitcoin reserve, along with implementing crypto-friendly regulations to attract investment and increase financial flexibility.
Russia: Anton Tkachev has proposed accumulating cryptocurrencies in the state treasury, viewing digital assets as potential alternatives to the US dollar in international transactions and tackling the sanctions. Russia has been a heavy gold buyer during the last few years.
Russian Lawmaker Proposes Creating Strategic Bitcoin Reserve: Report
Czech Republic: The Czeck Central Bank is looking to convert 5% of their FX reserves into bitcoin.
United States
- Texas: Texas House introduces bill to establish a Strategic Bitcoin Reserve

These make clear that the idea of an SRB is not a pure US-centric invention but rather a sensible proposal that could reshape the future of a diverse range of countries.
Apparently, there is more to come, and it is not difficult to believe what Prince Filip of Serbia, Jan3 Chief Strategy Officer, is reporting:

Other states, according to bitcointreasuries.net, have some stash of bitcoin. Still, these do not constitute Bitcoin Strategic Reserves, as they are only seized bitcoins, often sold or temporarily held by the government, waiting to be sold on the market.

6. Opinions and Thoughts from Other Stakeholders

J. Powell
Bitcoin is a competitor with gold, not the US dollar
Fed's Powell says Bitcoin is just like gold, except it's digital
The declaration that Bitcoin competes with gold as the store of value asset of choice sent the bitcoin price skyrocketing on Wednesday, Dec 6th, when Bitcoin finally broke the USD 100,000 price level for the first time.
Micheal Saylor first spoke about a Strategic Bitcoin Reserve at the Cantor Conference.
Robert F. Kennedy Jr. supported an alternative strategic reserve plan to acquire 5 million bitcoin.
Ro Khanna, a Democratic House Representative from California, was also supportive of the creation of a Bitcoin Reserve:
Quote
"We want to make sure that we have the openness to having bitcoin as part of the Federal Reserve and as a reserve asset because of its potential for appreciation and because of its potential to allow America to set the financial standards."
Bill Dudley rejected the idea of an SBR as its implementation would be highly impractical and risky.
According to Dudley, adopting an SBR would only inflate the bitcoin price without a clear benefit to the US, which would be invested in a highly volatile, illiquid asset.
Dudley also stated that the B.I.T.C.O.I.N. Act also needs a clear exit strategy.
Source
Bitcoin Policy Institute: Digital Gold Evaluating a Strategic Bitcoin Reserve for the United States

This essay from the Bitcoin Policy Institute is the best review of the BSR concept so far. It's a recommended read.
Eric Trump: told that BSR is going to happen as Donald Trump takes office.
Treasury Borrowing Advisory Committee (TBAC) says that "Primary use case for Bitcoin seems to be a store of value aka digital gold."

7. Market Expectation

How probable is the creation of an SBR?
There is a pool on Polymarket that places the probability of Trump going on with the proposal in the first 100 days at 29%:

The probability of this measure lies in the first 100 days, and the President can leverage this as a National Security Matter. This could mean he could issue an Executive Order to immediately instate the SBR as an alternative to the standard approval path through Congress.

8. Links and documents

Strategic Petroleum Reserve
Gold Holdings
United States Bullion Depository
Bitcoin Treasuries

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Excellent article, filliponne! I was thinking earlier today of inquiring among forum members about:

A) the prospects of serious players (major nations, or even companies like MSFT or AMZN) setting up their own BTC Strategic Reserves.

B) the advantages of being a first mover (presumably getting BTC at a lower price), the amounts of BTC to HODL, how to raise the money to buy, just HOW do they go about it, how much acquiring Reserves would affect price, etc., etc.

* * *

I have not read through your referenced links, so that's on the menu for tonight. Your thread is extremely timely.

Quote from: OROBTC on December 10, 2024, 04:27:57 AM

Price impact of the BSR is something that I have left out of the analysis so far, as the estimate are highly hypothetical. But maybe is worth adding a paragraph on it, and the snowball effect from the first mover.

In addition to that, I would like to highlight the fact that in this thread I will analyse Sovereign Stetes running Bitcoin Reserve, as I covered private (MicroStrategy) reserves elsewhere.

The one thing that doesn't make sense to me, is announcing this. The Serbian statement of making it happen behind closed doors makes more sense.
If you're going to buy a significant chunk of any market, prices will increase. The same thing happens when a company announces it's interest to buy another company, and it's now happening with Bitcoin. If the US government wants to buy 800 kBTC (for those numbers we should start using "kilo Bitcoin"), they're paying more already just because they announced it.

I'm not buying the "taxpayer-neutral" part. One way or another, if government spends money, that comes from taxpayers. They may make it look different on paper, but there's also an ever increasing debt that could have been reduced with the same money.

Quote from: fillippone on December 09, 2024, 10:49:56 PM

Gold didn't go up 6058% in value, the dollar dropped 98.38%. If they're moving towards a Bitcoin Strategic Reserve, then the value (measured in dollars) will go up forever due to eternal inflation.
That makes me think the BSR is just a way to join the Bitcoin train, while protecting the dollar printing instead of bringing back sound money.

Love this thread, fillippone.

Very thorough, covers everything we need to know. Very exciting times if a BSR is to bear fruition. We can throw our $200,000 cycle top predictions in the bin and aim higher.

Out of Merit at the moment but will give generously when I replenish.

Great work.

As per popular request, I added a paragraph on the market expectations following the launch of a BSR.
Of course, it is Not Financial Advice.

If you want to see more stuff added, please let me know.
The subject is evolving, so I will try to keep the OP updated with the latest developments.

Quote

The reserve would be funded by marking the Fed’s gold certificates to market value and selling them.
The Government would use the surplus to buy Bitcoin without using Taxpayer money.
The Department of Justice would transfer the 208,000 Bitcoin from the Silkroad Case to the SBR.
The government will buy 200,000 bitcoins annually for four consecutive years.
The minimum hodling period would be of 20 years.

The US government HODLing Bitcoin for 20 years? What would the cryptocurrency world look like in 2045?
Maybe the idea of the confiscated Silk Road BTC being moved to a strategic Bitcoin reserve is good, but I don't think that the US government will suddenly start buying lots of BTC. 200,000 bitcoins bought by the US government for 4 consecutive years probably won't be achieved.
Anyway, I find it hard to believe that such legislation would happen and the BTC price would hit 500K or 1 million. The bulls on the market are maintaining the hype and the FOMO, but a price crash might be coming after several months. Trump isn't a predictable guy and he might try to change his crypto promises(or break them).

It's crazy how far Bitcoin has come. Just a few years ago, most of these countries saw Bitcoin as the next biggest scam; today, they're all proposing to have a Bitcoin reserve. Even Trump, who is the most pro-Bitcoin figure today, was very much against Bitcoin in 2019. It just shows how far Bitcoin has come.

I know bitcoin as an alternative currency was Satoshi's original idea but I don't know if he thought that alternative currency would be Federal Reserve one day.
Bitcoin has a reserve in different states will mean more scarcity while the demand will increase and that will mean an increase in prices. This might make Bitcoin get to prices we haven't imagined.

It was a nice summary you made. Very easy to understand and concise.

Quote from: fillippone on December 09, 2024, 10:49:56 PM

Strategic Partnership with US Miners: this would be an ingenuous way of doing so. The government could buy the Bitcoins mined in the US at an average price. This would benefit the miners with a stable price and the government limiting the market impact.

I can think of a few problems with this plan already:

If market prices go up and miners have to sell at a fixed price (under market price), other miners will get more money, buy more hardware, and increase the difficulty. That means the fixed-price miners will mine less.
If market prices drop and miners get a fixed price (above market price), other miners will drop out, after which the difficulty drops. So the fixed-price miners will mine more.

There's a reason the price is left to the market.

Quote from: LoyceV on December 10, 2024, 01:32:01 PM

Quote from: fillippone on December 09, 2024, 10:49:56 PM

I can think of a few problems with this plan already:

If market prices go up and miners have to sell at a fixed price (under market price), other miners will get more money, buy more hardware, and increase the difficulty. That means the fixed-price miners will mine less.
If market prices drop and miners get a fixed price (above market price), other miners will drop out, after which the difficulty drops. So the fixed-price miners will mine more.

There's a reason the price is left to the market.

I do agree with your considerations.
I was actually thinking about some shorter agreement, something like a rolling 30 days average or so. Market impact wouldn't be huge, and probably would benefit the miner the most with some opportunistic behaviour, without impacting the US government buying in the grand scheme of think.
Buy fillippone just pawn in the game of life.

Quote from: fillippone on December 09, 2024, 10:49:56 PM

How probable is the creation of an SBR?
There is a pool on Polymarket that places the probability of Trump going on with the Proposal in the first 100 days at 29%:

Polymaket is now one of the reliable prediction platform because of its near accurate predictions of the IS elections. Actors in the crypto industry see Donald Trump as a president with an unpredictable personality. There are some level of doubt if he would implement the policy of adopting Bitcoin as a strategic reserve currency. Joseph Chan the Chairman of Chinese based Silk Road Economic Development Research Centre said: "Trump is unpredictable. He may change his mind tomorrow; you never know". I am not waiting for his first hundred days to know his stance, the content of his inaugural speech might give some clue.

Quote from: Zlantann on December 10, 2024, 03:17:42 PM

I am not waiting for his first hundred days to know his stance, the content of his inaugural speech might give some clue.

The inauguration date is for sure something to look out. In case he is mentioning bitcoin for sure this would be extremely bullish, let alone him mentioning a BSR.
For sure, the inauguration speech is like a program for the first 100 days, so I would be surprised in case of him not mentioning BSR.
Conclusion: Polymarket is underrepresenting the true probability of the event.

Congratulations, fillippone, on this well-written thread, which looks more like a PhD section than a forum post. I see you fighting to reach number 1 in merit earned in the near future.

At this time a thread like this comes in handy to remind those of us who have bitcoin to keep holding or even keep buying if you think you have too little. There are people selling, as we can see by the price drop, and today Microsoft shareholders have refused to add bitcoin to their balance sheet.

Some people seem to forget or don't seem to be aware that the recent rise of bitcoin and the state FOMO that has been unleashed, reflected in point 5 of the OP, is in large part due to the upcoming creation of a state reserve in the USA. Even if we are 50% wrong those of us who are more bullish and instead of amassing a million bitcoin, USA ends up amassing half (the 200K it already has and buys another 300K), the $100K per bitcoin is going to look like a bargain, and all those who are selling now and those who are refusing to buy, like the MSFT shareholders, are going to regret it.

Fillippone bravo ! Another great, useful and informative article !
Something tells me that in 2025, this topic will be very relevant, and we will watch its development ! I hope for the continuation of the article, with adjustments to real events !

This could only be the result of a properly and timely done research into the subject matter which have raised doubt and been the result of lots of contradictory opinions on the subject matter. This compilation however, clears things to a greater extent. It’s sorts to instruct and teach in its patterns to arrangement and I see you to have several threads like this one, great work and well done @Fillippone.

Looking at reserves from the point of being a critical nature resource stand point, do Bitcoin really fits in as such?

Also, what are your thoughts on the fact that, government could print money out of thin air only to use it in the purchase of our precious Bitcoins. It would as well result in inflation as there would be more money in circulation than needed but, at the expense of them Bitcoins. Would it help the course that much?

Just a key I happen to note as I read:
Bitcoin Strategic Reserve (BSR)

Added in OP a couple of references to the interest in creating Bitcoin Reserves:

Russian Lawmaker Proposes Creating Strategic Bitcoin Reserve: Report
Eric Trump about US BSR
a presentation at the TBAC Primary use case for Bitcoin seems to be a store of
value aka “digital gold” in a decentralized finance

I will try to keep the OP updated with the most relevant news.

Quote from: JiiBs on December 10, 2024, 10:30:33 PM

Also, what are your thoughts on the fact that, government could print money out of thin air only to use it in the purchase of our precious Bitcoins. It would as well result in inflation as there would be more money in circulation than needed but, at the expense of them Bitcoins. Would it help the course that much?

This is precisely the reason why a BSR makes a lot of sense.
In a sense, they are already doing this, and if you don't realise it, you are being inflated.

Quote from: fillippone on December 10, 2024, 11:16:07 PM

Eric Trump about US BSR

If anyone hears Eric Trump speak they will see that he understands bitcoin very well, unlike the father, or at least how little the father showed he knew until recently. It's no longer that the US president is surrounded by bitcoiners in his cabinet, his son has a deep understanding, which is very bullish. At first we could think that Trump approached bitcoiners out of pure electoral interest, and so it appeared when he went to the Bitcoin Conference but today it seems that he is going all in with the subject.

Quote from: davis196 on December 10, 2024, 11:13:31 AM

The US government HODLing Bitcoin for 20 years? What would the cryptocurrency world look like in 2045?

Honestly speaking, if I had to think about an asset that I would be happy to put in a box for 20 years only to be sold not earlier than that date, I would go for Bitcoin.
I have no certainty about the state of crypto in 20 years, but I am sure that Bitcoin will be there at a nominal price above today's (not so sure about every shitcoin).

Quote from: fillippone on December 11, 2024, 07:46:54 PM

Quote from: davis196 on December 10, 2024, 11:13:31 AM

The US government HODLing Bitcoin for 20 years? What would the cryptocurrency world look like in 2045?

Likely one of the criticisms of recent governing dynamics has been a lot of their inabilities to plan for long-term down the road and/or to follow through with such planning in fiscally disciplined ways.

Surely many folks have come to question the governments ability to employ self-disciplined and financially sound practices (including limiting themselves to spending within their means) - which is ongoingly abused by so many governments, and perhaps the ones that are disciplined and strive to spend within their means are punished for being responsible.

Quote from: fillippone on December 09, 2024, 10:49:56 PM

El Salvador: In September 2021, El Salvador became the first country to adopt Bitcoin as a legal tender. Since then, the Government has accumulated approximately 5,940 bitcoins, valued at around $582 million as of November 2024. They perform both open market purchases (they are buying one bitcoin per day since) and mining operations.

Comparing what El Salvador has managed to accumulate from a period of 3 years till today will turn out to be approximately 3% of what the US government are applicable to gather in a whole year then multiply in four years. This will turn out to be the biggest Bitcoin purchase to be recorded, but i tend to find question concerning how much of an impact it will do on the price of Bitcoin following how and on what process will the relatively 200,000 Bitcoin be bought without altering the four year cycle, for such a big buy to happen in a year period then for another 3 consecutive years, totalled to four years in total?