Senator Lummis' BITCOIN Act & The Gold Lie

Disclaimer: I'm not a macroeconomist. If you know anything about the Federal Reserve that might alter or improve my interpretation of this bill, please educate me.

I did some digging to figure out how exactly the proposals made in the BITCOIN Act work. The goal is to purchase 200k BTC each year from 2025 to 2029 in order to acquire a total of 1 million BTC newly added to the US Strategy Bitcoin Reserve. This is pretty well-known now, but politicians have been talking about how they want to go about doing this in a "budget-neutral" way, so I figured it was worth understanding what the plan is right now. So I'll present what I found below.

TL;DR: The BITCOIN Act is budget-neutral only in the sense that the plan does not involve the Federal Reserve purchasing debt from the US government, but instead instantly printing almost all (98.8%+, i.e., $852+ billion) of the money required to acquire the Bitcoin, and they're kind of lying about it to the public.

At current market value ($116k/BTC), the 1 million BTC would cost $116 billion. Of course, buying all of this at the rate they're planning is likely going to drive the price up a lot, especially considering across the 3 main US exchanges there is currently only ~850k BTC in holdings (not sell orders). I may be missing a considerable amount available OTC or on other exchanges, but needless to say, the offer price is going to have to increase significantly before people in the market will hand over 1 million BTC. I don't know how much; maybe some experienced stock-to-flow modeler could chime in here. But I would guess they won't be able to get the million anywhere near $116 billion. Let's suppose a total cost of $860 billion between now and the end of 2029 to make later calculations easier; you can adjust this post-hoc as needed, but most of this works without adjustment even if the price doesn't increase.

The (BITCOIN Act) bill proposes three sources of funds.
1. Surplus Fed funds: Up to $4.425 billion. The Federal Reserve holds cash (or equivalents) that have not made their way into the general economy yet. Using these funds effectively amounts to printing money that will be circulated into the economy via Bitcoin merchants. The bill references the Federal Reserve Act's Section 7(a)(3)(A), striking it out to decrease the limit on surplus Fed funds.
2. Federal Reserve remittances: Up to $6 billion. The Federal Reserve is required to pay remittances on earnings each month to the US Treasury. Before September 2022, they were paying $5-10 billion monthly in remittances, but they ran a deficit thereafter which peaked at a $116.9 billion debt to the Treasury in 2023. They have since resumed remittances and are projected to break even this year, and the Treasury intends to repurpose up to $6 billion of these remittances in total (not monthly) between now and 2030 to buy Bitcoin.
3. The Treasury will sell its gold reserves to cover the rest of the cost.

No other sources of funds are proposed. So that's a maximum of $10.425 billion sourced from sitting and flowing cash through the Federal Reserve, and the other ~$850 billion (or however much it really will be) will have to come from gold sales.

The gold sale is not real, though; it's an accounting trick. Why? Let's look at the proposal.
If you look online, you'll find that the US Treasury holds 261.5 million ounces of gold. At current market value ($3,296.72), that's $862,092,280,000 worth of gold. It seems like plenty to cover my guessed cost, but they'd have to sell nearly all of it.
But it turns out that the Federal Reserve currently holds gold certificates, redeemable for the US Treasury's gold, worth $11 billion. So, reading this naively, the Treasury only lays claim to $851,092,280,000 worth of gold it has in possession, while the Fed technically owns the other 12.8%.
But that's not how the gold certificates work. You see, in September 1982, US Code Title 31 Section 5117(b) put in place a price fixation on gold certificates held by the Federal Reserve. This article requires the gold certificates to trade at the value of $42.22 per ounce of redeemable gold, even if the market value of gold varies over time. With that price information, you can see how much of the US Treasury's gold is actually redeemable via the Fed's gold certificates: 261.5 million ounces * $42.22 per ounce = $11,040,530,000, approximately the reported amount that the Fed's gold certificates are worth. That is, all of the gold in the US Treasury is technically held by the Federal Reserve via redeemable gold certificates. The US government does not actually have any gold on paper.

This means that, if we were to sell our gold to someone to get funds to purchase Bitcoin, we'd have to convince the Federal Reserve to hand over all of its gold certificates.
But to whom does the bill propose selling our gold? Oh, to none other than the Federal Reserve. How does that make any sense?

The bill lays it out clearly:
1. The bill motions to strike out US Code Title 31 Section 5117(b) so that repricing gold certificates is no longer prohibited.
2. After the BITCOIN Act is passed, the Federal Reserve is required to turn over all of its gold certificates to the US Secretary of the Treasury within 90 days.
3. After the Federal Reserve turns over its gold certificates, the Secretary has up to 90 days to reprice the gold certificates at fair market value.
4. After the Secretary has completed the repricing of the gold certificates (issuing new ones tradable at market value), the Federal Reserve has up to 90 days to send the cash equivalent of the difference between the new price ($862 billion - $11 billion = $852 billion) to the Secretary.
5. After the Federal Reserve pays the difference, the Secretary has up to 90 days to issue the new gold certificates to the Federal Reserve.

That $852 billion will presumably be printed by the Fed. They're essentially trading newly printed cash for paper coupons that trade at the same amount; I don't know if they will internally plan to sell some of these to people or institutions, but I can see a case being made for it. After all, it didn't make sense to sell the gold certificates before, since they'd be trading at an 87.2% loss. But anyway, the bill doesn't say anything about what the Fed will do with the certificates at this point.

So, in effect, 98.8% of the Bitcoin added to the US Strategic Bitcoin Reserve between now and 2030 will be bought with US dollars printed by Q4 2026, even if we don't need that much to cover the cost of acquiring the Bitcoin.
No gold will physically move. It won't even exchange ownership. And we don't even know if it actually exists (remember Elon's failed Ft. Knox audit?).

If it turns out there's a massive supply shock and the price of acquiring the 1 million Bitcoin exceeds $860 billion, then they'll have to find more sources of funds. But either way, they're going to print a minimum of $852 billion this year in this process if the BITCOIN Act passes.

The only ways this minimum printed dollar amount isn't met are if either the bill doesn't pass or the market price of gold crashes extremely seriously in the next month or two. But in the latter case, they'll probably find some other way to print the funds to buy Bitcoin.