U.S. Government Bitcoin Holdings

Both former President Donald Trump and Wyoming Republican Sen. Cynthia Lummis have proposed plans for the U.S. government to hold bitcoin. As markets slipped on Monday, supporters argued that the asset could serve as a buffer against fluctuations, while critics expressed concerns over an expanded role for bitcoin.

Lummis introduced a draft bill last week instructing the U.S. Treasury to purchase one million bitcoin over five years. The government would retain these coins for at least 20 years unless they are sold to reduce the debt, according to Lummis’s statements to The Block.

GOP presidential candidate Trump has also indicated he would establish a national bitcoin reserve if elected.

Independent candidate Robert F. Kennedy Jr. made similar commitments last month at Bitcoin 2024, promising to sign an executive order directing the U.S. Treasury to buy 550 bitcoin daily until the country has a reserve of four million.

Just a week later, markets declined, causing bitcoin’s value to drop by about 16%, with Ether falling even more significantly by about 23%.

“Short-term volatility is common with any store of value, including gold or oil, in which the United States holds significant reserves,” Lummis noted in an email, asserting that a bitcoin reserve has “fundamental benefits”. She emphasized that her legislation adopts a long-term perspective requiring the U.S. Treasury to gradually buy bitcoin over five years and hold them for at least two decades.

The Debate: A Buffer Against Market Fluctuations or No Strategic Purpose?

The Chief Policy Officer of the Digital Chamber, Cody Carbone, articulated that Lummis’s proposal aims to address market fluctuations more effectively than traditional assets like stocks.

He stated, “Bitcoin has shown it can bounce back quickly from market drops, establishing itself as a strong and reliable asset. As more individuals and companies adopt Bitcoin, it’s perceived as a safer investment akin to gold. Integrating Bitcoin into national reserves could harness its long-term stability and decentralized nature, offering a buffer against market volatility and enhancing financial security for the economy.”

Conversely, critics highlight the absence of a strategic purpose for the U.S. Treasury to hold bitcoin. Dennis Kelleher, CEO at Better Markets, argued that oil and gold possess strategic significance, while bitcoin’s reserve could artificially inflate its price.

Kelleher contended, “There is no strategic purpose for a new financial product with no use case after 15 years of attempts. The only legitimate use for crypto is gambling and speculation.”

Moe Vela, a former senior advisor to President Biden, noted that the recent drop in the crypto market affirms its credibility, indicating its equivalence to traditional markets. Vela, who also advises Unicoin, expressed concern over the volatility related to bitcoin and the mystery surrounding its creators, suggesting that it makes bitcoin unsuitable for Treasury funds.