CoinShares Research Director: FOMO Effect of Bitcoin Strategic Reserve

We believe that the passage of the Bitcoin Act will have a more profound long-term impact on Bitcoin than the launch of an ETF. While the ETF launch has been successful, as evidenced by the record $44.2 billion in ETP inflows in 2024, more than four times the level of any previous year, we have yet to see a significant uptick in institutional interest in Bitcoin as an asset class.

Through extensive conversations with institutional clients, CoinShares has observed that one of the main barriers to investing in Bitcoin is its credibility among peers. Many fear being ridiculed for suggesting including Bitcoin in their portfolios, even though many of them already hold Bitcoin in their personal accounts.

The passage and implementation of the Bitcoin Act would earn Bitcoin the endorsement of the world’s largest government, significantly reducing the stigma faced by institutional investors. If other governments follow suit, this development could lead to a massive influx of assets into Bitcoin in the coming years.

Exploring Bitcoin as a Strategic Reserve

Many countries are considering including Bitcoin in their strategic reserve assets to diversify their financial assets and hedge against economic uncertainty. Here are some notable examples:

USA

• President-elect Donald Trump : Signs executive order to preserve existing Bitcoin reserves.

• Senator Cynthia Loomis : Introduced the Bitcoin Act, proposing that the U.S. Treasury purchase up to 1 million bitcoins over five years.

Currently, the U.S. is pursuing two different avenues to build a strategic Bitcoin reserve. The first, by far the most impactful and politically difficult, is the Bitcoin Act introduced by Senator Cynthia Lummis.

Under the bill, the United States will establish a strategic Bitcoin reserve and issue dollar-denominated bonds to purchase 1,000,000 Bitcoins, or just under 5% of Bitcoin's total fully diluted supply, with an average of 200,000 Bitcoins per year over the next five years. These currencies will be prohibited from being sold for the next 20 years unless they are used to repay U.S. Treasury debt. If passed, the Bitcoin Act will become U.S. law , which means it will force both current and future governments to act in accordance with the bill.

This would be a landmark event for Bitcoin and could spark a wave of Bitcoin purchases by countries around the world. Since the game theory of Bitcoin purchases favors those willing to take the risk early, choosing not to follow the world’s largest economy in adopting a potential new monetary standard would be extremely dangerous for any country.

While the bill's implications are huge, the chances of it passing are probably pretty slim. Getting such a proposal through Congress would be a huge political challenge, and Trump may not consider it a priority worth spending scarce political capital on. But the possibility is not zero, so we recommend keeping a close eye on the bill's progress.

The second and more likely path to building a strategic Bitcoin reserve is a recently leaked draft of an executive order that instructs the Treasury Department to do the following:

1. Take possession of and retain all Bitcoins currently owned by any branch of the U.S. government.

2. Including Bitcoin as a new reserve asset in the Treasury’s Exchange Stabilization Fund (ESF)

3. Use $21 billion from the ESF to buy additional Bitcoins and store them in the ESF

The president of the United States can issue executive orders he deems necessary without consulting Congress, as long as it does not violate the law. Therefore, Trump can decide whether to issue this order at his own discretion. Executive orders are matters of U.S. policy , which means that future governments can revoke or overturn the order at their own will.

Implementing a strategic Bitcoin reserve by executive order is more likely than by legislation. Its impact will also be smaller and less forward-looking. However, no matter how it is implemented, its global signaling effect will be obvious: Bitcoin is no longer some underground asset unsuitable for serious asset allocators, but the main global reserve asset used by the world's largest governments to diversify their investments.

European Union

• European Parliament member Sarah Knafau called on the European Union to reject the digital euro and establish a strategic Bitcoin reserve, warning the European Central Bank against "totalitarian temptations." Although her views are not widely shared within the EU, and the European Central Bank has been critical of Bitcoin and digital assets more broadly.

El Salvador

• President Nayib Bukele: In 2021, El Salvador became the first country to adopt Bitcoin as legal tender, aiming to increase financial inclusion and attract foreign investment.

Brazil

• Congressman Eros Biondini: Introduced a bill to establish a Sovereign Strategic Bitcoin Reserve (RESBit), with the goal of accounting for 5% of Brazil's international reserves to hedge against global risks.

Russia

• MP Anton Tkachev: Proposed the creation of a national Bitcoin reserve to counter economic sanctions and ensure financial stability.

Poland

• Presidential candidate Sławomir Mentzen: advocates for establishing a strategic Bitcoin reserve and implementing crypto-friendly regulations to position Poland as a cryptocurrency haven.

Argentina

• President Javier Milei: An active advocate of Bitcoin, critical of the central banking system and sees Bitcoin as a means of returning control of currency to the private sector.

Japan

• Member of Parliament Satoshi Yamada: Asked the government about the status of Bitcoin reserves of countries around the world and suggested that Japan consider converting part of its foreign exchange reserves into Bitcoin.

Canada

• Pierre Poilievre: The Conservative Party leader has been a prominent advocate of Bitcoin, emphasizing its potential as an inflation hedge and a decentralized alternative to the traditional monetary system.

• Prime Minister Justin Trudeau criticized Poilievre's stance on cryptocurrencies, saying that promoting Bitcoin was irresponsible.

As a thought exercise, we looked at the top 20 countries with a strategic reserve asset of gold and hypothesized that they might follow the US and sell 5% of their reserves to diversify into Bitcoin.

According to our estimates, this is equivalent to purchasing $110 billion worth of Bitcoin, or 5.5% of the total supply.

Given that Bitcoin competes directly with the US dollar, it may seem unreasonable at first glance to consider Bitcoin as an alternative to the US dollar. However, whether the US government likes it or not, the US dollar is gradually losing its reserve currency status, raising questions about the effectiveness of post-Bretton Woods monetary policy. As we have been advising our clients, transitioning to a "Bitcoin standard" would be extremely disruptive to the global economy. But in essence, it is not much different from holding gold as a strategic reserve - an approach that governments already adopt.

In theory, holding a diverse range of strategic reserve assets could help address government debt issues. It would be simplistic to dismiss Bitcoin simply because it competes with the dollar, and we disagree with those who claim that the dollar is crisis-free. In fact, as we highlighted in our 2025 Outlook, central banks are diversifying their reserves, and according to the IMF, the share of the dollar will fall from 71% in 2000 to 59% in 2022.

If the United States includes Bitcoin in its strategic reserve assets, its credibility will be greatly enhanced, and it may have a profound impact on Bitcoin prices and the global economy. More and more countries are considering Bitcoin as a strategic reserve, which shows that Bitcoin is gradually being regarded as one of the most stable and immutable assets in the world.