The US government may start hoarding Bitcoin. How and why?

• Legislation has been proposed to allow the U.S. government to store large amounts of Bitcoin as a strategic reserve, starting with seized Bitcoin that the government already holds.

• Many people have questions: Is it legal to keep seized Bitcoin? How does holding Bitcoin reduce the deficit? Why does the U.S. government need to have Bitcoin reserves?

President Donald Trump made an appearance at a Bitcoin conference, and in case you missed it, it was a cross between a campaign speech and a cryptocurrency talk.

In my opinion (as with many others), the main theme of this year's Bitcoin conference was politics. This is a far cry from 2022 when the main theme was open source technology.

So far, it seems like the main “political” item everyone is talking about is that the U.S. government may soon begin building a strategic reserve of Bitcoin. At the conference, Sen. Cynthia Loomis (R-Wyo.) announced that she is drafting a bill that would put aside the more than 200,000 Bitcoins currently held by the United States and keep adding to it until the U.S. reaches 1 million Bitcoins. As for these billions of dollars worth of Bitcoins, the government “would have to hold the Bitcoin for 20 years, and during that time, the only thing it could be used to pay for would be to pay down our nation’s national debt.”

According to Saturday’s speech, Trump also joined in! He said on stage: “So as a final part of my program today, I am announcing that if I am elected, my administration will adopt the following policies... reserving 100% of all Bitcoin currently held or acquired by the United States government...which will actually become the core of the National Strategic Bitcoin Reserve.”

“Most of the Bitcoin currently held by the government was acquired through law enforcement actions. You know that. They took it from you. Let’s take that man’s life. Let’s take his family, his house, his Bitcoin. We’ll turn it into Bitcoin. It’s been taken from you because that’s where we’re going now. That’s where this country is going — to a fascist regime. So I’m going to take steps to turn this vast wealth into a permanent national asset for the benefit of all Americans…”

That's a good thing. We all have questions. Like: "How?" "What?" and "Why?"

These questions will be definitively answered over time (hopefully), but for now, I have three questions and thoughts.

How, What and Why

First, I have a problem with the Bitcoin held by the US government. They can't just take the seized Bitcoin and keep it for themselves, like they can with civil forfeiture, right? Especially since we know about 95,000 of them belong to people whose Bitcoins were stolen by criminals. Sure, the US government is keeping 200,000 Bitcoins, but is it really the US government's (actually, yes, since Bitcoin is a bearer asset, it's kind of like the US government's Bitcoin, and there's a lesson in self-custody there)? Senator Lummis is going to go to the legislature and say, "Hey, remember all that stolen Bitcoin we stole when we caught the bad guys? Now it's ours. We're going to keep it." I can't imagine that going over well. So right from the start, we have a provenance problem.

Secondly, if this bill becomes policy, the US government would be holding Bitcoin, which is definitely... weird. Trump said in his speech: "The federal government owns almost 210,000 Bitcoins, 1% of the total supply, which makes things a little complicated. But our government has long violated the basic rule that every Bitcoin holder knows by heart: Never sell your Bitcoin."

Obviously, a sentence in a speech is not the same as written law, so maybe the US government will sell some of its Bitcoin. We'll see. Not to be overly negative, but Lummis' plan suggests that the US government won't be able to sell its Bitcoin reserves for 20 years unless it's used to pay down the national debt. If you think the potential oversupply of sales of returned Mt. Gox coins is bad for Bitcoin's price, imagine a million government Bitcoins (over $65 billion) that could be sold at once to cover the national deficit. Or slowly over the course of a year. Bloodbath.

Senator Cynthia Lummis holds a copy of the Bitcoin Reserve Act (Danny Nelson/CoinDesk)

Third, and perhaps most importantly: Why? Why does the US need a Bitcoin reserve? When I think of “US government reserves,” I think of the Strategic Petroleum Reserve (SPR), which is an emergency reserve of oil maintained by the Department of Energy (DOE) that is released to the market when oil becomes expensive or scarce for whatever reason. The DOE maintains the SPR for a very good reason: if all the oil in the world disappeared at this moment, the whole world would collapse. Now think about it, if Bitcoin disappeared, would the whole world collapse?

I mean, yes, I'll be out of work, I'll probably lose a lot of money, but what about the world at large? I like Bitcoin, yes, but is it necessary? What's the point?

To be fair, the U.S. government does have a large gold reserve, about 20% of the world’s gold reserves, if presidential candidate Robert F. Kennedy Jr. is to be believed, and in his Bitcoin conference speech the day before President Trump called for a 4 million Bitcoin reserve (four times the Lummis Act!) to match Bitcoin’s huge supply share with gold. Since Bitcoin is supposed to be digital gold, what’s the difference?

The difference is that gold has been around as money longer than Bitcoin (or even the dollar), and the dollar was once backed by gold, so the U.S. government must own gold. And it still holds a lot of it.

Regardless, I hope there will be more clarity as I haven’t fully come to terms with this yet and I look forward to seeing our unanswered questions answered.

In the meantime, I’ll quote the closing words of Trump’s 2024 Bitcoin conference speech: “Have fun and enjoy your Bitcoin, cryptocurrencies, and all the other things you’re playing with.”

We will, President Trump. We will.