Summary Trump's pro-crypto stance includes creating a Bitcoin reserve, which could diversify the US's financial assets. If Trump's Bitcoin Strategic Reserve plan is implemented, Bitcoin could reach $400,000 per coin within five years due to increased demand. Establishing a Bitcoin reserve would be relatively simple, leveraging the 200,000+ Bitcoin the US government already holds from seizures. Long term, Bitcoin could reach $1.5-2 million per coin in 10-15 years, making it a valuable part of a diversified investment portfolio. Thesis If Donald Trump's plan to create a Bitcoin strategic reserve is implemented and other countries quickly follow suit, it would significantly increase overall demand for Bitcoin ( BTC-USD ) and associated investment options like the iShares Bitcoin Trust ( IBIT ). This could make Bitcoin worth $400,000 per coin within the next 5 years. Trump's Policy Positions on Crypto Trump used to be vocally anti-crypto; as recently as 2019, he tweeted that he was "not a fan of Bitcoin and other Cryptocurrencies, which are not money, and whose value is highly volatile and based on thin air." However, Trump reversed course during his presidential campaign this year. Although he didn't mention cryptocurrency in any of the 15 high-level policy positions on his website, his campaign accepted cryptocurrency donations and he frequently made pro-crypto statements. Most notably, he gave the keynote speech at the Bitcoin Conference in July, where he promised to make the USA the "crypto capital of the planet." More specific ideas mentioned by Trump and his advisors include broadly de-regulating the industry by firing anti-crypto regulators like SEC chair Gary Gensler, creating a pro-crypto advisory council within the government, and potentially eliminating capital gains taxes on cryptocurrencies issued by USA companies. These ideas are exciting for the crypto industry more broadly, and I plan to cover them in future articles. However, none of these ideas are likely to have much impact on Bitcoin, which even Gary Gensler admits is a decentralized commodity that has no issuer and is already loosely regulated. The policy proposal that's most interesting for Bitcoin investors is the creation of a Bitcoin Strategic Reserve, which is the focus of this article. US Government Reserves The US government keeps reserves of key commodities such as gold and oil. The oil reserve serves the functional purpose of smoothing out supply shocks. For example, the government will release oil reserves when it believes that oil prices are too high and add to the reserves by purchasing oil when prices are relatively lower. The reason for having a gold reserve is more nuanced. At one point, the US dollar was backed by gold, so the government had to have gold in order to allow citizens to exchange their gold-backed dollars for real gold. Although the dollar is no longer backed by gold, the government still holds substantial gold reserves. This is because gold is a scarce and inflation-resistant asset that has historically retained value better than fiat money. Having gold as part of a diversified balance sheet protects the nation's financial position in a variety of economic conditions. For example, the government is able to get huge loans at favorable rates in part because its financial stability is backed up by gold reserves and other assets besides USD. Even if the world abruptly abandoned the USD as a global currency, the government would theoretically still be able to use its gold and other assets to pay down debt. Other countries also have gold reserves for similar reasons, so to some degree it's also a standoff. No politician wants to be the one to sell off their country's reserves, only to watch gold's price increase later. The Case for a Bitcoin Strategic Reserve Trump has proposed creating a Bitcoin reserve similar to the existing gold reserve. Senator Cynthia Lummis already introduced a bill called the BITCOIN Act to achieve this last July, but it hasn't been passed yet. The proposed bill would have the US Treasury purchase 1 million Bitcoin (~5% of Bitcoin's total supply) over 5 years, and then hold the coins for at least 20 years or use them to pay down federal debt. The case for creating this reserve is largely similar to the case for maintaining the gold reserve. In order to secure the nation's financial position in a wider variety of scenarios, the government should diversify its assets to include some Bitcoin. Just like gold, Bitcoin is a decentralized and inflation-resistant asset that might retain value better than USD in some cases. While having a Bitcoin reserve and a gold reserve may seem redundant, Bitcoin has some unique properties relative to gold. This includes the ability to be transferred over the internet (portability), better divisibility, a soon-to-be lower supply inflation rate, and historically faster price appreciation. In some situations, such as a temporary outage in digital USD settlement systems, these properties would make Bitcoin more useful than gold. Just as governments want to ensure that their nation has its fair share of the gold supply (and its fair share of critical industries like semiconductors, car manufacturing, etc.), they should also try to ensure that they get their fair share of the limited Bitcoin supply. After all, Bitcoin is already one of the 10 most valuable assets in the world , and an increasingly important part of global wealth and monetary systems. The Logistics of Creating the Reserve Top Bitcoin holders November 2024 (River.com) Some may be surprised to learn that the U.S. Government is already the world's 7th largest Bitcoin holder. It acquired Bitcoin by seizing assets in criminal investigations, most famously seizing over 100,000 Bitcoin from a combination of the online black market The Silk Road and the hackers of the Bitfinex crypto exchange. Historically, the government has slowly sold off Bitcoin after acquiring it, but that hasn't stopped it from holding some Bitcoin for over 10 years, effectively maintaining an informal reserve. In this sense, establishing an official reserve is actually quite simple; the government would just declare the 200,000+ currently held Bitcoin as a formal reserve and stop selling it. This reserve would only be about 1/5th the size of the 1 million coin reserve proposed in the BITCOIN Act, but it would be a relatively uncontroversial start. At current Bitcoin prices (~$100,000), acquiring an additional 800,000 Bitcoin wouldn't be unreasonably expensive or risky for a country as large as the USA. The resulting $0.1 trillion allocation would still be a drop in the bucket relative to the government's estimated $200 trillion in total assets, $0.6 trillion in gold reserves, and $4.4 trillion in annual revenue. Even if Bitcoin prices significantly declined after the reserve was established, it wouldn't have much impact on the USA's overall financial position. Better Now Than Later As mentioned above, Bitcoin is still a relatively small asset compared to the USA's vast wealth and tax revenue. However, the logistics of funding the reserve are still somewhat complex, and they will become more complex if Bitcoin's market cap continues to increase. The BITCOIN bill proposes funding the reserve with USD from Federal Reserve banks, essentially rebalancing the nation's assets to be lighter on USD and heavier on Bitcoin. However, the bill doesn't provide details on what to do if Bitcoin's price continues rising during the 5-year purchase period. Even from current Bitcoin prices (which are substantially higher than when the bill was introduced in July), I model that the proposal in the bill would only be sufficient to fund purchases of 400,000 Bitcoin (instead of the proposed 800,000+). If Bitcoin's price continues to rise, some later purchases may require funding from more controversial sources such as tax revenue or the sale of other reserves like gold. The least controversial way to address this would be to update the bill to use a fixed amount of USD to purchase Bitcoin each year, instead of using a variable amount of USD to purchase a fixed number of Bitcoin. While that may mean that the USA would fail to acquire 1 million Bitcoin within 5 years, it might make the bill easier to pass and fund. No doubt, other less wealthy countries are doing similar math and feeling a greater degree of urgency to establish their reserves at current prices before the USA begins exerting buying pressure. It's been reported that at least Brazil, Poland, and Russia are considering establishing reserves. El Salvador already has a Bitcoin reserve. Other countries including China and Bhutan own Bitcoin but haven't established formal reserves (similar to the USA's current state). Notably, many of these countries are not allies of the USA, which only adds to the pressure that each country will feel to acquire Bitcoin ahead of rivals. Bitcoin's Updated Price Target Price is a function of supply and demand. If the USA and other countries were to establish strategic reserves of Bitcoin, this would by definition increase demand for Bitcoin. Meanwhile, Bitcoin's supply is fixed at 21 million. As a result, we can conclude that Bitcoin's price is likely to increase if the strategic reserve is established. Demand is difficult to model precisely, and any model has risk of being inaccurate. For my model in this article, I'll predict Bitcoin's demand and price based on a comparison with gold. The inspiration for this comparison is that having 1 million Bitcoin would give the government ownership of about 5% of Bitcoin's supply, which is similar to their ownership of the total mined gold supply ( 3-4% at 8,100 tons). Based on this, I model that other large governments/institutions that own a meaningful portion of the gold supply would quickly follow the USA's lead and aim to purchase a proportional amount of the Bitcoin supply. From this, we can model a couple of scenarios with different price targets: Bear case ($65,000): Strategic reserves aren't established and Bitcoin's price falls back to pre-election levels. It's worth noting that $65,000 is also close to the previous 4-year halving cycle's max price from 2021. Historically, Bitcoin has not meaningfully fallen below the previous cycle's high, so I view $65,000 as a major resistance point that is unlikely to be broken. Bull case ($400,000): Central banks and investors increase demand for Bitcoin until it has the same market cap as gold. Formula: (current BTC price) * (gold market cap) / (Bitcoin market cap) * (% of gold held by investors/central banks) Application: $95,000 * 17.8 / 1.9 * 0.45 = 400,500 (round to 400,000). It's anyone's guess as to which of these cases is more likely. I won't pretend to have inside information about the incoming administration's plans. However, my relatively uninformed guess is that we'll see something along these lines: Bitcoin's price rises to $140,000-$200,000 in 2025 as positive sentiment surrounding the reserve allows the current bull run to continue. The reserve takes longer than expected to implement or takes a disappointing initial form, causing a retrace to $70,000 in 2026-2027. The reserve finally takes off in 2028-2029, perhaps due to pressure from other countries starting to implement their own reserves. This allows Bitcoin to near the $400,000 target. This prediction of more volatility but eventually higher prices is based on a few considerations: Crypto isn't one of the Trump administration's main policy positions and is generally a controversial political topic, which will slow down legislation. Even if the reserve is implemented quickly, the buying pressure will be spread out over many years. Bitcoin has followed a remarkably predictable 4-year chart pattern. As the famous saying goes, this will continue to happen until it doesn't. However, if you believe in Bitcoin, I wouldn't try to time the market based on this prediction. Rather, I would hold long term with the expectation that prices will eventually be higher than they are today. The Long-Term Target Short-term price predictions are difficult, and even 5 years is relatively short term when it comes to a volatile asset like Bitcoin. In the long term (10+ years), I believe that even my bull case is too conservative. We can apply the following multipliers to the $400,000 target to get a longer-term target: x2 because we've ignored the ~50% of demand for gold that comes from jewelry, which can also be considered an investment. x2 every 10 years based on gold's historical returns, due in part to inflation. A small additional multiplier from the fact that Bitcoin's supply inflation rate will soon be lower than gold's, and that demand for Bitcoin has historically grown faster than demand for gold. After applying these multipliers, I model a price of 1.5-2 million per coin in 10-15 years. Despite being near all-time highs, Bitcoin still has the potential to 10x in 10 years. That said, Bitcoin is a volatile and risky asset that also has the potential to lose investors' money, especially in the short term. Conclusion Bitcoin and cryptocurrency are complex topics, and their prices are influenced by many factors besides just the Bitcoin reserve. I've written extensively about these topics more generally in past articles and my recently published book Decoding Cryptocurrency . The price formulas I shared above may be over-simplified to focus on the reserve, but I believe that Bitcoin's price will continue to appreciate in the long term. As such, Bitcoin is an important part of a diversified investment portfolio.
