Senator Lummis’ Bitcoin Reserve Proposal Faces Uphill Battle

In the aftermath of the recent election, Senator Cynthia Lummis, affectionately dubbed the “Crypto Queen” of Capitol Hill, has made waves with a proposal to establish a strategic Bitcoin reserve for the United States.

However, the proposal faces significant challenges, both legislative and economic.

Traditionally, the United States has relied heavily on gold reserves to fortify the dollar and provide a cushion against economic fluctuations. As of September 2024, the U.S. boasts approximately 8,133 metric tons of gold, dwarfing reserves held by other nations, including Japan’s 845 tons and China’s 2,113 tons. In comparison, the eurozone collectively holds about 10,784 tons. These substantial gold holdings are celebrated for their liquidity and stability, serving as a cornerstone of national economic policy.

Lummis’ vision of a $200 billion Bitcoin reserve, however, represents less than 2.5% of the total value of global gold reserves, prompting critical questions about its potential impact and strategic significance. Would a digital asset like Bitcoin, notorious for its volatility, provide the same level of security as traditional gold reserves?

To implement this ambitious initiative, the new Trump-Vance administration could potentially utilize an executive order directing the Treasury to allocate funds for Bitcoin acquisition. This method would allow the administration to sidestep some of the usual regulatory hurdles associated with cryptocurrency, framing Bitcoin as a strategic asset akin to the Strategic Petroleum Reserve, which was tapped by President Biden in 2022 to alleviate soaring fuel prices.

Nevertheless, establishing a sustained Bitcoin reserve would require congressional approval, particularly due to the complexities of multi-year budgeting. While the Trump administration may embrace a more crypto-friendly stance, there will be substantial resistance from traditionalists within Congress. Many lawmakers view Bitcoin as too speculative and risky, particularly when considered for inclusion in national reserves. This apprehension could stall Lummis’ proposal at a critical juncture.

Operationally, the management of a Bitcoin reserve could fall to the U.S. Department of the Treasury, paralleling the current management of gold reserves. Bitcoin acquisition might be facilitated through diversified funds within the Federal Reserve System. Yet, as discussions progress, the risk associated with adding a volatile asset like Bitcoin to the national balance sheet will likely come under intense scrutiny from both the Senate and the House.

With inflation concerns continuing to dominate economic discussions, any initiative involving Bitcoin may encounter significant resistance from both the public and policymakers. Importantly, even a $200 billion Bitcoin fund would constitute a mere fraction of the staggering $35.9 trillion U.S. debt, further complicating the argument for its adoption as a national reserve asset.

In the near term, the prospects for Lummis’ Bitcoin reserve proposal appear bleak. While executive orders can pave the way for limited governmental action, the comprehensive asset purchases necessary for a full-scale reserve would require extensive Congressional cooperation. Given the current political climate, it seems unlikely that sufficient legislative support can be rallied within the next two years.

State By State

Another option is for different states to create their own reserves. Dennis Porter, CEO of Satoshi Action Fund wrote on X “I can confirm that in 2025, multiple states will have Strategic Bitcoin Reserve legislation introduced.” 

Some states have already shown significant interest in Bitcoin integration. Texas and Wyoming have established frameworks recognizing digital assets under commercial law, while Arizona has seen multiple legislative pushes to recognize Bitcoin as legal tender. If this new legislation advances, it could mark a major step in integrating Bitcoin into state-level financial strategies. 

Source: Finance Mangnates, X

A Hero Steps In

Senator Cynthia Lummis isn’t going to stop on her mission to create a strategic Bitcoin reserve to bolster the United States’ financial standing. She envisions this reserve as a “digital-age asset capable of enhancing the financial leadership and security of the U.S. in the 21st-century global economy.”

The proposed mechanism involves the U.S. Treasury Department acquiring 1 million Bitcoin over five years, amounting to approximately $65 million at current prices. This acquisition would be managed transparently, with the Treasury overseeing the reserve’s operations.

Cynthia Lummis, with the Bitcoin Eyes, Source: X

Lummis draws parallels between Bitcoin and traditional assets like gold, suggesting that, just as gold reserves have historically served as a cornerstone of national financial security, Bitcoin represents a digital-age asset capable of enhancing the financial leadership and security of the U.S. in the 21st-century global economy.

Speaking To Decrpypt, Lummis said the path to its creation is already underway with the introduction of the yet-to-be-passed Boosting Innovation, Technology, and Competitiveness Through Optimized Investment Nationwide Act—simply referred to as the “Bitcoin Act.” 

“The bill establishes a decentralized network of secure Bitcoin vaults operated by the United States Department of Treasury,” Lummis explained. “It implements a one-million-unit Bitcoin purchase program over a set period of time to acquire a total stake of approximately 5% of total Bitcoin supply; and affirms self-custody rights of private Bitcoin holders.”

“The Strategic Bitcoin Reserve would mirror the Treasury Department’s existing responsibility for managing the nation’s gold reserves, operating independently from the Federal Reserve System,” Lummis explained. “Our aim was to establish it as a modern parallel to our gold stockpile, serving as a digital-age hedge against economic uncertainty while maintaining the Treasury’s historical role in safeguarding critical national reserves.”

The bill was introduced to the Senate by Lummis in July, but failed to move beyond that stage. Still, the act needs to be reviewed and passed by the Senate and the House, and finally approved by the president.

“Next Congress is the perfect time to get this legislation and other common sense digital asset bills across the finish line,” Lummis added.