In a move that would've seemed wild just a few years ago, over a dozen states are seriously considering holding Bitcoin reserves as part of their fiscal strategy.
It began when Trump, not yet elected and on the campaign trail, mentioned the idea as part of his plan to make the US the 'crypto capital of the world'. Since taking office, one of the executive orders he signed on the first day created the committee to propose new regulations, and to look into the creation of a national cryptocurrency stockpile.
Looking to capitalize on the creation of a Federal Bitcoin Reserve, 15 states have either passed or introduced state-wide Bitcoin reserve bills, including Alabama, Arizona, Florida, Kentucky, Massachusetts, Montana, New Hampshire, North Dakota, Ohio, Oklahoma, Pennsylvania, South Dakota, Texas, Utah, and Wyoming. Pennsylvania was the first to propose it, in a bill in November of last year.
What Exactly is a Bitcoin reserve?
A Bitcoin reserve is basically a stash of Bitcoin owned and managed by a government, much like how many countries hold gold, silver, gems, or oil reserves.
The reasoning behind it - the most basic fundamental of investing; diversifying your investments. Like gold, Bitcoin has shown itself to be a hedge against inflation. When the dollar loses value, people look for alternative ways to store their wealth, ideally somewhere it isn't losing value. In every major economic downturn, you'll see the charts for gold on the rise, and more recently, Bitcoin. Earning the nickname 'digital gold' for this reason.
How Exactly Would the State or Federal Government Acquire Bitcoin?
So far, proposals have included selling a portion of existing reserves, and using that to purchase Bitcoin. Other proposals involve changes to the State's annual budgets where they would reallocate funds, for example, lawmakers in Oklahoma, New Hampshire, and Pennsylvania have proposed that up to 10% of public funds on a temporary basis until a set goal is reached.
Other states believe their residents who are crypto fans would be willing to donate some of theirs, just to show their support for the concept.
Lastly, Texas has floated the idea of allowing residents to pay taxes and fees in Bitcoin, and these payments would go directly into a state reserve, where it couldn't be touched for 5 years.
How Would this Effect the Market Overall?
All analysis seems to conclude that this would trigger a significant spike, with a combo of factors working together in a way that could only send the price up. There is a record number of wallets owned by investors who buy Bitcoin and hold it, leaving it untouched no matter what the market is doing. Then there's the growing number of companies with Bitcoin on their balance sheet.
This means governments, companies, and individuals would be holding Bitcoin for the long haul, with no intent to sell anytime soon. Now factor in that there is only 20 million Bitcoins in circulation, and an estimated 6 million of those sit in wallets where the owner lost the key to access them (many from the early days when Bitcoin was worth a few cents, people didn't carefully backup the key to wallets holding thousands of Bitcoin)
Now imagine with this: Those who hold Bitcoin aren't looking to sell, limited supply of Bitcoin available, dozens of countries follow the US's lead and begin creating Bitcoin reserves of their own. If those holding Bitcoin aren't willing to sell, there's only one option left - change their mind by offering more. Some are citing this as the path to a $1M Bitcoin price, and while I think that number may be unrealistically high, I do agree it's the path to set new record highs.
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Author: Oliver Redding
Seattle Newsdesk /
