Why the U.S. government has no business building its own Bitcoin reserve

The idea of a strategic reserve of Bitcoin is gaining steam on Capitol Hill, even if financial and regulatory experts are skeptical.

U.S. Senator Cynthia Lummis, a Republican from Wyoming and one of the crypto industry’s staunchest advocates, introduced late last month the BITCOIN Act, under which the U.S. would purchase one million Bitcoin over the course of five years. She claims that by stockpiling Bitcoin, the government can “supercharge the U.S. dollar” and reduce the national debt. “This is our Louisiana Purchase moment that will help us reach the next financial frontier,” Senator Lummis said in a press release announcing the bill.

A single Bitcoin currently costs about $60,000, meaning that at current prices the Treasury Department would spend $60 billion to acquire one million Bitcoin. The department would then be barred from selling any of its Bitcoin for 20 years unless it chooses to use the cryptocurrency to pay down the national debt, which now stands at around $35 trillion. (The U.S. government currently holds 203,000 Bitcoin, worth about $12 billion, some of which was seized in the 2021 prosecution of the Silk Road dark web network.)

The idea for a reserve has gained traction among some Bitcoin enthusiasts, and has even found the ear of Republican presidential nominee Donald Trump. “For too long our government has violated the cardinal rule that every Bitcoiner knows by heart: Never sell your Bitcoin,” Trump told attendees at the Bitcoin 2024 conference in July. “If I am elected, it will be the policy of my administration, United States of America, to keep 100% of all the Bitcoin the U.S. government currently holds or acquires into the future.” He stopped short of promising a strategic reserve, but promised to maintain whatever Bitcoin the government already has (or HODL, as crypto folks say). Robert F. Kennedy Jr., an independent candidate for president, threw his support behind the idea of a strategic reserve of 4 million Bitcoin (market price $240 billion), something closer to the country’s gold reserves. (Vice president Kamala Harris’s campaign has largely ignored crypto policy and the Democratic Party’s newest platform says nothing about it.)

But experts caution against the idea of the government spending so much money on mercurial financial assets, especially when doing so would require borrowing more money or selling some of its underwater investments and taking a big loss. Alisha Chhangani, assistant director at the Atlantic Council’s GeoEconomics Center, says buying this much Bitcoin would introduce volatility into the country’s holdings. “The volatility of Bitcoin would be a significant liability for the U.S. government if it were to hold reserves of this asset,” she tells Fast Company. “Bitcoin’s price can dramatically swing in short periods, driven by factors like market sentiment, regulatory changes, and broader economic trends.”

That volatility poses a significant challenge for a strategic reserve, which is typically meant to provide stability during economic crises. Bitcoin’s price history is notoriously unpredictable, having swung from between $20,000 and $70,000 within a single year.

The BITCOIN Act also raises questions about the role of government in speculative markets. Unlike the U.S. Department of Energy’s Strategic Petroleum Reserve (SPR), which aims to stabilize oil prices during supply disruptions, a Bitcoin reserve would essentially position the government as a speculator in a highly volatile asset class. 

Todd Phillips, an assistant professor of law at Georgia State University, suggests the proposal could have unintended consequences for existing financial institutions such as the Federal Deposit Insurance Corporation (FDIC), the government agency that insures bank customers. “This would actually really screw with the FDIC,” says Phillips, a former lawyer for the deposit insurance agency. “The FDIC frequently takes over banks that custody Bitcoin for clients. And if this bill was law, they could not sell that Bitcoin, meaning that they would have to raise deposit insurance premiums to cover for the fact that they couldn’t sell the Bitcoin to top up the deposit insurance fund.” That would also apply to Bitcoin that the government acquires in other ways, such as through civil or criminal asset forfeiture.

Lummis did not respond to Fast Company’s requests for comment about her strategic reserve proposal. She was elected to the Senate in 2020, and has reportedly invested in Bitcoin since 2013 after a tip from her son-in-law. In 2021, while in office, she disclosed a Bitcoin purchase between $50,000 and $100,000.

Chhangani says the lack of comprehensive regulation in the U.S. addressing cryptocurrency’s use in anti-money laundering, terrorist financing, and consumer-protection measures stands as a major challenge to the successful implementation of a reserve. “Without robust regulatory mechanisms, establishing a strategic Bitcoin reserve could significantly expose the economy to risks such as financial crime, market manipulation, and consumer loss,” she says.

Phillips’s assessment is a bit more blunt: “This really is just a pump scheme for current Bitcoin holders,” he says. “It’s a campaign talking point that if actually went into effect would have a really detrimental impact on the way the government handles its money.”

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