Produced by｜OKG Research
Authors｜Jason Jiang, Hedy Bi
In the early hours of today, Federal Reserve Chairman Powell clearly stated at a press conference following the monetary policy meeting that the Federal Reserve has no intention of participating in any government plan to stockpile Bitcoin. He emphasized that such issues fall within Congress's responsibilities, and the Federal Reserve is not seeking to change existing laws to allow for Bitcoin holdings. Powell's remarks immediately shook the market, causing Bitcoin prices to swiftly retreat from their highs earlier in the week. According to the prediction market Polymarket, the likelihood of a Bitcoin strategic reserve dropped from a peak of 40% on the 18th to 34% after Powell's speech. The market capitalization of the crypto market also plummeted, with an overall market cap evaporating by about 7.5%.
Image source: Polymarket
This statement not only leaves the market confused about the prospects of the 'Bitcoin Strategic Reserve (BSR)', but it also brings attention back to a deeper question: Does the Federal Reserve really have the authority to stop the BSR plan?
First, it is necessary to clarify the position of the Federal Reserve in the U.S. financial system. The Federal Reserve's superior authority is the U.S. Congress: Congress is the highest authority for all financial regulatory bodies, creating financial regulations and policies through legislation and authorizing other financial institutions (such as the SEC and the Federal Reserve) to exercise their functions. In the U.S. financial market, monetary policy and fiscal policy are the two core tools of government economic management, managed respectively by the Federal Reserve and the Treasury. These institutions maintain independence and a system of checks and balances to ensure the smooth operation of the U.S. economy and finance.
The Federal Reserve enjoys a high degree of independence in monetary policy and national economic stability, but in the decision-making to establish the BSR, the Federal Reserve cannot 'veto' it outright.
If the Trump administration wants to quickly establish the BSR, the most direct way would be to sign an executive order after taking office, directing the U.S. Treasury to use the Exchange Stabilization Fund (ESF) to directly purchase Bitcoin. The ESF is a special fund managed by the U.S. Treasury, primarily used for foreign exchange market intervention, supporting dollar stability, and responding to international financial crises. It currently includes assets such as dollars, Special Drawing Rights (SDRs), and gold. The operation of this fund is not subject to U.S. congressional control, giving the president and the Treasury significant autonomy in its use. The president can theoretically issue an executive order to directly instruct the Treasury to adjust the allocation of ESF funds for purchasing or reserving specific assets, thus bypassing direct congressional appropriation approval and reducing political resistance. The executive order recently drafted by the Bitcoin Policy Institute aims to establish the BSR in this way.
Image source: Bitcoin Policy Institute
This method is the easiest to implement, as the use of ESF funds does not require prior approval from Congress, but Congress can investigate or legislate to restrict its operations. During the COVID-19 pandemic in 2020, Congress imposed strict limits on some fund operations by the Treasury. Additionally, the sustainability of the BSR established through executive orders is questionable, as executive orders are essentially an expansion of executive power, and successors may abolish or modify previous decisions through new executive orders.
To establish and maintain the long-term stability of the BSR, an alternative path must be chosen, namely through congressional legislation that incorporates Bitcoin into the Strategic Reserve Act or similar laws, clearly defining Bitcoin's status as a national strategic reserve asset. This method has stronger legitimacy and can establish a long-term framework for Bitcoin reserves. The (U.S. Bitcoin Strategic Reserve Bill) previously proposed by Republican Senator Cynthia Lummis has chosen this path. The bill has been formally submitted to Congress and is under review by the Senate Banking Committee, and will subsequently go through the Senate, House of Representatives, and presidential approval to complete the legislation. Therefore, establishing a strategic Bitcoin reserve through this path will take longer and may encounter various obstacles along the way.
Whether through presidential executive orders or congressional legislation, establishing a strategic Bitcoin reserve ultimately needs to be led by the Treasury, rather than the Federal Reserve.
Image source: Congress.gov
In addition to the above proposals, the Federal Reserve and the Treasury can theoretically choose a middle path for Bitcoin allocation. The Federal Reserve could purchase Bitcoin through open market operations and include it in its balance sheet. Due to its relative independence, the Federal Reserve's actions do not require congressional approval, but a clear policy framework is needed to support its purchase of Bitcoin. Given the recent statements from the Federal Reserve, the likelihood of this plan being realized in the short term seems low. The Treasury could invest in Bitcoin as part of its fiscal investment plan by setting up a special fund, which would not change the existing legal framework, but the related financing would still require congressional approval.
Regardless of the path taken, a 'no' from the Federal Reserve cannot outright deny the BSR proposal, and the practical actions of Trump have shown support. According to on-chain data, just two minutes into Powell's speech, the Trump family's crypto project, World Liberty, quietly began buying altcoins. This scene undoubtedly reveals a deeper game: on one hand, the Federal Reserve's lukewarm response to the Bitcoin Strategic Reserve plan reflects the government's cautious attitude towards emerging assets; on the other hand, the actions of the Trump family’s crypto project reveal a subtle struggle between traditional power and market innovation. The delicate interplay among the government, traditional finance, and the crypto market may be a prelude to the future fate of the crypto market.
