Author: Jason Jiang & Hedy Bi, OKLink
Early this morning, Federal Reserve Chair Jerome 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 hoard Bitcoin. He emphasized that such issues fall within the purview of Congress, and the Federal Reserve does not seek to change existing laws to allow for holding Bitcoin. Powell's remarks immediately triggered market turbulence, causing Bitcoin prices to rapidly correct from their highs earlier in the week. According to information from 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 overall market capitalization of the crypto market also plummeted, evaporating about 7.5%.
This statement not only leaves the market puzzled about the prospects of the 'Bitcoin Strategic Reserve (BSR)', but also refocuses attention on a deeper question: Does the Federal Reserve really have the authority to obstruct the BSR plan?
First, it is necessary to clarify the Federal Reserve's position 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, establishing 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 for government economic management, managed respectively by the Federal Reserve and the Treasury Department. These institutions maintain independence through mutual 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 it cannot 'veto' decisions regarding the establishment of a BSR.
If the Trump administration wants to quickly establish a BSR, the most direct way is to sign an executive order after officially 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 interventions, supporting dollar stability, and responding to international financial crises. It currently includes assets such as the dollar, Special Drawing Rights (SDRs), and gold. The operation of this fund is not subject to U.S. congressional control, granting significant autonomy to the president and the Treasury in its use. The president can theoretically direct the Treasury to adjust the allocation of ESF funds to purchase or reserve specific assets through an executive order, bypassing direct congressional appropriation approvals, thus reducing political resistance. The executive order drafted recently by the Bitcoin Policy Institute aims to establish the BSR in this manner.
This method is the easiest to achieve; the use of ESF funds does not require prior approval from Congress, but Congress can limit its operations through investigations or legislation. During the COVID-19 pandemic in 2020, Congress imposed strict limits on some of the Treasury's fund operations. Additionally, the sustainability of a BSR established through an executive order is questionable, as executive orders are essentially an extension of executive power, and successors may repeal or modify previous decisions through new executive orders.
If the goal is to establish and maintain a long-term stable BSR, an alternative path must be chosen: through congressional legislation to incorporate Bitcoin into the Strategic Reserve Act or similar laws, explicitly defining Bitcoin's status as a national strategic reserve asset. This approach has stronger legitimacy and can establish a long-term framework for Bitcoin reserves. The (U.S. Bitcoin Strategic Reserve Act) previously proposed by Republican Senator Cynthia Lummis has chosen this path. The bill has now 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 before it can be officially enacted into law. Therefore, establishing a strategic Bitcoin reserve through this path will take longer and may encounter various resistance along the way.
Whether establishing a strategic Bitcoin reserve through presidential executive orders or congressional legislation, it appears that the implementation will ultimately need to be led by the Treasury Department rather than the Federal Reserve, based on the plans that have been revealed so far.
Image source: Congress.gov
In addition to the aforementioned plans, the Federal Reserve and the Treasury theoretically could choose a middle path for Bitcoin allocation. The Federal Reserve could purchase Bitcoin through open market operations and incorporate it into its balance sheet. Due to its relative independence, the Federal Reserve's actions do not require congressional approval, but a clear policy framework must 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 establish a special fund to invest in Bitcoin as part of its fiscal investment plan, which would not change the existing legal framework, but the related financing would require congressional approval.
Regardless of the path taken, the Federal Reserve's 'no' cannot outright deny the BSR proposal, while Trump, as a practical leader, has shown support through action. According to on-chain data, just two minutes into Powell's speech, the Trump family's crypto project World Liberty quietly began purchasing altcoins. This scene undoubtedly reveals a deeper struggle: on one hand, the Federal Reserve's lukewarm response to the Bitcoin strategic reserve plan reflects the government's cautious attitude toward emerging assets; on the other hand, the Trump family's crypto project indicates subtle tensions between traditional power and market innovation. The delicate interplay between government, traditional finance, and the crypto market may be the prelude to the future fate of the crypto market.
