What is the concept of a strategic reserve asset of 1 million Bitcoins?
According to statistics from the World Gold Council, as of the third quarter of 2024, the Federal Reserve's total gold reserves reached 8,133.46 tons (approximately US$530 billion), ranking first in the world. The current market value of 1 million Bitcoins is close to $100 billion, accounting for approximately 19% of the U.S. gold reserves, which is a considerable scale.
Source: World Gold Council
As Trump and an increasing number of institutions/companies and sovereign states begin to consider establishing a “Bitcoin strategic reserve,” is Bitcoin’s “Fort Knox moment” imminent? Can it become an important component of the global reserve asset system like gold?
The next ten years may be a critical time window for the answer to be revealed.
What does "strategic reserve assets" mean?
At the Bitcoin2024 conference held in July 2024, Trump clearly promised in his speech to "never sell" the Bitcoins held by the government and acquired in the future, and adhered to the concept of "strategic Bitcoin reserves."
With the election of Trump and the recent appointments of crypto-friendly figures to key positions such as the U.S. Treasury Secretary, the U.S. SEC Chairman, and the White House Crypto Czar, the idea of the United States including Bitcoin in its strategic reserves is one step closer to reality.
Image source: Bitcoin2024
What exactly are "strategic reserve assets"?
Fundamentally, "strategic reserve assets" are key assets held by national or regional governments to cope with economic fluctuations, financial crises or geopolitical risks, and to maintain national financial stability, economic security and international competitiveness. Such assets usually have characteristics such as high value and universal acceptance, safety and stability, and liquidity.
At the corporate level, "strategic reserve assets" help achieve financial stability, enhance risk resistance, and support long-term growth strategies. Especially in times of economic turmoil, strategic reserve assets often form the primary barrier for enterprises to resist risks.
Traditional strategic reserve assets mainly include:
Gold: Due to its scarcity and anti-inflation ability, gold is widely recognized as a stable value storage tool;
Foreign exchange reserves: The reserve currency, dominated by the US dollar, constitutes an important means to support international trade and payment;
Special Drawing Rights (SDR): allocated by the International Monetary Fund (IMF) to supplement the official reserves of member countries;
It can be seen that assets that can become "strategic reserves" must have comprehensive advantages such as stable value, global recognition, and convenient circulation. As an emerging digital asset, Bitcoin is gradually meeting these conditions and is beginning to be regarded as a potential option besides gold.
It is worth noting that in addition to Trump’s “commitment”, on July 31, 2024, U.S. Senator Cynthia Lummis submitted the (U.S. Bitcoin Strategic Reserve Act) (BITCOIN Act of 2024) to Congress, clearly requiring that “the U.S. Treasury must Purchase 1 million Bitcoins within 5 years and must hold them for at least 20 years, unless used to repay outstanding federal debt." It also plans to require the Federal Reserve to "use a certain amount of net proceeds to purchase Bitcoins each year."
The plan aims to ensure that the U.S. government holds sufficient Bitcoin over the next two decades to provide the country with a long-term financial hedging tool. The bill is currently submitted to the U.S. Senate Banking, Housing and Urban Affairs Committee, and is subject to discussion and voting. After being passed by both houses, it will be sent to Trump to sign into law.
Source: PANews
Besides gold and foreign exchange, why Bitcoin?
From an asset allocation perspective, gold reserves are not always better in an absolute sense.
The primary consideration is that gold, as a physical asset, lacks interest or income attributes, and its liquidity benefits are not significant. This is the core reason why Buffett has been cautious about it for a long time - "Gold cannot generate interest payments and therefore lacks the compound interest effect."
More importantly, gold reserves require high storage and maintenance costs. For most countries, the effective management and security of gold reserves has constituted a financial burden that cannot be ignored. Take the Federal Reserve's iconic gold warehouse "Fort Knox" as an example. Its security investment is staggering:
Deep in Kentucky, the strategic hinterland of the United States, it adopts a deep underground structure, equipped with thick reinforced concrete protective walls and an all-weather security system, and deploys tens of thousands of military garrisoners all year round. This makes gold reserves not only a security requirement, but also a continuous asset-heavy fiscal expenditure.
Source: PANews
In contrast, the storage cost of Bitcoin is almost negligible. There is no need to occupy physical space or configure expensive protective facilities. Efficient storage management can be achieved by relying only on secure wallets, multi-signature wallet technology and decentralized network verification systems.
At the national level, Bitcoin storage expenditures are mainly focused on technology and network maintenance, which are far lower than the physical protection costs of gold. This means that even if Bitcoin does not generate direct income, its holding cost is significantly better than gold, leaving more room for net asset growth.
At the same time, physical gold transactions often involve complex links such as physical delivery, storage, and transportation, and the cycle may last days or even weeks. The gold market is often limited by the time and geographical constraints of the traditional financial system, while Bitcoin can achieve 7x24-hour trading through exchanges, covering the global market.
In addition to gold, foreign exchange reserves (such as euros, yen, etc.) are legal currencies issued by other countries. Their value not only depends on the economic conditions of the issuing country, but is also more vulnerable to geopolitical risks. Bitcoin relies on its scarcity to avoid monetary policy intervention and avoid the risk of depreciation caused by excessive issuance. And enable any holder (regardless of individuals, institutions or sovereign countries) to freely store, transfer and trade around the world.
This decentralized feature ensures that Bitcoin is not affected by political and economic interference, and its value storage function can still function stably even in times of global turmoil.
Source: PANews
Enterprises/institutions and sovereign states are becoming the “Pixiu” of Bitcoin
Bitcoin, which currently has a total market value of US$2 trillion, has gradually become a potential reserve tool due to its characteristics of no need for physical storage, global circulation, high transparency and anti-inflation. More and more companies/institutions and even sovereign countries are beginning to explore incorporating Bitcoin into the strategic reserve asset system.
US Government: One of the World’s Largest Bitcoin Holders
Surprisingly, the U.S. government is actually one of the largest Bitcoin holders in the world. Over the years, through law enforcement operations, a large number of Bitcoins have been seized from cyber criminals, money laundering organizations and dark web markets. The current holdings are approximately 200,000 Bitcoins, with a market value of nearly US$20 billion.
As the "most cryptocurrency-friendly president" in the history of the United States (in terms of public remarks), it remains to be seen whether Bitcoin can be included in the federal reserve asset system in the next four years of Trump's administration. However, it is foreseeable that the U.S. government’s holdings of Bitcoin may bid farewell to the frequent selling pattern and instead explore its long-term strategic value.
Source: PANews
El Salvador: Fixed investment of 1 Bitcoin per day
As the first country in the world to establish Bitcoin’s legal tender status, El Salvador promulgated the relevant bill as early as September 7, 2021. Subsequently, the electronic wallet Chivo was launched, which pre-deposited the equivalent of 30 US dollars in Bitcoin for each downloading user. It not only integrated Bitcoin into the national economic system, but also demonstrated its firm "Bitcoinization" route.
Whenever the crypto market fluctuates violently, El Salvador’s President Nayib Bukele often releases Bitcoin purchase announcements through social media as soon as possible to inject confidence into the market. Currently, El Salvador maintains a rhythm of buying 1 Bitcoin per day. With the support of continued "hunting for the bottom", as of December 10, the Bitcoin holdings reached 5,959.77, with a market value of approximately US$577 million.
Although the size of this position is not significant on a global scale, as a small economy, its firm Bitcoin strategy is quite exemplary and provides a unique experimental case for other countries.
Source: PANews
All in MicroStrategy for Bitcoin
Outside of sovereign countries, the listed company MicroStrategy is undoubtedly the benchmark for the Bitcoin "coin hoarding" industry - "buying, buying, buying" Bitcoin has long been a big-ticket strategy, and the amount it holds exceeds the reserves of any sovereign country at all public levels.
MicroStrategy’s first public purchase of Bitcoin can be traced back to August 11, 2020, spending $250 million to purchase 21,454 Bitcoins. The initial purchase cost was approximately $11,652 per coin. Since then, it has started a continuous accumulation mode. The most recent purchase was on December 9, when 21,550 coins were purchased for approximately US$2.1 billion, with an average price of US$98,783 per coin.
As of December 8, 2024, MicroStrategy has invested approximately US$25.6 billion in acquiring 423,650 Bitcoins, with an average price of approximately US$60,324 per coin. At the current price of $97,000, the floating profit on the position is approximately $15.5 billion.
“Hodl” Bitcoin’s Tesla
On December 20, 2020, Elon Musk expressed interest in buying Bitcoin for the first time, following Microstrategy’s Michael Saylor advising other CEOs to follow suit. In late January 2021, Musk changed his Twitter profile to #Bitcoin, and Tesla subsequently announced in February 2021 that it had purchased $1.5 billion in Bitcoin.
Tesla reduced its holdings of Bitcoin by 10% in the first quarter of 2021. According to Musk’s explanation, the move was intended to “test liquidity and verify the feasibility of Bitcoin as a cash substitute for the balance sheet.”
According to Arkham data, as of the time of publication, Tesla held 11,509 Bitcoins, with a market value of approximately US$1.1 billion.
Source: PANews
Other countries and mainstream companies/institutions: Bitcoin reserves are becoming mainstream
The strategic value of Bitcoin is penetrating from the national level to the corporate and institutional levels. The layout of national reserves directly affects the policy environment, and enterprises are the core driving force for adoption. Bitcoin has become more than just a safe haven, it has become a key strategic component of corporate balance sheets.
Recently, technology giants such as Microsoft and Amazon have received active initiatives from investors calling for Bitcoin to be included in their balance sheets.
MicroStrategy founder Michael Saylor proposed Bitcoin investment to the Microsoft board of directors, believing that this move would significantly increase corporate value and create long-term shareholder returns.
At the same time, the National Center for Public Policy Research, a conservative think tank in the United States, recommended that Amazon allocate 1% of its total assets to Bitcoin to increase shareholder value and hedge against the risk of devaluation of legal currency.
Mainstream institutions and traditional companies incorporating Bitcoin into their balance sheets can bring the following advantages:
Anti-inflation ability: The scarcity of 21 million hard caps gives Bitcoin strong anti-inflation properties, helping companies stabilize asset values in a global monetary easing environment;
Diversified investment portfolio: As an emerging asset class, Bitcoin enriches the dimension of corporate asset allocation, reduces dependence on a single asset, and improves financial stability;
Enhance corporate brand and market image: Holding Bitcoin demonstrates the company's embrace of innovative technology and future economic models, enhances market competitiveness, and creates a forward-looking brand image;
However, in the process of incorporating Bitcoin into the balance sheet, companies need to solve two key issues: how to safely custody large amounts of assets, and how to efficiently complete OTC (over-the-counter) needs to avoid market shocks. This has led to a boom in professional custody and OTC services to meet the stringent requirements of enterprises for digital asset management.
It is worth noting that with the development of the market, the digital asset service ecosystem is also constantly improving. In the custody industry, many platforms have begun to adopt independent wallet designs and bankruptcy isolation mechanisms, and have introduced insurance protection to deal with various risks. For example, institutions such as OSL, a licensed exchange in Hong Kong, have cooperated with insurance companies such as Canopius to expand protection coverage to multiple dimensions such as network security and technical failures. At the same time, in terms of OTC transactions, as a licensed compliance platform, it is providing institutional investors with a more standardized and efficient trading environment through docking with the traditional banking system.
Bitcoin in the Next Ten Years: Speculative Asset or Global Strategic Reserve?
Bitcoin has jumped from a fringe asset to a global strategic reserve rookie. From sovereign states to mainstream institutions/traditional enterprises, more and more forces are redefining their roles. Scarcity, decentralization and high transparency make it known as "digital gold".
While price volatility remains controversial, Bitcoin adoption is advancing inexorably. If the idea of a "strategic reserve asset" proposed by Trump comes to fruition, Bitcoin's status will catch up with gold, and its strategic significance may surpass gold:
Although gold is physically scarce, its distribution and trading rely on complex logistics and regulatory systems. Relying on blockchain technology, Bitcoin does not require physical storage and transportation, and can achieve borderless and rapid circulation. It is more suitable as a reserve asset for countries and institutions and assumes more strategic responsibilities. This advantage also drives professional service providers like OSL to continuously improve their infrastructure and create one-stop solutions from custody to trading for institutional customers.
In the next ten years, Bitcoin's potential as a global strategic reserve asset will be fully unleashed, and its application scenarios are expected to be further expanded. From national-level "long-term currency hoarding" to corporate/institutional "buy and hold", Bitcoin's influence continues to expand. Global leaders and top companies such as MicroStrategy, Microsoft, and Amazon have become the best spokespersons for Bitcoin, greatly increasing the global market's recognition of cryptocurrency.
"The boat has crossed the mountain." Regardless of whether Bitcoin can become a strategic reserve asset of the United States or other countries in the next four years, it has won a key victory on the Adoption journey. As more institutions deploy Bitcoin, professional digital asset financial infrastructure construction will play a more critical role in the future.
[Disclaimer] There are risks in the market, so investment needs to be cautious. This article does not constitute investment advice, and users should consider whether any opinions, views or conclusions contained in this article are appropriate for their particular circumstances. Invest accordingly and do so at your own risk.
This article is reproduced with permission from: (PANews)
Original author: Yuliya
"Companies are hoarding coins!" Is the Bitcoin strategic reserve trend coming? Will BTC move from speculation to mainstream? 』This article was first published in "CryptoCity"