Written by: 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 accumulate Bitcoin. He emphasized that such issues fall within the responsibilities of Congress, and the Federal Reserve is not seeking to change existing laws to allow for holding Bitcoin. Powell's remarks immediately triggered market turbulence, and Bitcoin's price quickly retreated from its peak at the beginning of the week. According to information from the prediction market Polymarket, the possibility 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 sharply declined, with a total evaporation of about 7.5%.
Image source: Polymarket
This statement not only raises doubts in the market about the prospects of the 'Bitcoin Strategic Reserve (BSR)', but 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 superior body of the Federal Reserve is the U.S. Congress: Congress is the highest authority for all financial regulatory agencies, which establishes financial regulations and policies through legislation and authorizes 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, respectively overseen by the Federal Reserve and the Treasury. These agencies 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' the decision to establish the BSR.
If the Trump administration wants to quickly establish the BSR, the most direct way is to sign an executive order after taking office, instructing 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 the U.S. dollar, Special Drawing Rights (SDR), and gold. The operation of this fund is not controlled by the U.S. Congress, and the president and the Treasury have significant autonomy in its use. The president theoretically can directly instruct the Treasury to adjust the fund allocation of the ESF through an executive order to purchase or reserve specific assets, bypassing Congress's direct funding 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, and the use of ESF funds does not require prior Congressional approval, but Congress can limit its operations through investigations or legislation. During the COVID-19 pandemic in 2020, Congress imposed strict restrictions on some fund operations of the Treasury. Additionally, the sustainability of the BSR established through executive orders is questionable, as executive orders are essentially an extension of executive power, and successors may abolish or modify previous decisions through new executive orders.
If one wishes to establish and maintain the BSR for long-term stability, another path must be chosen: through Congressional legislation to incorporate Bitcoin into the (Strategic Reserve Act) or similar laws, explicitly defining Bitcoin 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 Act) previously proposed by Republican Senator Cynthia Lummis chose this path. The bill has now been officially submitted to Congress and is under review by the Senate Banking Committee, and will subsequently need to pass through the Senate, House of Representatives, and presidential review to be officially enacted. 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 to establish a strategic Bitcoin reserve, the plans disclosed so far ultimately need to be implemented under the leadership of the Treasury, rather than the Federal Reserve.
Image source: Congress.gov
In addition to the above plan, the Federal Reserve and the Treasury can theoretically also choose a middle path for Bitcoin allocation. The Federal Reserve can 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 establish a special fund to invest in Bitcoin as part of the fiscal investment plan, which would not change the existing legal framework, but related financing would require Congressional approval.
Regardless of the pathway taken, the Federal Reserve's 'no' cannot outright deny the proposal for the BSR, and the Trump pragmatist has supported it through action. According to on-chain data, within two minutes of Powell starting his speech, the Trump family's crypto project, World Liberty, quietly took action and began purchasing altcoins. This scene undoubtedly reveals a deeper level of game: on one hand, the Federal Reserve's indifferent response to the Bitcoin strategic reserve plan reflects the government's cautious attitude toward emerging assets; on the other hand, the pace of the Trump family's crypto project hints at a subtle struggle between traditional power and market innovation. The delicate game among the government, traditional finance, and the crypto market may be the prelude to the future fate of the crypto market.
