Produced by | OKG Research
Author | Jason Jiang, Hedy Bi
In the early hours today, Federal Reserve Chair Powell made it clear at a press conference after 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 under the purview of Congress, and the Federal Reserve is not seeking to change existing laws to allow the holding of Bitcoin. Powell's remarks immediately triggered market turbulence, with Bitcoin prices rapidly retreating from their highs earlier in the week. According to the predictive market Polymarket, the probability of a Bitcoin Strategic Reserve dropped from a peak of 40% on the 18th to 34% after Powell's speech. The total market value of the crypto market also plummeted, evaporating about 7.5%.
Image source: Polymarket
This statement not only leaves the market puzzled 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 Federal Reserve's superior authority is the U.S. Congress: Congress is the highest power institution for all financial regulatory agencies, which legislates financial regulations and policies, authorizing other financial institutions (such as the SEC and Federal Reserve) to perform their functions. In the U.S. financial market, monetary policy and fiscal policy serve as the two core tools of government economic management, respectively managed 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. economic and financial system.
The Federal Reserve enjoys a high degree of independence in monetary policy and national economic stability, but in the decision-making for establishing the BSR, it cannot exercise a 'veto'.
If the Trump administration wants to quickly establish the BSR, the most direct way is 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, currently including assets like dollars, Special Drawing Rights (SDR), and gold. The operation of this fund is not subject to congressional control, and the president and Treasury have significant autonomy in its use. The president theoretically can issue an executive order to directly instruct the Treasury to adjust the fund allocation of the ESF for purchasing or reserving specific assets, bypassing Congress's direct appropriation approval, thus reducing political resistance. The executive order drafted by the Bitcoin Policy Institute recently hopes to establish the BSR in this manner.
Image source: Bitcoin Policy Institute
This method is the easiest to implement; 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 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 revoke or modify previous related decisions through new executive orders.
If one wishes to establish and maintain long-term stability for the BSR, an alternative path must be chosen, namely 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 greater legitimacy and can establish a long-term framework for Bitcoin reserves. The Bitcoin Strategic Reserve Act 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 it will subsequently undergo further examination and approval by the Senate, House of Representatives, and the President before it can 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 revealed plans indicate that implementation must ultimately be led by the Treasury, not the Federal Reserve.
Image source: Congress.gov
In addition to the above plan, the Federal Reserve and Treasury theoretically can also 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 it would need a clear policy framework to support its purchase of Bitcoin. Coupled with 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, though this would not change the existing legal framework, but related financing would require congressional approval.
Regardless of the path taken, a 'no' from the Federal Reserve cannot outright deny the proposal for the BSR, and the Trump pragmatist has indeed shown support through action. According to on-chain data, just two minutes after Powell started his speech, the Trump family's crypto project, World Liberty, quietly began to purchase altcoins. This scene undoubtedly reveals a deeper level of contention: 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 Trump family's crypto project's moves hint at a subtle struggle between traditional power and market innovation. The delicate game among the government, traditional finance, and the crypto market may be a prelude to the future fate of the crypto market.
