Produced by | OKG Research
Author | Jason Jiang, Hedy Bi
Today early morning, Federal Reserve Chairman Powell clearly stated at the press conference following the monetary policy meeting that the Federal Reserve has no intention of participating in any government plans to accumulate Bitcoin. He emphasized that such issues fall within the purview of Congress, and the Federal Reserve has not sought to change existing laws to allow for the holding of Bitcoin. Powell's remarks immediately triggered market turbulence, with Bitcoin's price rapidly correcting from its high point earlier in the week. According to information from the prediction market Polymarket, the likelihood of a Bitcoin strategic reserve dropped from a high of 40% on the 18th to 34% after Powell's speech. The total market capitalization of the cryptocurrency market also plummeted, evaporating about 7.5%.
Image Source: Polymarket
This statement not only left the market questioning the prospects of the 'Bitcoin Strategic Reserve (BSR)', but also brought 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 within 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 agencies, legislating financial laws and policies and authorizing other financial institutions (such as the SEC and the Federal Reserve) to perform their functions. In the U.S. financial market, monetary policy and fiscal policy are the two core tools for government economic management, each managed by the Federal Reserve and the Treasury Department, respectively. 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 in the decision-making process for establishing the BSR, the Federal Reserve cannot simply 'veto' it.
If the Trump administration wants to quickly establish the BSR, the most direct way would be to sign an executive order after officially taking office, directing the U.S. Treasury Department 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, currently including assets such as dollars, Special Drawing Rights (SDRs), and gold. The operation of this fund is not under the control of the U.S. Congress, and the President and Treasury have substantial autonomy in its use. The President theoretically can directly instruct the Treasury to adjust the allocation of ESF funds through executive orders for the purchase or reserve of specific assets, bypassing direct congressional appropriations and reducing political resistance. The executive order recently drafted by the Bitcoin Policy Institute aims 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 congressional approval, but Congress can limit its operations through investigations or legislation. During the COVID-19 pandemic in 2020, Congress imposed strict limitations on some of the Treasury's fund operations. 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 decisions through new executive orders.
If one wishes to establish and maintain the BSR in the long term, another path must be chosen, namely through congressional legislation, incorporating Bitcoin into the (strategic reserve bill) or similar laws to clearly define 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 now been formally submitted to Congress and is under review by the Senate Banking Committee, and will subsequently undergo further approval by the Senate, House of Representatives, and the President to officially complete the legislation. Therefore, establishing a strategic Bitcoin reserve through this route will take longer and may encounter various obstacles along the way.
Whether establishing a strategic Bitcoin reserve through presidential executive orders or congressional legislation, the proposals that have been disclosed so far ultimately require the Treasury Department to lead the implementation, rather than the Federal Reserve.
Image Source: Congress.gov
Apart from the aforementioned proposals, the Federal Reserve and Treasury Department could theoretically also 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 need a clear policy framework to support Bitcoin purchases. Given the recent statements from the Federal Reserve, the likelihood of this proposal being realized in the short term seems slim. The Treasury Department could establish a dedicated fund to invest in Bitcoin as part of its fiscal investment plan, which does not change the existing legal framework, but the related financing would require congressional approval.
Regardless of how it is advanced, 'the Federal Reserve says no' cannot outright deny the proposal for BSR, while the pragmatic actions of Trump further support it. According to on-chain data, just two minutes into Powell's speech, the Trump family's cryptocurrency project World Liberty quietly took action, beginning to buy 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 cryptocurrency project hints at a subtle struggle between traditional power and market innovation. The delicate interplay among the government, traditional finance, and the cryptocurrency market may very well be a prelude to the future fate of the cryptocurrency market.
