At the Bitcoin 2024 conference in Nashville, Donald Trump unveiled his proposal to establish a Strategic Bitcoin Reserve (SBR) for the United States upon his return to office. The plan quickly attracted widespread attention, especially after Trump won the US election and gained majorities in the House of Representatives and the Senate.
“Establishing a strategic Bitcoin reserve will put the United States at the forefront of the digital economy and ensure our financial sovereignty and economic resiliency,” Trump announced during his keynote speech at the conference. However, it is unclear whether this is legally permitted.
Could Trump Order a Strategic Bitcoin Reserve?
A new legal analysis by the Bitcoin Policy Institute, authored by attorney and startup consultant Zack Shapiro, examines the feasibility of Trump’s proposal within the existing legal framework. Shapiro explores whether the creation of an SBR would be permissible under the authority of the U.S. Treasury, specifically through the use of an Exchange Stabilization Fund (ESF).
“The Exchange Stability Fund (ESF) is a powerful but underutilized financial tool that could theoretically be used to acquire Bitcoin as a strategic asset,” Shapiro explained. “The ESF’s mandate, codified in 31 U.S.C. § 5302, grants the Secretary of the Treasury broad discretion to manage assets that stabilize the value of the U.S. dollar.
The ESF was established in 1934 during the Great Depression under the Gold Reserve Act and was initially funded by $2 billion from the revaluation of the U.S. gold reserves. Its primary purpose was to stabilize the dollar and manage international monetary problems, providing the Secretary of the Treasury with the flexibility to intervene in foreign exchange markets without direct approval from Congress.
Shapiro noted that while the ESF initially focused on traditional assets such as gold and foreign currencies, the legal language does not explicitly limit the types of financial instruments that can be used, as long as they are used to stabilize the dollar.
To determine the legality of the Treasury's use of the ESF to purchase BTC, Shapiro addressed two key questions. First, can the ESF legally acquire BTC under its authorized asset class? Although Bitcoin does not fully fit into traditional classifications such as gold or foreign exchange, Shapiro believes that BTC can be integrated through credit instruments.
“While Bitcoin itself is not a credit instrument, the Treasury could engage in transactions that acquire Bitcoin through such instruments,” Shapiro explained. This could involve the ESF purchasing Bitcoin-denominated debt from eligible counterparties, such as financial institutions or BTC mining companies, and repaying it in BTC when it matures. This approach is consistent with the ESF’s authority to “deal with…credit instruments.”
The second question is whether the acquisition of BTC can achieve the ESF’s statutory purpose of stabilizing the exchange value of the U.S. dollar. Shapiro believes that the inclusion of Bitcoin (a decentralized currency with a fixed supply) can enhance people’s trust in the U.S. financial system, given the unprecedented level of U.S. national debt and concerns about long-term economic stability.
“Bitcoin’s fixed supply and deflationary nature are a reliable hedge against inflation,” Shapiro asserted. “By adding Bitcoin to the national balance sheet, the U.S. can reinforce fiscal responsibility and signal innovation, potentially stabilizing the dollar’s exchange rate over the long term.”
Shapiro further outlined practical mechanisms by which the Treasury could use the ESF to acquire Bitcoin. He suggested that the Treasury could use convertible credit instruments, such as bonds or notes issued by eligible counterparties that promise to be repaid in BTC upon maturity.
“This mechanism allows the Treasury to acquire Bitcoin without purchasing it directly on the open market, thereby avoiding potential market disruptions or price spikes that could result from large direct purchases,” Shapiro explained. “The ESF was created to give the Treasury the flexibility to intervene in foreign exchange markets without direct congressional approval,” he concluded.
At press time, BTC is trading at $89,339.
