The president elect of the United States, Donald Trump, has surrounded himself with Bitcoin enthusiasts and has floated the idea of creating a Bitcoin strategic reserve during his presidential campaign.

Moreover, Republican senator Cynthia Lummis introduced this year the appropriately named Boosting Innovation, Technology and Competitiveness Through Optimized Investment Nationwide Act (or Bitcoin Act). Lummis proposes that the US buys one million bitcoins over five years in an effort to reduce the US national debt, which has spiralled to over US$36 trillion.

Trump has also confirmed that he will appoint an artificial intelligence (AI) and crypto czar, choosing former PayPal senior executive David Sacks to lead the role.

All in all, Bitcoin has been one of the best-performing assets this year, reaching US$108,000 and increasing over 100% year-to-date, thanks to increased institutional adoption, the approval of bitcoin ETFs and the digital asset “halving” (every four years, the reward Bitcoin miners receive for validating transactions is reduced by half, increasing the scarcity of the coin).

A Bitcoin strategic reserve

The Bitcoin Act of 2024 has been submitted to the US Senate and calls for the US Treasury and the Federal Reserve (FED) to buy 200,000 Bitcoins annually for five years, and to hold them for, at least, 20 years. Additionally, the first US$6 billion of earnings of the FED banks have to be used to add Bitcoin to the stockpile.

Lummis also suggested that the Treasury raise over US$775 billion by exchanging its gold certificates for cash to buy Bitcoin, which would not entail the sale of the US gold reserves.

“We have reserves at our 12 Federal Reserve banks, including gold certificates that could be converted to current fair market value. They’re held at their 1970s value on the books. And then sell them into bitcoin, that way we wouldn’t have to use any new dollars to establish this reserve,” she explains.

The US already holds around 207,000 Bitcoins that come from confiscations from illegal activities, such as financial fraud.

A crypto Czar to streamline the US crypto sector

Trump has affirmed that he will appoint Sacks to be the head of crypto inside his administration, saying that he “will work on a legal framework so the crypto industry has the clarity it has been asking for, and can thrive in the US.”

It is expected that Sacks, next to the new Securities Exchange Commission (SEC) appointee, Paul Atkins, will engage in a pro-crypto approach, in contrast to Biden’s SEC, which was more aggressive in persecuting crypto businesses that violated securities laws.

Atkins is an establishment appointment familiar with securities regulation, as he has worked as an enforcement attorney at the SEC for over 14 years.

Bitcoin price and game theory

If the US creates a strategic reserve, it could benefit from the so-called “first-mover advantage,” when a player in a competitive scenario benefits by being the first to make a move. Bitcoin bulls (supporters) suggest that if the largest economy in the world were to adopt Bitcoin, the price of the commodity would spiral upwards as all the other major nations would rush to buy the asset before the price catapults to unknown highs.

David Bailey, CEO of Bitcoin Magazine said recently, on an X Spaces, that now that the idea of a strategic Bitcoin reserve is in the public sphere “there are other nations that are going to try to frontrun the United States.”

El Salvador has already benefitted from being a first mover, with the country holding almost 6,000 bitcoins and buying at least, one Bitcoin every single day. The company MicroStrategy, led by crypto self-proclaimed “megabull” Michael Saylor, has also benefitted from the first-mover advantage, with the company shares being up 2,200% in the last five years and almost 400% in 2024.

Nonetheless, it is unsure if countries will rush to buy Bitcoin if the US creates a reserve, as Russia’s Finance minister noted this month that the country is not open to the idea. However, he noted, “we’ll see where things stand in five to ten years.” Japan, the fourth economy in the world, is also cautious about the idea; after Prime Minister Shigeru Ishiba was urged to consider a reserve by some lawmakers in the country, he stated that his government lacks information about Bitcoin reserve strategies being considered by the US and other countries.