Senator Cynthia Lummis, a Republican lawmaker for the state of Wyoming, introduced a new bill that aims to pave the way for the United States to create a Bitcoin strategic reserve.
The bill, named the Boosting Innovation, Technology and Competitiveness through Optimized Investment Nationwide (BITCOIN) Act of 2024 aims to position the country as a leader in the technological field and address the concerns that have emerged regarding the country’s inflation and national debt.
Lummis, known for being a pro-crypto legislator, has already sponsored other projects that seek to create an adequate regulatory framework for the industry. She is now advocating for embracing digital assets as strategic resources, pretty much in the same way that the country has embraced gold.
“Bitcoin is transforming not only our country but the world and becoming the first developed nation to use Bitcoin as a savings technology secures our position as a global leader in financial innovation. This is our Louisiana Purchase moment that will help us reach the next financial frontier,” Lummis stated in a press release published yesterday that accompanied the bill’s first draft.
Key Provisions of the BITCOIN Act
Senator Lummis proposes the creation of a decentralized network of facilities that would be located across the United States and that would operate secure Bitcoin (BTC) vaults on behalf of the United States Department of Treasury.
The goal is to acquire a total of 5% of the total BTC supply, which has a maximum cap of 21 million, meaning that the country would buy around 1.05 million tokens over time. This would replicate the size of the US’ gold reserves in around five years as the bill sets up a five-year purchasing plan of approximately 200,000 BTC per year.
These purchases will be primarily financed by using existing funds held within the Federal Reserve System and the Treasury Department. More specifically, the plan involves setting aside around $6 billion in earnings transferred from the Fed to the Treasury per year starting in 2025 and ending in 2029.
Moreover, it also proposes to revalue the gold held by the Federal Reserve to reflect its true market value and reduce the surplus of Federal Reserve banks.
The Treasury Department would be required to publish a quarterly report detailing how it has been managing its Bitcoin reserves, providing information about the transactions it has made, the price paid or received per every BTC token bought or sold, and other similar data.
Ideally, the BTC tokens acquired to create the strategic reserve would be stored for 20 years and could only be used to pay off the country’s federal debt. After this 20-year period, the assets can be sold progressively at a maximum pace of 10% of the total reserve every two years.
The bill emphasizes that the rights of individual Bitcoin holders within the United States are protected as the country will not affect their freedom to invest in whatever assets they deem fit regardless of its goal to create this large reserve.
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The BITCOIN Act also opens up the door for states to participate in the program by putting up money to set up the reserve as long as they adhere to certain security protocols and requirements. In addition, all BTC tokens held by federal agencies – for example, those that have been seized by the FBI or the DEA – will be immediately transferred to this reserve.
Treating Bitcoin Like Gold Would Be a Huge Step Forward for the US
Lummis believes that families in the country who have been struggling with rising inflation levels will benefit from the BITCOIN Act as it will create a brighter financial future for the next generation.
“Just as gold reserves have historically served as a cornerstone of national financial security, Bitcoin represents a digital-age asset capable of enhancing the financial leadership and security of the U.S. in the 21st-century global economy,” the bill reads.
This would be a huge step for the country in the process of embracing digital assets and will make the United States the first developed nation to acquire BTC and use it as a reserve asset.
The bill would also give BTC a credibility boost among legislators and regulators as it would be treated similarly to gold. For years, the precious metal has served as the go-to reserve asset for countries across the globe. However, several financial industry professionals and executives have been deeming BTC the digital form of gold. Hence, it makes sense that governments could progressively embrace the asset as such.
The BITCOIN Act May Have a Better Shot Next Year
Despite the innovative character of the BITCOIN Act, the bill faces significant challenges to be passed by lawmakers in a deeply divided Congress and a complex political climate heading up to the November presidential election.
Digital assets have already become a topic of discussion for Democrats and Republicans. The former President of the US and Republican candidate Donald Trump has blasted the Biden administration for its “unlawful and un-American” way of treating the blockchain industry and digital assets as a whole.
Meanwhile, the new Democratic candidate, Kamala Harris, is still on the fence on this topic as she has not made any concise statements about how her administration would treat this nascent industry. It’s unknown whether she would sign a bill like the BITCOIN Act but it seems unlikely given its policy and sponsors.
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Sources claim that Harris is reaching out to prominent players within the industry already to better understand how the technology works and how the government can help companies within this sector thrive without endangering the financial system or consumers.
However, prominent Democrats like Massachusetts Senator Elizabeth Warren and California Congressman Brad Sherman have criticized Bitcoin, labeling it a tool for criminals and a threat to the US dollar’s dominance in the forex market.
For Nikhil Bhatia, a finance professor at the USC Marshall School of Business, the BITCOIN Act has a better shot of being passed once the election is done as President Biden will likely either veto the bill if it comes to his desk or prompt Democrats to oppose it in Congress.
What Happens if Other Countries Follow the US’ Footsteps?
Despite the positive impact that the news would have on Bitcoin’s credibility and adoption, the price of the digital asset has dropped by 3% in the past 24 hours and accumulated meager gains of 0.7% in the past 7 days.
The bill would represent a major step forward in legitimizing BTC as a strategic reserve asset at the federal level. This could potentially accelerate the adoption of cryptocurrencies as valid means of payment within the country and may prompt regulators to approve additional investment vehicles linked to BTC.
Meanwhile, purchasing and cold-storing 1 million BTC would have a huge impact on the price of the digital asset as it would immediately shrink the available supply while demand skyrockets. The government’s embrace of Bitcoin would likely drive institutional investors to allocate a portion of their investment portfolio into the asset, pushing demand even higher.
Other countries may follow in the US’ footsteps in this direction and decide to amass a certain number of Bitcoins to be held by their respective Treasury Departments and central banks. This would further reduce the token’s available supply and propel its price.
What Could Stand in the Way of Passing the BITCOIN Act?
The most sensitive issue that detractors of the bill may bring up would probably be related to how the country plans to protect these assets from being stolen by bad actors. Given their digital nature, BTC tokens can only be held in electronic devices.
These devices are susceptible to experiencing physical damage. Moreover, building a decentralized network of facilities that can store these assets safely implies spending millions of dollars that could be used toward other programs that have a higher strategic priority.
Finally, some may worry that large-scale government purchases of Bitcoin could artificially inflate its price or lead to market manipulation. Educating the general public about the benefits and risks of a national Bitcoin reserve will be crucial for gaining widespread support.
In any case, the BITCOIN Act is a bold move from Republicans to spearhead major efforts to innovate in the financial field by incorporating a digital asset for the first time in history into the country’s federal finances.
The bill will likely face significant roadblocks by Democrats and other blockchain detractors and it is unlikely to pass in its current state.
As the debate unfolds, crypto enthusiasts will likely keep a close eye on any advancements that the bill makes in Congress as its approval will mark a pivotal moment for the market and the industry as it would propel BTC’s reputation on a global scale.