Will the Fed Act as a Hindrance in Trump’s Bitcoin Reserve Vision?

Following Donald Trump’s victory as the 47th President of the United States, the cryptocurrency community is optimistic about his earlier pledge to

output: Following Donald Trump's victory as the 47th President of the United States, the cryptocurrency community is optimistic about his earlier pledge to establish a strategic Bitcoin reserve.

During his address at the Bitcoin [BTC] 2024 conference in Nashville, Trump expressed his commitment to this initiative, fueling anticipation among crypto enthusiasts.

However, Federal Reserve Chair Jerome Powell's recent comments during a press conference highlighted that the central bank has no plans to participate in any government initiative to accumulate Bitcoin.

"We're not allowed to own Bitcoin. But the Federal Reserve Act says what we can own and we're not looking for a law change," Powell stated.

His statement, following the monetary policy meeting, created uncertainty in the market, causing BTC's price to retreat from its recent highs. At the time of writing, BTC trades at $98,703.53, indicating a 5.18% increase in the past 24 hours, according to data from CoinMarketCap.

Following Powell's comments, the probability of a Bitcoin Strategic Reserve, according to the prediction market Polymarket, has continued to decrease. Initially peaking at 40% on December 18, the likelihood has since dropped to 32%, reflecting a reduced possibility.

Moreover, the total market value of cryptocurrencies has also seen a significant decrease, losing approximately 7.5%. This further indicates the market's uncertainty as BTC's price faces resistance at key levels.

To provide some context, the creation of a strategic Bitcoin reserve would involve the U.S. government, specifically the Department of the Treasury, purchasing and holding a substantial amount of BTC. This initiative aims to diversify the nation's strategic reserves and potentially strengthen the dollar's status as the world's primary currency.

While the Federal Reserve maintains significant independence in monetary policy, it does not hold veto power over the creation of a Bitcoin Strategic Reserve (BSR).

If the Trump administration were to pursue this initiative, the most efficient approach would likely involve issuing an executive order upon taking office, directing the U.S. Treasury Department to utilize the Exchange Stabilization Fund (ESF) for direct BTC purchases.

This approach would circumvent the need for approval from Congress or the Federal Reserve, as the ESF can be used by the Treasury Department for urgent matters without obtaining prior consent from other parties.

However, if the administration encounters difficulties in utilizing the ESF or prefers a broader approach, it could also choose to submit a proposal to Congress for the creation of a BSR, which would require legislative approval.

In conclusion, the establishment of a strategic Bitcoin reserve appears to require leadership from the Treasury Department rather than the Federal Reserve, whether through executive action or legislative support.