Can Trump Order a Strategic Bitcoin Reserve?

At the Bitcoin 2024 conference in Nashville, Donald Trump unveiled his proposal to establish a Strategic Bitcoin Reserve (SBR) for the United States

Former US President Donald Trump has proposed the creation of a Strategic Bitcoin Reserve (SBR) upon his return to office, following his electoral victories in both the House of Representatives and the Senate. The proposal has garnered significant attention in the crypto community.

A new legal analysis by the Bitcoin Policy Institute, authored by attorney and startup advisor Zack Shapiro, examines the feasibility of Trump's proposal within the existing legal framework. Specifically, Shapiro explores whether the establishment of an SBR is permissible under the authority of the US Department of the Treasury, particularly through the utilization of the Exchange Stabilization Fund (ESF).

“The Exchange Stabilization Fund (ESF) is a powerful yet underutilized financial instrument that could be theoretically used to acquire Bitcoin as a strategic asset,” Shapiro explains. “The ESF's mandate, codified in 31 USC. § 5302, grants the Secretary of the Treasury broad discretion to manage assets that stabilize the value of the US dollar.”

Established in 1934 under the Gold Reserve Act during the Great Depression, the ESF was initially funded with $2 billion from the revaluation of US gold reserves. Its primary purpose is to stabilize the US dollar and manage international monetary concerns, allowing the Treasury Secretary to intervene in foreign exchange markets without direct congressional approval.

While the ESF was originally focused on traditional assets like gold and foreign currencies, Shapiro notes that the statutory language does not explicitly limit the types of financial instruments that can be utilized, as long as they serve the purpose of stabilizing the dollar.

To determine the legality of the Treasury Department using the ESF to purchase BTC, Shapiro addresses two critical questions. First, can the ESF legally acquire BTC under its authorized asset categories? While Bitcoin does not fit into traditional classifications like gold or foreign exchange, Shapiro posits that BTC could be acquired through instruments of credit.

“Although Bitcoin itself is not an instrument of credit, the Treasury can engage in transactions where Bitcoin is acquired through such instruments,” Shapiro explains. This could involve the ESF purchasing Bitcoin-denominated debt obligations from qualified counterparties, like financial institutions or BTC mining companies, with repayments structured in BTC upon maturity. This approach aligns with the ESF's authority to “deal in… instruments of credit.”

The second question concerns whether acquiring BTC would fulfill the ESF's statutory purpose of stabilizing the exchange value of the dollar. Shapiro argues that given the high levels of US national debt and concerns over long-term economic stability, incorporating Bitcoin - a decentralized currency with a fixed supply - could enhance trust in the US financial system.

“Due to Bitcoin's fixed supply and inherently deflationary nature, it presents a credible hedge against inflation,” Shapiro asserts. “By adding Bitcoin to the national balance sheet, the US can enhance fiscal responsibility and signal innovation, potentially stabilizing the dollar's exchange rate over the long term.”

Shapiro further outlines the practical mechanisms through which the Treasury could acquire Bitcoin using the ESF. He suggests that the Treasury could utilize convertible instruments of credit, such as bonds or notes issued by qualified counterparties that promise repayment in BTC upon maturity.

“This mechanism allows the Treasury to acquire Bitcoin without directly purchasing it on the open market, thus avoiding potential market disruptions or price spikes that could result from large direct purchases,” Shapiro explains. He adds, “The ESF was created to provide the Treasury with the flexibility to intervene in foreign exchange markets without direct congressional approval.”

At press time, BTC trades at $89,339.