US Senator Proposes Selling Gold Reserves for 1 Million Bitcoin, Sparking Market Debate

US Senator Proposes Selling Gold Reserves for 1 Million Bitcoin, Sparking Market DebateCynthia Lummis, a Republican Senator from Wyoming and an ally of President-elect Donald Trump in the US Senate, is proposing a bold plan: selling a portion of the Federal Reserve's gold reserves and using the proceeds to purchase 1 million Bitcoin. This proposal is aimed at fulfilling Trump's proposed strategy of establishing a Bitcoin strategic reserve

US Senator Proposes Selling Gold Reserves for 1 Million Bitcoin, Sparking Market Debate

Cynthia Lummis, a Republican Senator from Wyoming and an ally of President-elect Donald Trump in the US Senate, is proposing a bold plan: selling a portion of the Federal Reserve's gold reserves and using the proceeds to purchase 1 million Bitcoin. This proposal is aimed at fulfilling Trump's proposed strategy of establishing a Bitcoin strategic reserve.

Lummis' proposed "BITCOIN Act," which will be introduced when the new Congress takes office next year, calls for the US government to purchase approximately $90 billion worth of Bitcoin, a portion of the market capitalization estimated at roughly 5 percent. Lummis believes this move would not increase the federal deficit, as the Federal Reserve already holds financial assets in the form of gold certificates on its balance sheet, which could be converted to Bitcoin.

This proposal would significantly expand on Trump's previously expressed Bitcoin strategy, which currently involves the US government holding over 210,000 Bitcoin acquired through actions against illegal activities and asset seizures. Lummis' act mandates a minimum holding period of 20 years for the cryptocurrency, with the expectation that its appreciation will contribute to reducing government debt issuance.

Theoretically, the gold held by the Federal Reserve is enough to purchase 1 million Bitcoin with substantial funds remaining. The Federal Reserve's balance sheet lists gold certificates held by the Treasury at a nominal value of approximately $11 billion. However, this valuation is based on a fixed price that has remained at $42.2222 per ounce since 1973. Based on the current spot market price, the actual value of this gold is estimated at $675 billion. However, a massive gold sell-off by US authorities could lead to a decline in gold prices.

The likelihood of Lummis' proposal gaining approval in Congress remains uncertain. While market observers believe that the Trump administration may see an influx of Bitcoin supporters and the crypto community anticipates the most Bitcoin-friendly Congress in history, Lummis' proposal lacks a co-sponsor and may face significant challenges.

Cryptocurrency prediction platform Polymarket currently gives a 31% chance of Trump establishing a Bitcoin reserve. Jennifer J. Schulp, Director of Financial Regulation Studies at the Cato Institute's Center for Monetary and Financial Alternatives, argues that it's risky to put government funds at stake while Bitcoin has not proven to be a stable asset.

Michael Novogratz, the billionaire head of cryptocurrency investment firm Galaxy Digital, believes there is a low probability of the US establishing a Bitcoin strategic reserve. But if the US does establish such a reserve, he predicts it will drive the price of Bitcoin up to $500,000, as other countries will be compelled to create similar reserves.

Despite this, Lummis remains optimistic about her Bitcoin Act, believing it will gain support in the next Congress. She states that Trump has acknowledged the idea of establishing a Bitcoin reserve, and his close advisors include individuals "who understand Bitcoin and its role in our future world."

Lummis' proposal has ignited heated discussions in the market, prompting intense debate about the suitability of Bitcoin as a national-level strategic reserve. Ultimately, the fate of this proposal hinges on the US government's future strategic plans for cryptocurrencies and the outcome of the political power struggle in Congress.