Could the US Spend Hundreds of Billions to Buy a Million Bitcoins? Trump Administration's Crypto Strategy Shakes Markets

Could the US Spend Hundreds of Billions to Buy a Million Bitcoins? Trump Administration's Crypto Strategy Shakes MarketsPresident-elect Trump's pro-cryptocurrency stance is well-known. Following his election victory, the global cryptocurrency market, led by Bitcoin, saw a rapid rebound, with Bitcoin prices surging to $90,000 per coin, nearing the $100,000 mark

Could the US Spend Hundreds of Billions to Buy a Million Bitcoins? Trump Administration's Crypto Strategy Shakes Markets

President-elect Trump's pro-cryptocurrency stance is well-known. Following his election victory, the global cryptocurrency market, led by Bitcoin, saw a rapid rebound, with Bitcoin prices surging to $90,000 per coin, nearing the $100,000 mark. However, even more striking are the seemingly more aggressive moves by Trump's allies. On November 15th, overseas markets reported that Wyoming Republican Senator Cynthia Lummis plans to introduce a bill called the "BITCOIN Act" upon taking office in the next Congress. This bill proposes that the US government purchase 1 million Bitcoins, representing nearly 5% of Bitcoin's maximum circulating supply. At the time, this plan would cost as much as $100 billion, with funding proposed to come from the sale of the Federal Reserve's gold reserves.

• The scale of this plan is breathtaking. Liquidating gold reserves to buy Bitcoin would be unprecedented, a move so bold as to be deemed "insane." Senator Lummis stated the bill aims to fulfill Trump's previously expressed vision: establishing a Bitcoin strategic reserve without increasing the federal deficit. However, industry insiders hold differing views. Wang Heng (pseudonym), investment research director at a Shanghai-based financial consulting firm, told the China Business Herald reporter: "The release of this news is likely a smokescreen, intended to suppress gold prices, raise cryptocurrency market capitalization, and ultimately prevent US capital from flowing out to other markets."

The Battle Between "Digital Gold" and Real Gold

Public data shows the US government already holds over 210,000 Bitcoins, primarily seized from illicit activities or asset forfeiture. Senator Lummis, in a media interview, stated: "We already have financial assets in the form of gold certificates held on the Federal Reserves balance sheet that could be converted to Bitcoin. This would be neutral to the US balance sheet and greatly expand the Bitcoin strategic reserve plan that President-elect Trump has so far indicated is his intention. The holding period for cryptocurrencies would be at least for 20 years, and any assumed appreciation would help reduce Treasury issuance."

On November 19th, a veteran overseas gold market observer told reporters that, theoretically, the Federal Reserve's gold reserves are sufficient to purchase 1 million Bitcoins. "The Federal Reserve's balance sheet lists gold certificates held by the Treasury, nominally valued at about $11 billion. However, this value is based on the so-called statutory price, which has remained at $42.2222 per ounce since 1973. At the current real spot price, the actual value of this gold is as high as $675 billion. If the bill passes, and investors buy before the government, the cost could be even higher," analyzed Ma Le, a Hong Kong precious metals futures trading analyst.

Since Trump's election victory on November 5th, Bitcoin's price has risen by 36%. Trump's campaign slogan of making the US the "world's crypto capital" once propelled Bitcoin's price to $92,606. At the time of publication, Bitcoin hovered around $91,045, down about $2,400 from its record low last week.

Andy, an executive at a Singapore-based cryptocurrency exchange, pointed out: "Senator Lummis's current bill has little impact on the cryptocurrency market for now, but due to the lack of co-sponsors, the bill may face an uphill battle. The cryptocurrency prediction platform Polymarket currently prices the probability of Trump actually establishing a Bitcoin reserve at only 31%."

Some overseas experts remain skeptical. On November 16th, Jennifer J. Schulp, director of financial regulation studies at the Center for Monetary and Financial Alternatives at the Cato Institute, stated that establishing a Bitcoin reserve "still amounts to putting government funds at risk, and Bitcoin has not demonstrated itself to be a particularly stable asset." The bill attempts to give senators and representatives more confidence in its long-term viability, even though these representatives may not be very familiar with cryptocurrencies.

Michael Novogratz, billionaire head of cryptocurrency investment firm Galaxy Digital, believes: "The likelihood of the US establishing a Bitcoin strategic reserve is low. If the US did establish such a reserve, it could push Bitcoin prices to $500,000, as other countries would also be forced to establish similar reserves. However, the price of gold may not necessarily fall."

Lummis previously expressed optimism that her Bitcoin bill will gain support in the next Congress. She said Trump had endorsed the idea of creating a Bitcoin reserve, and his closest advisors include those who "understand Bitcoin and its role in our future world."

A Smokescreen to Stabilize the Dollar?

However, more overseas market experts believe the bill is more of a "smokescreen." During the Federal Reserve's rate-cutting cycle, in order to stabilize global capital and prevent its rapid outflow, in addition to the Fed's previous statement that it may extend the rate-cutting cycle to its limit, expanding the "reservoir" function of the cryptocurrency market is also one of its strategies. "With the dollar falling, global capital needs to find new investment assets. The cryptocurrency market has already established itself globally, and Bitcoin is priced in dollars. If the dollar index falls, Bitcoin prices also risk falling, and assets will shift further from the dollar to other currencies. So, from before Trump's election victory, many overseas giants started to be bullish on Bitcoin, and even Musk has been advocating for cryptocurrencies; and after Trump's election win, the release of a series of positive news regarding cryptocurrencies is to boost the scale of cryptocurrency assets. But using gold reserves to exchange for Bitcoin strategic reserves is a bit far-fetched," said Andy, the aforementioned head of the Singapore crypto exchange.

Is there a correlation between Bitcoin's surge and the fall in international gold prices?

• Zong Xiaoli, a domestic gold analyst, told the China Business Herald reporter: "The international gold price has fallen from a high of $2800 to around $2600 in just over ten trading days, a drop of nearly 10%. The biggest driving force behind this is the change in liquidity. Firstly, the November 6th decline was mainly related to liquidity, because on that day the dollar index rose sharply, a large amount of liquidity entered the dollar, causing a situation of sharp rises in the stock market. In order to ensure that liquidity could smoothly flow into the stock market, the gold market had to suffer, because only when gold fell could the US stock market rise; secondly, the influence of cryptocurrencies is huge. From November 10th onwards, Bitcoin has seen a sharp rise, and on November 11th it soared, attracting more liquidity into the cryptocurrency market. In addition, gold prices have been deliberately suppressed previously, further increasing market pressure and driving more liquidity to leak out which lead to a sharp fall in gold prices."

As of November 13th, in the global top ten assets ranking, gold's market capitalization ranked first, reaching $17.2 trillion; Bitcoin's market capitalization rose to $1.78 trillion, ranking eighth. In terms of market capitalization, Bitcoin is still far behind gold, and gold's share in investment portfolios remains higher than Bitcoin's. However, in hedging and alternative investment markets, Bitcoin and gold have already clashed head-on. Many investors and institutions have listed Bitcoin and gold as hedging options, even choosing one over the other.

Wang Heng stated: "The total net inflow of spot Bitcoin ETFs exceeded $20 billion for the first time on October 17th this year, compared to the roughly 5 years it took for gold ETFs to reach the same figure. In the week Trump won, BlackRock's Bitcoin ETF, iShares (IBIT), attracted $1.606 billion in inflows, bringing the fund's size to $34.3 billion just 11 months after its inception - surpassing BlackRock's gold trust fund, whose assets are slightly below $33 billion. However, the prices of Bitcoin and gold cannot be simply shown as positively or negatively correlated; both prices are influenced by multiple factors. Bitcoin's price fluctuations are more affected by technology and market sentiment, while gold is more affected by the global economy and geopolitics. When the market economy is optimistic, investors prefer high-risk assets; whereas, when the market economy is pessimistic or geopolitical instability prevails, the hedging function of gold is more prominent."

Editor in charge: Xu Yunxi Chief Editor: Gong Peijia