As a seasoned researcher with extensive experience in financial markets and digital currencies, I find the prospect of the US adopting Bitcoin as a strategic reserve asset under a potential Trump administration an intriguing development. The recent discussions surrounding this topic have ignited significant interest among policymakers, legal experts, and financial analysts.
The comments made by front-runner Donald Trump in the US presidential race about Bitcoin‘s possibility as a strategic reserve asset for America have sparked significant debates among policymakers, lawyers, and financial specialists. Forbes brought up the topic, but it is David Bailey, CEO of Bitcoin Magazine and advisor to Trump’s campaign, who has taken the lead in pushing for a comprehensive Bitcoin (BTC) strategy under a potential Trump administration.
As an advisor to Trump, Bailey has pondered over the potential consequences of the United States adding Bitcoin to its strategic reserves in June, as per Bitcoinist’s reporting. In his proposal, Trump could amass a substantial Bitcoin reserve for the US Treasury by securing the approximately 210,000 BTC already under the country’s control and locking them away with a time-lock mechanism for a century.
How Trump Could Turn Bitcoin Into A Reserve Asset
Matthew Pines, who is the Director at Sentinel One and holds the position of National Security Fellow at the Bitcoin Policy Institute, elaborated on possible approaches for implementing X’s strategy during a recent discussion. He identified two primary legal frameworks that President Trump could potentially utilize to carry out this unprecedented action.
#1 Employing the Exchange Stabilization Fund (ESF): The ESF, created under the Gold Reserve Act of 1934, grants the Secretary of the Treasury the power to trade in gold and foreign currency, as well as other financial instruments, to accomplish the objectives outlined in the act.
Pines proposes that an executive order could be drafted to include Bitcoin as a form of “foreign exchange” or a “security.” This would enable the Treasury Secretary to purchase Bitcoin directly, leveraging the fund’s broad mandate to stabilize the exchange value of the dollar. The designation of Bitcoin as a foreign exchange could be justified by its adoption as a legal currency by countries like El Salvador and its widespread use in international transactions.
#2 Pressuring the Federal Reserve to use its emergency powers under Section 13(3): The Federal Reserve Act’s Section 13(3) allows the Fed to address “unusual and exigent circumstances” by creating lending facilities. Pines suggests that Trump could instruct the Fed to set up a Special Purpose Vehicle (SPV) for the purpose of purchasing Bitcoin on the open market.
As a crypto investor, I’ve noticed some similarities between recent market conditions and the actions taken by the Federal Reserve during the COVID-19 pandemic. Back then, they bought corporate bonds that had been downgraded in rating. To put it simply, they stepped in to buy these assets when no one else would.
Steven Kelly, the Associate Director of Research at Yale Program on Financial Stability, challenged Pines’ proposition regarding the Fed’s intervention under Section 13(3). According to him, this route is extremely difficult. He pointed out that there are significant human challenges within the Fed, and the “unusual and exigent circumstances” condition will be stringently applied. Kelly suggested an alternative approach – reallocating reserves to include Bitcoin through the Exchange Stabilization Fund (ESF) route, which he considered more feasible.
As a crypto investor, I’ve often pondered over David Beckworth’s query about government pension funds potentially investing in Bitcoin. Pines shed some light on this matter by bringing up the Federal Employees’ Retirement System Act of 1986 (FERSA). In my perspective, FERSA sets guidelines for fiduciary duties that restrict the types of investments these funds can make.
The Board has the authority to establish rules on how amounts in the Thrift Savings Fund are distributed amongst various investment options, as well as others, according to their regulations. This allows for some flexibility in regulatory adjustments.
At press time, BTC traded at $65,032.
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2024-07-17 23:41