US establishes $17B 'Strategic Bitcoin Reserve': How it will work
What's the story
The United States has created a "Strategic Bitcoin Reserve," an initiative that further highlights President Donald Trump's support for the cryptocurrency space.
The reserve, which Trump described as "a digital Fort Knox," was established via an executive order earlier this month.
"Fort Knox" is the US Army post in Kentucky that stores gold bullion and other valuables.
Funding details
Reserve to be backed by seized bitcoins
The Strategic Bitcoin Reserve will be funded by some 200,000 bitcoins, worth about $17 billion. These bitcoins have been confiscated in the US as part of civil and criminal prosecutions.
The reserve is meant to be secured indefinitely, with more Bitcoin allowed as long as it doesn't cost taxpayers anything.
Response
Market reaction to reserve announcement
While the announcement of the Strategic Bitcoin Reserve initially caused a dip in Bitcoin's price, it has since stabilized.
Analysts have attributed this lackluster response to the failure of the government to immediately purchase more Bitcoin.
Dessislava Aubert from crypto data provider Kaiko stated that legally, "the US government must return Bitcoin to all victims identified as suffering from a hack."
Return
Potential return of seized bitcoins
Aubert estimated that a large chunk of the seized Bitcoin, nearly 198,000 tokens, would have to be returned to victims of a hack at crypto exchange Bitfinex in 2016.
Observers are also closely watching if other digital tokens will be added to the reserve, as hinted in Trump's executive order.
Criticism
Critics question value of Bitcoin reserve
Critics have raised concerns about the US Bitcoin reserve, arguing that unlike gold, cryptocurrencies are risky assets with no intrinsic value.
However, David Sacks, White House Crypto and AI Czar, believes that by storing Bitcoin over time, the government would protect itself from the cryptocurrency's massive short-term volatility.
Some experts argue that like gold, Bitcoin can benefit from its rarity due to a limited supply of 21 million tokens.
Global trends
Other countries considering cryptocurrency reserves
Brazil is also considering creating a cryptocurrency reserve, while Switzerland's central bank recently rejected the idea.
Governments across the globe are actively participating in cryptocurrency, especially by selling court-seized digital assets.
El Salvador made Bitcoin one of its official currencies but reversed the decision this year due to low citizen acceptance.
Meanwhile, Bhutan holds nearly $900 million worth of Bitcoin, nearly 30% of the kingdom's GDP.