Lummis Proposes Strategic Bitcoin Reserve Funded by Gold Sales

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As a seasoned researcher with over two decades of experience in financial markets and emerging technologies, I must admit that the prospect of a U.S. Bitcoin reserve is intriguing yet fraught with challenges. My first encounter with Bitcoin was back in 2010 when it was still trading at less than $0.05, so I’ve seen this digital gold rise and fall numerous times.

Next year, Republican Senator Cynthia Lummis from Wyoming intends to propose a bill that suggests the United States should buy approximately 1 million Bitcoins, which accounts for around 5% of the total supply. This purchase would currently cost about $90 billion, but the price might significantly increase if investors anticipate and react to the government’s potential Bitcoin buying spree.

Lummis stated to Bloomberg that we possess gold certificates which can be exchanged for Bitcoin, without influencing the U.S. financial records.

In her suggestion, Lummis proposes a broadened version of Trump’s original concept of a strategic Bitcoin deposit. This idea entails keeping the approximately 200,000 Bitcoins confiscated from illegal activities. However, under Lummis’ plan, the government would not only hold these Bitcoins but also keep them for a period of 20 years. The hope is that the increasing value of Bitcoin could gradually diminish the national debt over this time frame.

Bitcoin’s Value Proposition Meets Skepticism

Although a White House supportive of cryptocurrencies and a congress expected to be highly favorable towards it, Senator Lummis’ bill still faces significant hurdles. According to Polymarket, a platform for predicting crypto outcomes, there’s only a 31% chance that the proposed Bitcoin reserve by former President Trump will become a reality.

Could a U.S. Bitcoin Reserve Trigger a Global Race?

Crypto mogul Michael Novogratz, head of Galaxy Digital, is doubtful but intrigued. He speculates that if the U.S. establishes a Bitcoin reserve, it could catapult Bitcoin’s value to $500,000 as other nations rush to build their own reserves. “Such a move would redefine global finance,” Novogratz said.

In principle, the U.S. possesses substantial gold reserves that could finance this grand transition. The Federal Reserve holds gold certificates with an estimated value of $11 billion, determined by a 1973 legal price of $42.22 per ounce. At today’s market prices, this gold is worth a mind-boggling $675 billion. Yet, selling large quantities could potentially disrupt the gold market and cause fluctuations in its prices.

Crypto’s Political Momentum

During the Bitcoin Conference in Nashville held in 2024, Lummis initially discussed her idea, closely following Trump’s announcement of a government Bitcoin reserve. While Trump’s original proposal did not involve purchasing additional Bitcoin, his associate Robert F. Kennedy Jr. later proposed this, igniting curiosity.

Following Donald Trump’s victory in the 2016 election, Bitcoin reached an all-time high of $93,000. This surge in value brought the crypto market back up to where it was during the pandemic, reigniting enthusiasm within the industry.

As a crypto investor, I’m feeling optimistic about the future of my investments with the growing support for the BITCOIN Act. Lummis’ confidence that this bill will gain momentum in the new Congress is reassuring. With crypto-friendly senators like Bernie Moreno and Tim Sheehy joining the Senate ranks, it seems to me that we might be welcoming a ‘cavalry’ of allies who understand and support our digital currency endeavors.

Paradigm is Bullish

Matt Huang, a co-founder of Paradigm VC, penned an article advocating for the acceptance of Bitcoin. In his words, “Sovereign nations can no longer ignore Bitcoin. From a game theory standpoint, Bitcoin functions more like gunpowder than an iPhone. An artist like Christopher Nolan might choose to avoid adopting the iPhone, with his deliberate tech-aversion potentially leading to lower risks and increased creativity. However, once gunpowder was discovered, it became mandatory for every nation to adapt to it… or face the consequences. The same principle applies today to AI, drones, and other crucial technologies. With the United States now considering Bitcoin, other nations will not hesitate. Nations that start accumulating Bitcoin early will enjoy lower entry costs. The competition to amass Bitcoin reserves has begun.

 

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2024-11-16 16:06