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The bitcoin market has surged in response to US President-elect Donald Trump's plan to establish a strategic reserve of the cryptocurrency.
A strategic reserve is a government-held reserve of critical resources that can be used during times of crisis or supply disruptions. The most well-known example is the United States Strategic Petroleum Reserve, established in 1975 following the Arab oil embargo. This reserve is used to stabilize the market during emergencies like wars or natural disasters.
The US strategic bitcoin reserve would most likely include holding a large amount of bitcoin to be used in times of economic need or to assert dominance in the global bitcoin market.
While it is unclear whether President-elect Donald Trump could establish this reserve through an executive order or if an act of Congress is required, the idea is that the United States could direct its Treasury's Exchange Stabilisation Fund to buy or hold Bitcoin.
Some of this bitcoin could come from the seizure of illegal assets. The United States government currently owns approximately 200,000 bitcoins, which are of value around $21 billion. Trump's proposal suggests that the seized bitcoin could serve as the initial reserve.
Trump and others believe that a Bitcoin reserve would help the United States to dominate the global Bitcoin market.
Supporters argue that owning Bitcoin could increase its value over time, helping to reduce the US deficit without increasing taxes.
A strong Bitcoin reserve could also strengthen the US dollar, providing it a greater economic influence over countries such as China and Russia.
Critics argue that, unlike traditional commodities such as oil or gold, bitcoin is volatile and has no intrinsic value.
Bitcoin's price can fluctuate dramatically, which could destabilise markets if the United States purchases or sells large amounts.
It would also be extremely risky to secure such a sizable reserve because Bitcoin wallets are susceptible to cyberattacks.
Bitcoin is relatively new, there is no guarantee that its value will continue to rise in the long term.
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PRACTICE QUESTION Q.Consider the following statements: 1. Cryptocurrency is a means of exchange that is created and stored electronically on the blockchain. 2. Bitcoin uses a ‘proof-of-work’ system. Which of the above statements is/are correct? A) 1 only B) 2 only C) Both 1 and 2 D) Neither 1 nor 2 Answer: C Explanation: Statement 1 is correct: Cryptocurrency is a digital currency created and stored electronically on a blockchain. No central authority, such as a bank or the government, issues cryptocurrencies. Instead, they are created and saved on a decentralised network of computers. Statement 2 is correct: Bitcoin uses a proof-of-work algorithm that aims to add a new block every ten minutes. To achieve that, it modifies the difficulty of mining Bitcoin in response to the rate at which miners are adding blocks. Over-speed mining makes hash calculations more difficult. The more slowly you go, the easier they become. |
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