How impressive is it to understand Bitcoin's strategic reserve with just one image and text? But the leeks are still struggling with the ups and downs of those three melons and two jujubes one ️⃣ What is strategic reserve? Strategic reserve refers to the key material reserve system that the government plans to store in response to special strategic needs or emergencies. Since World War II, the United States has established multiple strategic reserves covering key areas such as oil, food, precious metals, and pharmaceuticals, and now officially includes Bitcoin in its strategic reserve system. two ️⃣ Central Bank Reserve The Federal Reserve also holds a variety of assets as reserves, including gold, foreign exchange and US treasury bond securities. These reserves differ from strategic government reserves in the following ways: 🚩 The Federal Reserve is independent of the US government. 🚩 Its reserves are mainly used to implement monetary policy and balance its assets and liabilities. 🚩 The Federal Reserve operates under specific authorization from Congress, such as striking a balance between achieving maximum employment and price stability. three ️⃣ What is Strategic Bitcoin Reserve? In July 2024, Senator Cynthia Loomis proposed the BITCOIN Act in the United States Senate to enhance innovation, technology, and competitiveness through national optimized investment. The bill aims to establish a strategic Bitcoin reserve as an additional store of value to strengthen the US balance sheet and ensure transparent management of the federal government's Bitcoin holdings. Specifically, this legislation will: 🚩 Establish a decentralized Bitcoin vault network by the US Treasury Department to ensure that the country's Bitcoin holdings meet the highest standards in terms of physical and cyber security. 🚩 Implement a plan to purchase 1 million units of Bitcoin and obtain approximately 5% of the total Bitcoin supply within a certain period of time, which is similar in size and scope to the US gold reserves. 🚩 Pay for expenses through diversified funding from the Federal Reserve System and the Treasury Department. 🚩 Confirm the autonomous custody rights of private Bitcoin holders and emphasize that strategic Bitcoin reserves will not infringe upon personal financial freedom. According to the bill, the US government will manage its strategic Bitcoin reserves according to the following rules: 🪙 The purchase volume of Bitcoin shall not exceed 200000 BTC per year 🪙 All bitcoins obtained through this program should be held for at least 20 years 🪙 Except for repaying federal debt, no Bitcoin may be sold or disposed of. four ️⃣ Trump has signed an executive order to establish a strategic Bitcoin reserve 🖍️ Bitcoin Strategic Reserve: The US government established a reserve of approximately 200000 confiscated bitcoins, accounting for 0.95% of the total supply. 🖍️ Not for sale: These bitcoins will not be sold for the next four years, and there is uncertainty about the succession after four years. 🖍️ Not purchasing: The government does not use taxpayer funds to buy cryptocurrency. 🖍️ Reserve Bank: Plan to build a cryptocurrency reserve bank, with assets coming from fines and confiscation. five ️⃣ How can strategic Bitcoin reserves help the United States? To understand how strategic Bitcoin reserves can help the United States, it is first necessary to understand the background of the country's unsustainable economic trajectory. 🚩 The federal debt of the United States has exceeded $35 trillion and is increasing at an accelerated pace. 🚩 In the 2010s, debt grew by approximately $1 trillion annually. 🚩 And in this decade, its growth rate reached $2.6 trillion per year. 🚩 Last year, interest payments on federal debt alone exceeded $1 trillion, making it the second largest budget item after social security. 🚩 The US government has been spending more than it earns in the past 20 years, and the current annual deficit has reached $1.6 trillion. 🚩 The Congressional Budget Office estimates that the federal deficit will continue to grow indefinitely in the coming decades. six ️⃣ Can't we solve this situation without Bitcoin? Traditionally, the options for reducing government debt burden are limited: 🚩 austerity policy Austerity policies involve cutting spending and/or increasing taxes to balance the budget. In theory, this sounds good, but implementing austerity policies in the current environment faces many challenges: Unpopular: Austerity measures are usually unpopular and unlikely to be promoted by elected politicians. Mandatory expenditure: A significant portion of the government budget consists of mandatory expenditures, such as social security and medical insurance, which are difficult to reduce. Inertia: Government budgets usually start from the previous year's budget. This approach means that for the sake of convenience, existing costs are rarely reduced, even if there may be opportunities for savings. Meanwhile, new expenditures are more likely to increase as they are built upon established financial frameworks. This approach makes it difficult to control or reduce the budget. Tax increase: Rapid increase in tax revenue may lead to adverse effects, such as reduced economic activity and decreased tax revenue. 🚩 Direct breach of contract Direct default refers to the government's failure to repay its debts as stipulated in the contract. Although some countries have defaulted in the past, the United States is highly unlikely to do so. This is because a breach would damage trust in US institutions and potentially weaken the value of the US dollar. In addition, the United States has little incentive to default when there is a simpler option available: printing money. 🚩 inflation Many governments rely on inflation to erode the value of debt. For example, if the cumulative inflation rate in the next 20 years is 1000%, and the debt burden of the United States only increases by 100%, the real value of the federal debt will decrease by 80%. When the inflation rate exceeds the growth rate of federal debt, the absolute size of government debt will decrease. Whether explicitly or implicitly, many governments around the world have implemented this strategy and are likely to continue in the future. However, the price of relying on inflation to reduce treasury bond is to destroy the value of money, and may also lead to social unrest, lack of trust in institutions and wealth inequality. Indeed, there is no perfect answer to the debt problem in the United States - here Bitcoin can play a role. seven ️⃣ How Bitcoin Helps Solve the US Debt Crisis One strategy to strengthen the financial position of the United States is to invest in assets that grow faster than inflation or debt. Since 2014, the annual price performance of Bitcoin has significantly surpassed inflation and other asset classes. In addition, the total market value of Bitcoin is relatively small, accounting for less than 1% of the value of traditional assets such as stocks, bonds, and real estate. This indicates that the value of Bitcoin may continue to grow rapidly in the future as it catches up with other assets. The average annual growth rates of Bitcoin (63.5%), S&P 500 Index (10.1%), and M2 money supply (6.3%) from 2014 to 2024. If the United States becomes one of the first countries to strategically hoard Bitcoin, it will immediately establish its leading position in Bitcoin adoption, ahead of all other countries. By doing so, the government's strategic Bitcoin reserves will significantly increase in value. A large amount of Bitcoin reserves will help ensure the government's ability to fulfill its debt obligations, which will encourage international investors to continue trusting US government bonds and thus lower debt interest rates. Relying solely on strategic Bitcoin reserves is unlikely to completely solve the federal debt problem. A $56 billion investment to purchase 1 million BTC must appreciate by 62500% in order to fully repay our debt - which would mean the market value of Bitcoin would exceed $70 trillion. However, this strategy is still worthwhile. Despite the $35 trillion federal debt in the United States, a proposed $56 billion strategic Bitcoin reserve demonstrates the scale required to repay the debt. However, there are still several reasons for establishing strategic Bitcoin reserves: 🟨 Low downside risk: Buying 1 million bitcoins for strategic reserves is a relatively small investment for the United States. At current prices, purchasing 200000 BTC per year would be less than 0.2% of its annual federal budget. 🟨 Ensuring the Future of the US Dollar: Regardless of one's views on the US dollar, the US government is interested in ensuring its dominant position as the global reserve currency. Strategic Bitcoin reserves will serve as a hedge against potential failure scenarios of the US dollar, such as the widespread adoption of Bitcoin by other countries. 🟨 Significant long-term opportunity: It is likely that many other developed countries will follow suit after establishing strategic Bitcoin reserves in the United States. This will put the United States in a long-term advantageous position, with the world's largest Bitcoin reserves. Although these reserves may not be sufficient to fully repay the debt burden, American politicians may find it in the national interest not to sell any Bitcoin and continue to increase reserves. 🟨 Maintaining America's Innovation Advantage: Many of America's successes are attributed to innovators and entrepreneurs who have improved many aspects of our lives. As Bitcoin is currently at the forefront of innovation and technology, the endorsement of Bitcoin by the United States will help ensure that the country remains the most suitable place for innovation to occur. eight ️⃣ Does his country have strategic Bitcoin reserves? Currently, El Salvador is the only country that has publicly announced the use of Bitcoin as a strategic reserve asset. The country began hoarding Bitcoin in September 2021, when it declared Bitcoin as legal tender. El Salvador has established a website where its reserves can be easily tracked, with reserves exceeding 6000 BTC. The impact of strategic Bitcoin reserves on Bitcoin: The most direct immediate impact of US strategic Bitcoin reserves on Bitcoin is the price of Bitcoin itself. The United States' commitment to purchasing a large amount of Bitcoin will generate greater demand for Bitcoin's fixed supply. In order to match supply and demand, the price of Bitcoin is likely to rise. Strategic Bitcoin reserves will also have many long-term impacts on Bitcoin, which are more difficult to predict. However, it is almost certain that significant changes will occur in several key areas: Regulation: The regulatory treatment of Bitcoin is still in its infancy. For example, there is currently little clarity on how banks can legally interact with Bitcoin. Strategic Bitcoin reserves may encourage the establishment of a more complete and robust regulatory framework for Bitcoin. Strategic alignment: Governments around the world have always had a neutral or even negative attitude towards Bitcoin. If the United States establishes a strategic Bitcoin reserve, it may take a more proactive attitude towards Bitcoin. After all, the United States may hope to profit from the increased adoption of Bitcoin. Control: Nowadays, Bitcoin is a highly decentralized network. The code repository is maintained by open-source developers and enforced by thousands of individual nodes. No individual or entity has decisive control over the operation of Bitcoin. It is difficult to say whether strategic Bitcoin reserves will affect the way Bitcoin is controlled. However, this policy may lead to the US government attempting to control the internet. For example, the government may propose policies to ban certain addresses that are subject to sanctions in the US dollar system. Trump's signing of the Bitcoin Strategic Reserve is undoubtedly an important milestone in the history of Bitcoin's development. I have made some modifications to the original text based on my personal understanding: https://(river.com)/learn/strategic-bitcoin-reserve/