Crypto markets have already reacted to the creation of the U.S. strategic crypto reserve. Now, traders have started to focus on the details and wonder how the strategic reserve will be replenished.
U.S. President Donald Trump has previously stated that crypto purchases would come at no additional cost for American taxpayers. Thus, the U.S. administration must find budget-neutral ways to build the crypto reserve.
The first option is to use confiscated cryptocurrencies. Obviously, this is good for crypto markets as such coins could have been sold, putting pressure on prices. Now this risk is gone.
However, the absence of confiscated crypto sales is not a major catalyst that could trigger a strong rally. To boost prices, the U.S. must actually buy Bitcoin in the open market. To do this, the U.S. administration must find a way to finance such purchases without using taxpayer money.
Bo Hines, White House executive director of the President’s council of advisers on digital assets, has recently said that the U.S. could start selling gold to buy BTC. The market met this statement with cautious enthusiasm, but there was no strong rally.
As of the fourth quarter of 2024, the U.S. held approximately 8133 tons of gold in reserves. Assuming a gold price of $3000 per ounce, the value of these reserves exceeds $860 billion. The price of gold has doubled since the start of 2020, and so did the dollar-denominated size of the U.S. reserves. Bo Hines suggested that the U.S. may take some profits off the table from its gold reserves and use the proceeds to buy Bitcoin. No taxpayer money would be used in this scheme.
As the U.S. issues the world’s main reserve currency, it does not need to store foreign debt, and its reserves are focused on gold. At least, this was the case until Bitcoin entered the financial mainstream and the new U.S. administration announced the creation of the strategic crypto reserve.
The key question is whether the U.S. is ready to start selling gold in order to buy Bitcoin. On the one hand, the U.S. holds the world’s largest gold reserve. This is not surprising as the U.S. is a wealthy country that does not need other countries’ debt obligations in its reserves.
On the other hand, selling a physical asset to buy a digital asset is an idea that may trigger active resistance from political opponents and conservative investors.
At this point, the market believes that Trump administration will face a high level of opposition if it starts moving towards selling gold to buy BTC. That’s why Bo Hines’ comments did not trigger a strong rally in crypto markets.
However, we have already seen how provocative ideas, like setting up a strategic crypto reserve, were implemented despite skepticism from analysts and political observers. Perhaps, Hines’ idea just needs more time. In any case, crypto investors will have to be patient as any real steps towards selling gold from reserves to buy BTC will be met by strong resistance from Trump’s political opponents.