Federal Reserve’s Stance on Bitcoin Strategic Reserve
In a recent statement, Federal Reserve Chair Jerome Powell emphasized that the Fed has no plans to participate in any government initiative to acquire Bitcoin. Powell clarified that decisions regarding Bitcoin holdings fall within the purview of Congress, and the Fed does not intend to advocate for changes in existing laws to accommodate Bitcoin in its reserves. The market reacted swiftly to Powell’s remarks, leading to a sharp pullback in Bitcoin’s price from its recent high. Additionally, the likelihood of a Bitcoin Strategic Reserve (BSR) decreased from 40% to 34% following Powell’s comments.
WuBlockchain, in a recent post on the Polymarket platform, delved into whether the Federal Reserve could hinder the establishment of a national Bitcoin reserve.
Can the Fed Block the BSR Plan?
While the Federal Reserve holds significant autonomy in monetary policy and economic stability, it lacks veto power over the creation of a BSR. The ultimate authority rests with the U.S. Congress, responsible for enacting regulations and overseeing agencies like the SEC and the Federal Reserve.
Can Trump Quickly Establish BSR?
To expedite the establishment of a strategic Bitcoin reserve, the Trump administration could issue an executive order directing the U.S. Treasury to utilize the Exchange Stabilization Fund (ESF) for purchasing Bitcoin. Unlike congressional control, the ESF operation offers the President and Treasury considerable independence in decision-making. While this approach may bypass the need for congressional approval, its sustainability could be uncertain, subject to potential revocation or modification by future administrations.
A Long-term BSR
For a more enduring and secure BSR, the enactment of congressional legislation, such as integrating Bitcoin into the “Strategic Reserve Act,” presents a stable legal pathway. This legislative route would formally recognize Bitcoin as a national strategic asset. Senator Cynthia Lummis’s proposal for the “U.S. Bitcoin Strategic Reserve Act” follows this trajectory but necessitates Senate Banking Committee review and approval by both chambers of Congress and the President. Ultimately, the Treasury Department, rather than the Federal Reserve, would oversee the implementation of the Bitcoin reserve.
Is There A Middle Way Out?
A potential compromise could involve collaboration between the Federal Reserve and the Treasury Department in Bitcoin allocation. The Federal Reserve might acquire Bitcoin through open market operations to enhance its balance sheet, although recent indications suggest this outcome is improbable. Alternatively, the Treasury Department could establish a dedicated fund for Bitcoin investments within a fiscal strategy, contingent upon congressional endorsement.
While the Fed’s reluctance does not outrightly reject the BSR proposal, the Trump administration’s actions reflect support for the initiative. As the Federal Reserve exercises caution, a subtle tension emerges between conventional authority and innovative market practices.