Trump pledged to build a U.S. bitcoin reserve. Here’s why it may not be a good idea.

Welcome back to Distributed Ledger. I'm Frances Yue, crypto reporter at MarketWatch.

Crypto-industry participants have been cheering over Republican presidential nominee Donald Trump's speech at the bitcoin conference held in Nashville, Tenn., last week, where the former president said he would build a strategic bitcoin reserve if he is elected in November.

"If I am elected, it will be the policy of the United States of America to keep 100% of the bitcoins the U.S. government currently holds or acquires in the future," Trump said, although he didn't go into detail regarding plans for such a reserve.

I caught up with James Angel, a finance professor at Georgetown University, who said a strategic bitcoin reserve may not be a good idea, especially for U.S. taxpayers.

Is there any merit to a bitcoin reserve?

Angel said he thinks there is little merit to creating a strategic bitcoin reserve. "There are good reasons about why we have a Strategic Petroleum Reserve, so that if there's some disruption to global oil supplies, we use it to stabilize the price of oil," Angel said. "But if there's a disruption to global bitcoin supplies, nothing's going to happen."

The creation of a reserve would only help those who already hold a large amount of bitcoin become richer, Angel said.

On Saturday, the same day as Trump's speech, U.S. Sen. Cynthia Lummis, a Republican from Wyoming, said she planned to introduce a bill to establish a bitcoin reserve in the U.S. and start a program to acquire a total of 1 million bitcoins, or 5% of the cryptocurrency's maximum supply over a set period of time, which would be funded by diversifying existing funds with the Federal Reserve System and Treasury Department.

The purchase of 1 million bitcoins could cost $500 billion, based on estimations, Angel noted. While bitcoin currently trades below $67,000, such an acquisition could significantly push up the price. "I suspect people will think long and hard about whether it is worth it," he said.

There is also the question of what the U.S. would do with the bitcoin in a reserve, because selling a large amount of bitcoin would push its price much lower. "Would they lock it up? When would we ever use it?" Angel said.

The U.S. government currently holds about 203,000 bitcoins, which are worth a total of about $13.4 billion, based on the cryptocurrency's current price, according to data from Arkham Intelligence. Those bitcoins were seized as a result of illegal activities, and U.S. authorities are in the process of slowly disposing of them.

Still, bitcoin bulls argue that there are benefits to building a bitcoin reserve. The cryptocurrency could be used to preserve value, potentially serving a role similar to gold, said Rob Chang, chief executive at bitcoin-mining company Gryphon Digital Mining. However, bitcoin's price has seen considerable volatility.

Rennick Palley, founding partner at crypto venture firm Stratos, echoed the point. There could eventually be a scenario where major central banks use bitcoin to store value on their balance sheets, Palley said.

For now, the fact that the potential creation of a bitcoin reserve "is being discussed instead of being laughable, is already remarkable," he added.

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