A visual look at Bitcoin's strategic reserves, how amazing is it?

The leeks are still entangled in the ups and downs of those trivial matters.
What is 1️⃣ strategic reserve?
Strategic reserves refer to the planned storage system of key materials that the government reserves for 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 medicines. It is now officially incorporating Bitcoin into its strategic reserve system.

2️⃣ Central Bank Reserves
The Fed also holds a variety of assets as reserves, including gold, foreign exchange, and U.S. Treasury securities.
The following are the differences between these reserves and strategic government reserves:
🚩The Federal Reserve is independent of the U.S. government.
🚩Its reserves are mainly used to implement monetary policy and keep its assets balanced with liabilities.
🚩 The Federal Reserve operates under specific authorization from Congress, such as balancing the achievement of maximum employment and price stability.

3️⃣What is a strategic Bitcoin reserve?
In July 2024, Senator Cynthia Lummis introduced the "Boosting Innovation, Technology, and Competitive Act" (BITCOIN Act) in the United States Senate.
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, the legislation will:
🚩The US Department of the Treasury has established a decentralized network of Bitcoin vaults to ensure that the national Bitcoin holdings meet the highest standards in physical and cybersecurity.
🚩Implementing a plan to purchase 1 million units of Bitcoin, aiming to acquire a share of approximately 5% of the total Bitcoin supply within a certain period, which is similar in scale and scope to the US gold reserves.
🚩Payment of fees through a diverse federal reserve system and funding from the Treasury Department.
🚩Confirm the independent custody rights of private Bitcoin holders and emphasize that strategic Bitcoin reserves will not infringe on individual financial freedom.

According to the law, the U.S. government will manage its strategic Bitcoin reserves according to the following rules:
The annual purchase of 🪙 Bitcoin shall not exceed 200,000 BTC
🪙All bitcoins obtained through the program should be held for at least 20 years
🪙Apart from repaying federal debt, no bitcoin may be sold or otherwise disposed of.

4️⃣Trump has signed an executive order to establish a strategic Bitcoin reserve
🖍️Bitcoin Strategic Reserve: The US government set up a reserve using confiscated bitcoins, with a total amount of about 200,000 coins, accounting for 0.95% of the total supply.
🖍️Not for sale: will not sell these bitcoins in the next four years, uncertain after the change of term in four years.
🖍️ Do not buy: the government should not use taxpayers' money to buy cryptocurrencies.
🖍️Reserve: Plans to establish a cryptocurrency reserve, with assets coming from fines and confiscations.

How can 5️⃣ 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 country's unsustainable economic trajectory background.
🚩The U.S. federal debt has exceeded $35 trillion and is increasing at an accelerating pace.
In the 2010s, debt grew by about $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 U.S. government has been spending more than it earns over 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 for decades to come, with no end in sight.

6️⃣Is there anything other than Bitcoin that we can't solve this situation?
Traditionally, the choice of reducing government debt burden is limited:
🚩Tightening policy
Tightening policy involves reducing spending and/or increasing taxes to balance the budget.
In theory, this sounds good, but implementing a contraction policy in the current environment faces many challenges:

Unpopular: Austerity measures are usually unpopular and unlikely to be promoted by elected politicians.

Mandatory Spending: A large part of the government budget is mandatory spending, such as social security and medical insurance, which are difficult to reduce.

Inertia: Government budgets usually start from the previous year's budget. This practice means that existing costs are rarely cut for convenience, even if there may be opportunities for savings. At the same time, new expenditures are easier to increase because they are built on an already established financial framework. This practice makes it difficult to control or reduce budgets.

Tax revenue increase: Rapidly increasing tax revenue may lead to adverse effects, such as reduced economic activities and lower tax revenue.

🚩Direct default
Direct default refers to the government's failure to repay debts according to the contract. Although some countries have defaulted in the past, the United States is highly unlikely to do so. This is because defaulting would damage trust in US institutions and could weaken the value of the US dollar. Furthermore, the US has no 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 over the next 20 years is 1000%, and the US debt burden only increases by 100%, then the real value of federal debt will decrease by 80%.

When the inflation rate exceeds the rate at which federal debt is growing, the absolute size of government debt decreases. Whether explicit or implicit, many governments around the world have implemented this strategy and are likely to continue to do so in the future. However, relying on inflation to reduce national debt comes at the cost of destroying the value of currency and may also lead to social unrest, lack of trust in institutions, and wealth inequality.

Indeed, the debt problem in the United States does not have a perfect answer - here Bitcoin can play a role.

7️⃣How Bitcoin Helps Solve the US Debt Crisis
One strategy to strengthen the United States' financial position is to invest in assets that grow faster than inflation or debt.
Since 2014, Bitcoin's annual price performance has significantly outpaced inflation and other asset classes. In addition, Bitcoin's total market value is relatively small, less than 1% of the value of traditional assets such as stocks, bonds, and real estate. This suggests that the value of Bitcoin may continue to grow rapidly in the future as it catches up with other assets.

From 2014 to 2024, the annual average growth rates of Bitcoin (63.5%), the S&P 500 index (10.1%), and M2 money supply (6.3%).
If the United States becomes one of the first countries to strategically hoard Bitcoin, it will immediately establish its leading position in the adoption of Bitcoin, ahead of all other countries. By doing so, the government's strategic Bitcoin reserves will significantly appreciate. A large reserve of Bitcoin will help ensure the government's ability to fulfill its debt obligations, which will encourage international investors to continue to trust US government bonds, thereby reducing the interest rates on debt.

Relying solely on a strategic Bitcoin reserve is unlikely to completely solve the federal debt problem. The $56 billion investment in purchasing 1 million BTC would need to appreciate by 62500% to fully pay off our debt - this would mean a market value of Bitcoin exceeding $700 trillion. However, this strategy is still worthwhile.

Despite the $35 trillion federal debt in the United States, a proposed $560 billion strategic Bitcoin reserve demonstrates the scale needed to repay the debt.

However, there are still several reasons to establish a strategic Bitcoin reserve.
🟨Low downside risk: Buying 1 million bitcoins for strategic reserves is a relatively small investment for the United States. At current prices, purchasing 200,000 BTC per year would be less than 0.2% of its annual federal budget.

Ensuring the future of the dollar: Regardless of how the US views the dollar, the US government is interested in ensuring the dollar's dominant position as the global reserve currency. Strategic Bitcoin reserves will act as a hedge against potential dollar failures, such as other countries widely adopting Bitcoin.

🟨Significant long-term opportunity: it is very likely that after the United States establishes a strategic Bitcoin reserve, many other developed countries will follow suit. This will put the United States in a long-term advantageous position, with the world's largest Bitcoin reserve. Although these reserves may not be sufficient to fully repay the debt burden, American politicians may find that not selling any Bitcoin and continuing to increase reserves is in the national interest.

Maintaining US Innovation Edge: Many of America's successes are attributed to innovators and entrepreneurs who have improved many aspects of our lives. As Bitcoin is at the forefront of current innovation and technology, US endorsement of Bitcoin will help ensure that the US remains the best place for innovation to occur.

8️⃣Does his country have a strategic Bitcoin reserve?
Currently, El Salvador is the only country to publicly announce that it will use Bitcoin as a strategic reserve asset.
The country has been hoarding Bitcoin since September 2021, when it declared Bitcoin as legal tender. El Salvador has established a website to easily track its reserves, which have exceeded 6000 BTC.

The impact of strategic Bitcoin reserves on Bitcoin The most direct and immediate impact of the US strategic Bitcoin reserve on Bitcoin is the price of Bitcoin itself. The US commitment to purchase a large amount of Bitcoin will create greater demand for the fixed supply of Bitcoin. In order to match supply and demand, the price of Bitcoin is likely to rise.

The strategic Bitcoin reserve will also have many long-term effects on Bitcoin, and these effects are more difficult to predict. However, it is almost certain that significant changes will occur in several key areas:

Regulation: The regulation of Bitcoin is still in its early stages. For example, there is still little clarity on how banks can legally interact with Bitcoin. Strategic Bitcoin reserves may encourage the establishment of a more comprehensive and robust regulatory framework for Bitcoin. Strategic alignment: Governments around the world have always been neutral or even negative towards Bitcoin. If the United States establishes strategic Bitcoin reserves, it may take a more positive attitude towards Bitcoin. After all, the United States may want to profit from the increasing adoption of Bitcoin.

Control: Today, Bitcoin is a highly decentralized network. The codebase is maintained by open-source developers and enforced by thousands of individual nodes. No single 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, such a policy may lead to attempts by the US government to control the network. For example, the government may propose policies to ban certain addresses that are under sanctions in the US dollar system.

Trump signs Bitcoin Strategic Reserve Order, undoubtedly a significant milestone in the history of Bitcoin development.

I made some modifications based on my personal understanding of the original text: