Trump and Lummis have pushed for US bitcoin reserves but critics express doubts

Both former President Donald Trump and Wyoming Republican Sen. Cynthia Lummis have proposed plans to have the U.S. government hold bitcoin. As markets slipped on Monday, supporters said the asset could be seen as a buffer to fluctuations, while critics raised concerns over bitcoin's expanded role.

Lummis released a draft bill last week directing the U.S. Treasury to buy one million bitcoin over a period of five years. The government would hold those coins for at least 20 years unless the tokens are sold to decrease the debt, Lummis told The Block.

GOP presidential candidate Trump has also said he would create a national bitcoin reserve if elected president later this year.

Independent presidential candidate Robert F. Kennedy Jr. made similar promises last month at Bitcoin 2024 when he said he would sign an executive order directing the U.S. Treasury to buy 550 bitcoin daily until the U.S. has a reserve of four million bitcoin.

About a week later, markets fell, taking bitcoin with them. The cryptocurrency saw its value drop by about 16%, according to The Block's pricing data. Ether dropped even more drastically on Monday, down by about 23%.

“Short-term volatility is common with any store of value including gold or oil, which the United States holds significant reserves in," Lummis said in an emailed statement to The Block, adding that a bitcoin reserve has "fundamental benefits" that remain strong.

"This is why my legislation takes a long-term view that requires the U.S. Treasury to gradually acquire the Bitcoin over a five-year period and hold onto it for at least 20 years," she said. 

‘A buffer against market fluctuations’ or ‘no strategic purpose?’

The Digital Chamber's Chief Policy Officer Cody Carbone said Lummis' proposed bitcoin reserve is crafted to handle the market's fluctuations better than more traditional assets such as stocks.

"Bitcoin has shown it can bounce back quickly from market drops, proving to be a strong and reliable asset," Carbone said in a message. "As more people and companies start using Bitcoin, it’s becoming seen as a safer investment, similar to gold. By incorporating Bitcoin into national reserves, the proposal anticipates capitalizing on its long-term stability and decentralized nature, which can provide a buffer against market fluctuations and enhance financial security for the economy.”

However, some have criticized the the idea of the U.S. Treasury holding bitcoin.

Oil and gold have a "strategic purpose," said Dennis Kelleher, CEO at Better Markets. Kelleher, who has also been critical of crypto in the past, said a bitcoin reserve plan would artificially inflate the token's price.

"There is no strategic purpose for a new financial product that has no use case and no legitimate social use after 15 years of trying. The only non-illegal use for crypto is for gambling and speculation," Kelleher said in an email to The Block.

The crypto market's drop on Monday affirms its credibility and shows that crypto has reached some equivalence with the traditional market, said Moe Vela, a former senior advisor to President Joe Biden. He is also a senior advisor to cryptocurrency Unicoin.

"As for the market fluctuation and the Trump and Lummis suggestions of Treasury money being held in bitcoin reserves, it furthers my concerns about the volatility of an asset less crypto like bitcoin, and it's a stark reminder that the mystery of who is behind bitcoin should make it off limits to Treasury funds regardless," Vela said.