WASHINGTON – Bitcoin soared to a new peak above $107,000 on Monday following President-elect Donald Trump’s reaffirmation of plans to set up a U.S. bitcoin strategic reserve, igniting excitement among cryptocurrency advocates. Here’s a look at how such a plan could be implemented.

What is a strategic reserve?

A strategic reserve refers to a collection of essential resources set aside for use during emergencies or disruptions in supply. The most recognized example is the U.S. Strategic Petroleum Reserve, the largest emergency crude oil supply globally, established by Congress in 1975 in response to the 1973-74 Arab oil embargo that severely impacted the U.S. economy. Presidents have accessed this reserve to stabilize oil markets during wartime or natural disasters affecting oil infrastructure along the Gulf Coast.

Canada boasts the sole strategic reserve of maple syrup, while China maintains strategic reserves of metals, grains, and even pork.

How would a US strategic bitcoin reserve function?

Opinions among analysts and legal experts vary on whether Trump could establish the reserve through executive order or if Congressional approval would be required. Some suggest that an executive order directing the U.S. Treasury’s Exchange Stabilization Fund could facilitate the purchase and holding of bitcoin.

The reserve might include bitcoin confiscated from illegal activities. Currently, the government holds approximately 200,000 bitcoins, valued at around $21 billion at today’s prices, according to bitcointreasuries.net. Trump indicated this stockpile could serve as an initial foundation for the reserve during a speech in July, though the legal method for transferring these assets out of the Justice Department is still uncertain.

However, Trump has not clarified whether the government would procure additional bitcoin from the market. To facilitate this, the government might need to issue debt, but some supporters of the reserve suggest that selling a portion of the country’s gold reserves could finance the bitcoin purchases.

Currently, the most detailed proposal for a bitcoin reserve in Washington comes from pro-cryptocurrency Republican Senator Cynthia Lummis, who revealed last month that she personally owns five bitcoins. In July, she introduced a bill that aims to establish a reserve managed by the Treasury, although it hasn’t gained much momentum yet.

The bill suggests that the Treasury could implement a program to acquire 200,000 bitcoins annually over five years until the reserve reaches one million tokens. This quantity would represent about 5% of the total global bitcoin supply, which is approximately 21 million. The funding for these purchases would come from earnings from Federal Reserve bank deposits and gold reserves.

The bitcoin reserve would be preserved for at least 20 years.

What are the advantages of a bitcoin reserve?

In his July address, Trump argued that a bitcoin reserve would position the U.S. as a leader in the global bitcoin market, especially against increasing competition from China.

Supporters claim that possessing a stockpile of bitcoin, which they believe will likely appreciate over time, could enable the U.S. to lower its deficit without raising taxes, thus strengthening the dollar.

In November, Lummis stated in an interview with Fox Business that her proposal could allow the U.S. to reduce its debt by half within 20 years. “This would help us safeguard against inflation and strengthen the U.S. dollar on the international front,” she noted.

A robust dollar would, in turn, enhance the United States’ influence over foreign adversaries like China and Russia, according to advocates of the proposal.

What are the risks?

Skeptics of cryptocurrency argue that, unlike many other commodities, bitcoin lacks intrinsic value and is not essential to the U.S. economy.

Since its inception in 2008, bitcoin is still viewed as too new and unstable to guarantee sustained value increases. Critics also point out that cryptocurrency wallets are often targets of cyberattacks. The volatile nature of bitcoin means that the government’s buying or selling actions could significantly affect its price.