Following the announcement made on July 27 at the Bitcoin Conference in Nashville, “Promoting Innovation, Technology and Competitiveness through Optimized Investment at the National Level” or Bitcoin Act of 2024The bill, introduced by Senator Cynthia Lummis of Wyoming, seeks to establish Bitcoin as a strategic asset in the United States’ financial arsenal. At its core, the bill proposes the creation of a strategic bitcoin reserve, a regulated bitcoin purchasing program, and a comprehensive national custodial policy. While the bill is very brief, what follows is a breakdown of the law’s key provisions, their implications, and the innovative financing mechanisms used.
Bitcoin Strategic Reserve
The creation of the SBR marks a radical shift in how the U.S. government manages and maintains bitcoin at the federal level. In contrast to many of the best practices currently discussed in the field, such as geographically distributed keys, a cold storage mandate, and independent proof-of-reserve audits, the SBR creates a decentralized network of secure bitcoin storage facilities across the United States. (Multi-signature is not mentioned, however, and is not explicitly prohibited either.) The law is thus intended to protect against breaches and security vulnerabilities in the event of a single catastrophic event.
Bitcoin buying program
The law calls for a plan to purchase up to one million bitcoins over five years, capping purchases at 200,000 bitcoins per year, and then hold those reserves for twenty years. The law also imposes restrictions on the use and sale of the reserves after the holding period. During the minimum holding period, no bitcoin held by the federal government in the SBR may be sold, bartered, offered, pledged, or otherwise disposed of for any purpose other than to repay outstanding federal debt instruments.
Bitcoin Buying Program Funding
In order to minimize the impact on taxpayers, the law uses several methods to finance the acquisition of Bitcoin, ensuring economic sustainability without increasing the federal debt.
The bill first proposes amending the Federal Reserve Act to reallocate excess discretionary funds from Federal Reserve banks. This would reduce the discretionary excess funds from $6.825 billion to $2.4 billion. The Fed would then be required to transfer net profits to the Treasury, and the bill would redirect the first $6 billion toward purchasing Bitcoin.
Additionally, the law also includes a change in the valuation of gold certificates held by the Federal Reserve. Currently, the Federal Reserve holds gold certificates that are priced at $42.22 per ounce, while the market price of gold today is close to $2,400. The law essentially requires the Federal Reserve to price the gold certificates according to their market value, and then transfer the gains from the gold to the Treasury to finance the initial acquisition.
State participation
The law mandates that state-level bitcoin holdings be accepted into the national framework through voluntary participation. This aspect allows individual states to store their bitcoin holdings within the SBR in separate accounts. By offering this option, the federal government allows (but does not require) states to add bitcoin to their own vaults, without having to reinvent and implement a robust security plan.
States participating in the program retain exclusive and separate ownership of their bitcoins, and the right to withdraw or transfer their bitcoin holdings from the SBR, subject to the terms of their contractual agreement and any applicable federal regulations, but are not subject to federal restrictions that otherwise apply to the SBR. This flexibility ensures that states can manage their bitcoin treasuries according to their specific financial strategies and needs.
Implications and next steps
By leveraging existing financial resources and harnessing the economic value of gold, the Bitcoin Act aims to obtain bitcoin without directly burdening taxpayers or increasing federal debt. This multifaceted approach underscores the innovative financial strategies the act uses to integrate bitcoin into the national reserve system, paving the way for a comprehensive bitcoin policy at all levels of the U.S. government.
Readers wishing to support the law should contact their legislators, either directly or through a tool like this one created by Satoshi Action Fund.
This is a guest post by our guest Colin Crossman. The opinions expressed here are entirely his own and do not necessarily reflect the views of BTC Inc or Bitcoin Magazine.
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