Produced by | OKG Research
Author: Jason Jiang, Hedy Bi
In the early hours of this morning, Fed Chairman Powell made it clear at a press conference after the monetary policy meeting that the Fed has no intention of participating in any government plan to hoard Bitcoin. He stressed that such issues fall within the scope of Congress's responsibilities, and the Fed is not seeking to change existing laws to allow the holding of Bitcoin. Powell's remarks immediately triggered market shocks, and Bitcoin prices quickly pulled back from their highs at the beginning of the week. According to information forecasting market Polymarket, after Powell's speech, the possibility of a strategic reserve of Bitcoin dropped from 40% at its highest point on the 18th to 34%. The market value of the crypto market also fell rapidly, with the overall market value evaporating by about 7.5%.
Image source: Polymarket
This statement not only made the market wonder about the prospects of the "Bitcoin Strategic Reserve (BSR)", but also made people focus again on a deeper question: Does the Federal Reserve really have the power to stop the BSR plan?
First, we need to clarify the Fed's position in the U.S. financial system. The Fed's superior institution is the U.S. Congress: Congress is the highest authority of all financial regulatory agencies. It formulates financial regulations and policies through legislation and authorizes other financial institutions (such as the Securities and Exchange Commission and the Federal Reserve, etc.) to exercise their functions. In the U.S. financial market, monetary policy and fiscal policy, as the two core tools of government economic management, are respectively managed by the Federal Reserve and the Treasury Department. These institutions check and balance each other and maintain independence to ensure the smooth operation of the U.S. economy and finance.
The Federal Reserve enjoys a high degree of independence in monetary policy and national economic stability, but it cannot veto the decision to establish the BSR.
If the Trump administration wants to quickly establish the BSR, the most direct way is to sign an executive order after taking office to instruct the U.S. Treasury to use the Exchange Stabilization Fund (ESF) to directly purchase Bitcoin. The ESF is a special fund managed by the U.S. Treasury, mainly used for foreign exchange market intervention, supporting the stability of the U.S. dollar and responding to international financial crises. It currently includes assets such as the U.S. dollar, the Special Drawing Rights (SDR) and gold. The operation of the fund is not controlled by the U.S. Congress, and the president and the Treasury have great autonomy in its use. The president can theoretically instruct the Treasury to adjust the allocation of ESF funds through executive orders to purchase or reserve specific assets, and bypass the direct appropriation approval of Congress to reduce political resistance. The executive order recently drafted by the Bitcoin Policy Institute hopes to establish the BSR in this way.
Image source: Bitcoin Policy Institute
This method is the easiest to implement, and the use of ESF funds does not require prior approval from Congress, but Congress can restrict its operations through investigations or legislation. During the COVID-19 epidemic in 2020, Congress imposed strict restrictions on the operations of some funds of the Treasury Department. In addition, the sustainability of the BSR established by executive order is questionable, because executive orders are essentially an extension of executive power, and successors may abolish or modify previous related decisions through new executive orders.
If you want to establish and maintain the long-term stability of the BSR, you need to choose another path, that is, to include Bitcoin in the Strategic Reserve Act or similar laws through congressional legislation, and clarify the status of Bitcoin as a national strategic reserve asset. This method is more legitimate and can establish a long-term framework for Bitcoin reserves. The "US Bitcoin Strategic Reserve Act" previously proposed by Republican Senator Cynthia Lummis chose this path. The bill has now been formally submitted to Congress and submitted to the Senate Banking Committee for review. It will be reviewed and approved by the Senate, the House of Representatives, and the President before it can be formally legislated. Therefore, it will take longer to establish a strategic Bitcoin reserve through this path, and may encounter various obstacles in the process.
Whether establishing a strategic Bitcoin reserve through a presidential executive order or congressional legislation, the plans that have been revealed so far will ultimately need to be led and implemented by the Treasury Department, not the Federal Reserve.
Image source: Congress.gov
In addition to the above options, the Federal Reserve and the Treasury Department can theoretically choose the middle path to allocate Bitcoin. The Federal Reserve can purchase Bitcoin through open market operations and include it in its balance sheet. Due to its relative independence, the Fed's actions do not need to be approved by Congress, but there needs to be a clear policy framework to support its purchase of Bitcoin. In addition to the recent statements of the Federal Reserve, the possibility of this plan being realized in the short term does not seem great. The Ministry of Finance can invest in Bitcoin as part of its fiscal investment plan by setting up a special fund. Although it does not change the existing legal framework, the relevant financing requires approval from Congress.
No matter what path is taken, "Fed says no" cannot deny BSR's proposal, and Trump, a practical man, has supported it with action. According to on-chain data, within two minutes of Powell's speech, the Trump family's crypto project World Liberty quietly took action and began to buy copycat cryptocurrencies. This scene undoubtedly reveals a deeper game: on the one hand, the Fed's cold response to the Bitcoin strategic reserve plan shows the government's cautious attitude towards emerging assets; on the other hand, the pace of the Trump family's crypto project reveals the subtle struggle between traditional power and market innovation. The subtle game between the government, traditional finance and the crypto market may be the prelude to the future fate of the crypto market.
