Federal Reserve's Stance on Bitcoin and Strategic Reserve

By Michael S. Derby, Ann Saphir
NEW YORK (Reuters)
Federal Reserve Chair Jerome Powell stated on Wednesday that the U.S. central bank has no plans to be involved in any governmental effort to stockpile large amounts of bitcoin.

"We're not allowed to own bitcoin," Powell mentioned during a press conference after the Fed's latest two-day policy meeting, where policymakers cut rates as expected while indicating a more uncertain monetary policy direction ahead.

Regarding the legal issues surrounding bitcoin ownership, Powell noted, "that's the kind of thing for Congress to consider, but we are not looking for a law change at the Fed."

Powell addressed the potential for central bank involvement in the creation of a so-called Strategic Bitcoin Reserve, which has been suggested by President-elect Donald Trump.

His comments affected bitcoin's value, which had surged alongside other crypto assets since Trump's Nov. 5 election victory, fueled by expectations of a more relaxed government stance towards these speculative assets.

Trump has hinted at establishing a U.S. bitcoin strategic reserve but has not provided specific details. He mentioned that the reserve could initially include around 200,000 bitcoins seized from criminals, which are currently valued at approximately $21 billion.

Bitcoin's value has more than doubled this year, exceeding $100,000, largely due to optimism around Trump's pro-crypto policies. However, analysts caution that bitcoin's volatility over its 15-year history undermines its effectiveness as a reserve currency.

Republican Senator Cynthia Lummis has proposed legislation to facilitate the creation of a bitcoin reserve, which would involve the U.S. Treasury purchasing 200,000 bitcoins annually until the reserve reaches one million. This initiative would likely be financed through Fed bank deposits and gold holdings.

The establishment of such a reserve would require Congressional approval and potentially the issuance of new Treasury debt, as outlined in a recent Barclays analysis. Barclays analysts speculated that the plan could encounter significant resistance from the Fed.

More broadly, Fed officials have expressed skepticism towards securities like bitcoin, stepping back from their own efforts to develop a fully digital dollar, instead favoring private-sector innovations in payment technologies.

Powell emphasized that the Fed's primary focus regarding cryptocurrencies is their impact on consumer and banking safety, stating, "We regulate and supervise banks and we aim to ensure that the interactions between crypto businesses and banks do not threaten their health."

He reiterated that the Fed does not directly regulate cryptocurrencies.

In addition, Trump plans to appoint former PayPal executive David Sacks as the White House AI and Crypto Czar, along with pro-crypto consultant Paul Atkins leading the Securities and Exchange Commission.