"Strategic reserves" are rising, will Bitcoin reshape the "balance sheets" of sovereign states and corporate institutions?

Written by: Web3 Farmer Frank

What does a strategic reserve asset of 1 million BTC mean?

According to the World Gold Council, as of the third quarter of 2024, the Federal Reserve's gold reserves totaled 8,133.46 tons (approximately $530 billion), firmly holding the top spot globally, while 1 million BTC is currently valued at nearly $100 billion, almost equivalent to 19% of the U.S. gold reserves!
Source: World Gold Council

With Trump and an increasing number of institutions/businesses and sovereign nations beginning to consider establishing "Bitcoin strategic reserves," will Bitcoin's "Fort Knox moment" arrive? Can it, like gold, become part of the global reserve asset system?

The next decade may be a critical time window for this answer to be revealed.

What does "strategic reserve asset" mean?

At the Bitcoin2024 conference held in July 2024, Trump publicly promised in his speech to "never sell" the Bitcoin held by the government and any future acquisitions, insisting on the concept of a "strategic Bitcoin reserve."

Now, with Trump's election and recent appointments of crypto-friendly individuals to key positions, including the U.S. Treasury Secretary, SEC Chair, and White House crypto czar, it undoubtedly brings the idea of incorporating Bitcoin into the U.S. strategic reserves closer to reality.
Source: Bloomberg

So, what exactly is a "strategic reserve asset"?

Simply put, a "strategic reserve asset" is a key asset held by a national or regional government, aimed at responding to economic fluctuations, financial crises, or geopolitical risks, and maintaining the country's financial stability, economic security, and international competitiveness. They typically possess characteristics such as high value and widespread acceptance, security and stability, and liquidity.

At the corporate level, "strategic reserve assets" also help enterprises/institutions achieve financial stability, enhance risk resistance, and support their long-term growth strategies, especially during economic fluctuations, where strategic reserve assets often serve as the first line of defense against risks.

Traditional strategic reserve assets mainly include:

• Gold: Widely regarded as a stable store of value due to its scarcity and inflation resistance;
• Foreign exchange reserves: Primarily U.S. dollar-denominated reserve currencies, essential for supporting international trade and payments;
• Special Drawing Rights (SDR): Allocated by the International Monetary Fund (IMF) to supplement member countries' official reserves;

This also means that assets capable of becoming "strategic reserves" must possess comprehensive advantages such as value stability, global recognition, and convenient circulation. Bitcoin, as an emerging digital asset, is gradually meeting these conditions and is beginning to be viewed as a potential alternative to gold.

Notably, in addition to Trump's "commitment," on July 31, 2024, U.S. Senator Cynthia Lummis also submitted the "Bitcoin Strategic Reserve Act of 2024" to the U.S. Congress, which detailed requirements for the "U.S. Treasury to purchase 1 million BTC within five years and hold it for at least 20 years, unless used to repay outstanding federal debt," and even plans to require the Federal Reserve to "use a certain amount of net profits each year to purchase Bitcoin."

The goal of this plan is to ensure that the U.S. government can hold a significant amount of Bitcoin over the next twenty years, providing the nation with a long-term financial hedging tool. The bill has been submitted to the U.S. Senate Committee on Banking, Housing, and Urban Affairs for discussion and voting, and will then be sent to Trump for signing into law after passing both chambers.
Source: congress.gov

Why Bitcoin, beyond gold and foreign exchange?

To some extent, more gold reserves are not necessarily better in an absolute sense.

Firstly, gold, as a physical asset, does not generate interest or returns, and lacks liquidity returns, which is a primary reason for Buffett's negative stance towards it—"Gold cannot pay you interest, so there is no compounding effect."

More importantly, holding gold reserves incurs high storage and maintenance costs, especially for most countries, where effectively managing and protecting gold reserves becomes a significant financial burden. For example, the world-renowned Federal Reserve's main gold storage facility, "Fort Knox," has invested enormous resources to ensure the security of gold storage:

Not only is it located deep in the strategic heartland of Kentucky, but it is also buried underground, surrounded by thick reinforced concrete walls and all-weather security equipment, with thousands of soldiers stationed year-round. This makes the storage of gold reserves not just a security requirement, but a long-term and costly financial investment.

Source: U.S. Mint

In contrast, the storage cost of Bitcoin is almost negligible; it does not require physical storage space or expensive protective facilities. It can achieve efficient storage and management relying on secure wallets, multi-signature technology, and a decentralized network verification system.

At the national level, the storage cost of Bitcoin mainly focuses on technology and network maintenance, far lower than the physical protection costs of gold. This also means that even if Bitcoin does not generate direct returns, its holding costs are still significantly lower than gold, leaving more room for net asset growth.

Meanwhile, trading physical gold often involves complex processes such as physical delivery, storage, and transportation, which can take days or even weeks. The gold market is usually restricted by the trading hours and geographical limitations of traditional financial systems, while Bitcoin can be traded 24/7 through exchanges, covering the global market.

In addition to gold, foreign exchange reserves (such as euros, yen, etc.), as fiat currencies issued by other countries, depend not only on the economic conditions of the issuing country but can also be affected by geopolitical risks. Bitcoin's scarcity is unaffected by monetary policy interventions, avoiding the devaluation risks caused by excessive issuance, and allowing any holder (whether individual, institution, or sovereign nation) to freely store, transfer, and trade globally.

This decentralized characteristic ensures that Bitcoin is not influenced by political and economic interventions, and even during global turmoil, its value storage function can still operate stably.

Enterprises/institutions and sovereign nations are becoming BTC "Pi Xiu"

For this reason, Bitcoin, with a total market value of $2 trillion, is gradually being viewed as a potential reserve tool due to its lack of physical storage, global circulation, high transparency, and anti-inflation characteristics. More and more companies/institutions, and even sovereign nations, are beginning to explore incorporating Bitcoin into their strategic reserve asset systems.

U.S. Government: One of the world's largest Bitcoin holders

Surprisingly to many, the U.S. government is actually one of the largest Bitcoin holders in the world, having seized a large amount of Bitcoin over the years through law enforcement actions against cybercriminals, money laundering organizations, and dark web markets, and currently holds about 200,000 BTC, worth nearly $20 billion at the time of writing.

As the "most crypto-friendly president in U.S. history" (at least in public statements), whether Bitcoin will be incorporated into the federal reserve asset system during Trump's next four years remains uncertain. However, it is certain that the Bitcoin held by the U.S. government may not be sold as frequently as before, but rather gradually explored for its longer-term strategic significance.
Source: Arkham

El Salvador: Daily dollar-cost averaging of 1 BTC

El Salvador is the first country in the world to establish Bitcoin as legal tender, having enacted relevant legislation on September 7, 2021. It subsequently launched the Chivo electronic wallet and preloaded $30 worth of Bitcoin for every resident who downloaded the wallet, integrating Bitcoin into the national economic system and demonstrating its firm "Bitcoinization" path.

Moreover, whenever the crypto market experiences significant fluctuations, President Nayib Bukele of El Salvador often promptly announces Bitcoin purchases via social media to instill confidence in the market. Currently, El Salvador continues to buy 1 BTC daily, and with rounds of "bottom-fishing," as of December 10, its BTC holdings have reached 5,959.77 BTC, valued at approximately $577 million.

Although this holding is not large on a global scale, as a small economy, this firm Bitcoin strategy is noteworthy and provides a unique experimental case for other countries.
Source: Bitcoin Office

MicroStrategy: All in on Bitcoin

In addition to sovereign nations, the publicly traded company MicroStrategy is undoubtedly the absolute representative in the Bitcoin "hoarding" field—its "buy, buy, buy" strategy for Bitcoin has long been a clear strategy, and the quantity held has already surpassed that of any sovereign nation's reserves in the public domain.

The earliest public announcement of MicroStrategy's Bitcoin purchases dates back to August 11, 2020, when it spent $250 million to acquire 21,454 BTC, with an initial purchase cost of about $11,652 per Bitcoin. It then began an unstoppable path of increasing its holdings, with the most recently disclosed purchase occurring on December 9, when it bought 21,550 BTC for approximately $2.1 billion, averaging $98,783 per Bitcoin.

As of December 8, 2024, MicroStrategy has acquired 423,650 BTC for about $25.6 billion, at an average price of $60,324 per Bitcoin, resulting in an unrealized loss of about $15.5 billion at the current price of $97,000.

Tesla: "Hodl" Bitcoin

On December 20, 2020, after MicroStrategy's Michael Saylor suggested that other CEOs follow his lead, Elon Musk expressed interest in purchasing Bitcoin for the first time. Shortly thereafter, in late January 2021, Musk changed his Twitter bio to #Bitcoin, and Tesla ultimately announced the purchase of $1.5 billion in Bitcoin in February 2021.

Subsequently, Tesla sold 10% of its Bitcoin holdings in the first quarter of 2021. According to Musk, this was "to test liquidity and prove that Bitcoin's liquidity is sufficient to serve as a cash alternative on the balance sheet."

According to Arkham data, as of the time of writing, Tesla's Bitcoin holdings amount to 11,509 BTC, valued at approximately $1.1 billion.

Source: Arkham

Other countries and mainstream enterprises/institutions: Bitcoin reserves are becoming mainstream

It is noteworthy that the strategic value of Bitcoin is gradually being transmitted from the national level to the corporate and institutional level. Although national reserve layouts directly influence the policy environment, enterprises are the main practitioners of adoption. Therefore, Bitcoin is not only a hedging tool but is gradually becoming a strategic component of corporate balance sheets.

Recently, tech giants like Microsoft and Amazon have also been actively urged by investors to incorporate Bitcoin into their balance sheets. MicroStrategy's founder Michael Saylor even directly suggested to Microsoft's board to invest in Bitcoin, believing that this move could significantly enhance corporate value and create long-term returns for shareholders.

Meanwhile, the conservative think tank National Center for Public Policy Research in the U.S. has also proposed that Amazon should invest 1% of its total assets in Bitcoin, aiming to enhance shareholder value through this approach and hedge against the risks of traditional currency devaluation.

From an objective perspective, incorporating Bitcoin into the balance sheets of mainstream institutions and traditional enterprises can indeed bring multiple advantages:

• Anti-inflation capability: The fixed scarcity of Bitcoin's total supply of 21 million endows it with strong anti-inflation properties, helping enterprises stabilize asset values in an environment of global monetary easing and fiat currency devaluation;
• Diversified investment portfolio: As an emerging asset class, Bitcoin provides enterprises with rich asset allocation opportunities, reducing reliance on a single asset class while enhancing overall financial robustness;
• Enhanced corporate brand and market image: Holding Bitcoin not only reflects a company's support for innovative technologies and future economic models but also enhances its competitiveness in the market, shaping a more forward-looking brand image;

However, in the process of incorporating BTC into balance sheets, enterprises need to address two key issues: how to securely custody large assets and how to efficiently complete OTC (over-the-counter) transactions to avoid market impact.

This makes professional custody and OTC service providers an indispensable part of the equation. For example, OSL, Hong Kong's first licensed exchange, offers custody services with independent wallet designs for each client, protected by a bankruptcy-isolated trust structure, ensuring the absolute security of enterprises'/institutions' BTC.

Additionally, OSL has partnered with leading insurance giants like Canopius to expand its insurance coverage to $1 billion, covering various risk scenarios that could lead to asset loss, including cyberattacks, fraud, and technical failures.

In terms of OTC, as a regulated licensed compliance platform, OSL benefits from close cooperation with major banks in Hong Kong, enabling near-instant fiat settlements, and ensuring strict mechanisms for deposits and withdrawals, significantly reducing the risk of bank account freezes.

Bitcoin in the next decade: Speculative asset or global strategic reserve?

Today, Bitcoin has grown from a marginalized asset to an emerging candidate for global strategic reserves. From sovereign nations to mainstream institutions/traditional enterprises, an increasing number of forces are redefining its role. Its scarcity, decentralized characteristics, and high transparency make it widely regarded as "digital gold."

Although its price volatility remains a focal point of debate, Bitcoin's adoption is advancing at an undeniable pace. If Trump's proposed "strategic reserve asset" concept comes to fruition, BTC's status will undoubtedly rival that of gold, and its strategic significance may even surpass that of gold:

While gold possesses physical scarcity, its distribution and trading rely on complex logistics and regulatory systems. In contrast, Bitcoin, based on blockchain technology, requires no physical storage or transportation, allowing for rapid borderless circulation. This characteristic makes it more suitable as a reserve asset for nations and institutions within the global financial system, bearing greater strategic responsibilities.

Against this backdrop, the potential of Bitcoin as a global strategic reserve asset will be fully unleashed in the next decade, and its application scenarios may further expand.

Whether it is a national-level "long-term hoarding" plan or a corporate/institutional "buy and hold" strategy, Bitcoin's global influence is expanding at an undeniable pace, with global national leaders and well-known companies like MicroStrategy, Microsoft, and Amazon even becoming the best advocates for Bitcoin, greatly enhancing global market recognition of cryptocurrencies.

From this perspective, service providers like OSL that offer "key bridge" digital asset financial services will undoubtedly play a crucial role in helping enterprises and institutions overcome the full-process challenges from custody to trading. As more enterprises/institutions and countries/regions lay out Bitcoin, the infrastructure construction in this field will undoubtedly play a more important role in the future.

"The light boat has passed through ten thousand mountains." Whether Bitcoin can become a strategic reserve asset for the U.S. or other countries in the next four years, it has already won an important victory on the road to adoption.