Original article by: Stefanie Wayco, Matthew Catani
Original translation: Vernacular Blockchain
President Donald Trump is moving toward a crypto-friendly executive direction. One clear sign of this was the appointment of David Sacks as the White House director of artificial intelligence and cryptocurrency.
The appointment has sparked widespread speculation about the role of the “head of crypto affairs”: How exactly will this role work? Will it have substantial policymaking power? Will it lead to a clearer regulatory framework? Will Sacks serve merely as an advisor without a formal government title or power? Or will this role promote the establishment of a new government crypto asset reserve?
A U.S.-backed cryptocurrency reserve could bring much-needed clarity to the digital sector — for example, which government agency would be responsible for regulating cryptocurrencies — paving the way for cryptocurrencies to be fully integrated into our daily consumption and investments and promoting the use of blockchain technology in larger government projects.
Bitcoin, the most widely known digital asset, has long been regarded as the industry standard. Trump publicly supports calls for the establishment of a strategic Bitcoin reserve.
The new administration has an opportunity to lead a new era that may be defined by innovation, digital credit, and global acceptance of Bitcoin and other cryptocurrencies, whether they are considered securities or commodities.
1. Digital Asset Diplomacy: How the Federal Reserve Uses Cryptocurrency
1) The role of the Federal Reserve
As the nations central bank, the Federal Reserve is responsible for managing monetary policy, controlling inflation, regulating financial institutions, ensuring the efficient operation of the payment system, and promoting consumer protection.
The Federal Reserves hallmark feature is its political independence, which allows it to focus on long-term economic stability. Part of its role requires close collaboration with other federal agencies, including the U.S. Treasury, the Securities and Exchange Commission (SEC), and the Federal Deposit Insurance Corporation (FDIC) to provide overall oversight and stability.
For example, the Fed works with the Treasury to manage government debt issuance and liquidity in bond markets; with the SEC to enhance the stability of financial markets; and with the FDIC to protect the safety of deposits and maintain the integrity of the banking system.
To achieve its goals, the Fed uses a variety of tools, including adjusting interest rates to affect borrowing costs, conducting open market operations by buying and selling Treasury securities, and setting reserve requirements to ensure banks maintain ample liquidity.
2) Vision of cryptocurrency reserves
Trump’s proposed cryptocurrency reserve plan—whether its goal is to enhance financial stability, curb inflation, manage the national debt, or promote innovation—will require strategic collaboration, with the Federal Reserve being the institution best suited to lead the process.
Similar to its role in managing traditional assets, the Fed’s involvement in a potential cryptocurrency reserve could determine its success, ensuring it aligns with broader fiscal and monetary goals.
Additionally, the new administration’s embrace of cryptocurrencies also demonstrates confidence in the Fed’s ability to manage cryptocurrency reserves.
A national cryptocurrency reserve could conceptually serve as a strategic asset, similar to traditional reserve assets such as gold. Proponents argue that a cryptocurrency reserve could reduce national debt and free up dollars for other uses while positioning cryptocurrency as a long-term financial asset.
This reserve can also serve as a stabilizing factor, providing reliability and credibility for overall trust in cryptocurrencies, regardless of whether the digital assets are classified as securities, commodities, or currencies.
2. Cryptocurrency as a commodity and the new gold standard
1) Historical background and standards
Financial standards play a key role in economic stability and consumer trust. Historically, systems such as the gold standard have provided a fixed framework for currency valuation, pegging national currencies to a specific amount of gold.
Under the gold standard, currencies were redeemable for gold at a fixed exchange rate, which provided stability and predictability to financial markets and trade. Central banks maintained gold reserves and limited the money supply to a level proportional to those reserves, promoting fiscal discipline.
Today, the U.S. government guarantees various securities through a system called “full faith and credit,” which guarantees their reliability even when there is no physical backing. This principle is that the government unconditionally promises to honor its obligations, thereby enhancing confidence in government-issued securities.
For consumers, full trust and credit enables investments in financial instruments such as government bonds to be backed by the governments ability to collect taxes or issue currency, thus providing a safe and stable form of credit and investment.
From a policy perspective, “full trust and credit” facilitates efficient government financing through debt issuance. This system supports critical projects such as infrastructure construction and emergency rescue programs while ensuring access to capital markets.
It also provides a foundation of trust in the broader financial system, supporting policies aimed at promoting economic growth and enhancing economic resilience.
2) Cryptocurrency Initiative: Towards Regulatory Clarity
Republican Senator Cynthia Lummis of Wyoming has been active in promoting the idea of a national Bitcoin reserve. [1] Her plan envisions accumulating 1 million Bitcoins over 20 years to combat inflation and supplement the dollar.
The proposal includes converting Federal Reserve gold certificates into Bitcoin and establishing a strategic reserve with a 20-year minimum holding period.
The future cryptocurrency framework will need to address issues such as property rights, ownership protection, secure custody solutions, and most importantly, clarify which agency is responsible for regulating cryptocurrencies and when and how they are defined as securities or commodities based on the 1946 U.S. Supreme Court decision SEC v. Howey.
Loomis bill addresses these regulatory challenges by proposing a clearer distinction between securities and commodities to simplify compliance requirements for cryptocurrency companies. The bill includes specific funding mechanisms and a regulatory framework that transfers some crypto asset regulation from the U.S. Securities and Exchange Commission (SEC) to the U.S. Commodity Futures Trading Commission (CFTC).
With the rise of cryptocurrencies, courts have debated whether certain digital assets are securities or commodities. This ambiguity has led to a variety of different and confusing standards for the industry. [4] Therefore, a clearer overall regulatory framework for digital assets that can accommodate cryptocurrencies in an unambiguous manner is critical.
While the Howey test will still apply, this 1946 test is outdated for cryptocurrencies — something the courts at the time could not have foreseen.
While digital assets themselves are not necessarily securities, the new administration’s recognition of the entire crypto industry and its acceptance of cryptocurrency reserves may lead to the establishment of a new regulatory framework that clearly defines the boundaries between securities and commodities.
Clearer legal standards and frameworks will enable companies to better operate trading platforms to offer cryptocurrencies; make institutional investments more compliant; enable consumers to buy, sell and use digital assets with confidence; and promote overall trust and acceptance of cryptocurrencies.
3) Using the Strategic Petroleum Reserve as a model
The U.S. Department of Energy, through its management of the Strategic Petroleum Reserve (SPR), demonstrates how government maintenance of commodity reserves can influence markets and policy.
Although the SPR is primarily targeted at energy companies and indirectly affects a broad range of consumers, which is different from the cryptocurrency industry, its management model can serve as a basic model for building cryptocurrency reserves.
The SPR is used to stabilize oil prices, balance budget deficits, and generate revenue while providing leverage in global markets. Similar to the impact of the SPR on energy markets and inflation, cryptocurrency reserves may have a similar effect on digital asset markets and monetary policy.
In day-to-day operations, the Department of Energy manages the SPR, but the President can issue directives for reserve releases. Congress can also authorize the sale of oil from the SPR to finance government spending or to respond to emergencies and legislative needs, such as scheduled sales to influence reserve levels.
The SPR thus influences financial and monetary policies, including stabilizing oil prices, energy commodities, and inflation expectations.
Likewise, cryptocurrency reserves can stabilize cryptocurrency markets, combat economic instability, and drive global adoption of cryptocurrencies. Just as Congress authorized SPR sales to fund government programs, legislative requirements could also dictate the use of crypto reserves.
If a Bitcoin reserve were established, the Fed would play a role similar to the SPR, while the CFTC could manage the underlying assets and become a regulatory and governance body, just like the Department of Energy.
The Federal Reserve will strategically influence crypto-related policies while managing and stabilizing the governments crypto-asset funds. It can also ensure that excess reserves are used to balance the budget and generate revenue, and protect the fundamental interests of consumers.
The Fed will also continue to set interest rates, borrow, and fund government programs while using cryptocurrencies as collateral.
Loomis’ bill states that the Treasury Department would play a role in managing and safeguarding the Bitcoin reserve, just as it currently does with the Federal Reserve.
The proposal for a decentralized treasury system managed by the Treasury Department could provide secure storage for the nation’s cryptocurrency reserves, resolving ownership and custody issues while ensuring transparency and accountability, in line with the public’s growing acceptance of full trust in cryptocurrencies.
3. Balance: efficiency, innovation and development
The idea of a national cryptocurrency reserve reflects a transformative vision for the U.S. economy that combines traditional financial principles with emerging digital technologies.
However, the evolution of cryptocurrency policy marks a significant shift, with Bitcoin’s original decentralized vision, for example, moving toward a more regulated, government-integrated future.
1) Challenge and balance
The challenge is to balance the historical ideals of decentralization while maintaining the efficiency of digital asset use, investment, and innovation for consumers. Although decentralization is at the core of the industry, its rapid development has reached a point where a certain degree of regulation and limited government intervention is needed to provide clear legal standards and consumer protection mechanisms. This need is particularly necessary under the new governments full trust in cryptocurrency policy.
To develop, it is necessary to establish rules of the game so that everyone can compete within the same framework.
By embracing cryptocurrencies, the new administration has the potential to develop a future characterized by innovation, stability, and global leadership in the digital asset space. Whether through federal programs, state-level efforts, or regulatory reforms, the United States has the ability to pioneer this new frontier with strategic vision and adaptability.
2) Continued uncertainty and global competition
Congressional concerns about economic stability and inflation make approval challenging, while public skepticism and regulatory uncertainty could hinder progress. Whether the new administration can find the right regulatory balance between efficiency and innovation will determine the success of the national cryptocurrency reserve and the entire U.S. crypto industry.
It is worth noting that as other countries develop cryptocurrency policies, the United States will face the risk of falling behind if it does not take proactive measures. Building cryptocurrency reserves and implementing supportive regulations can consolidate the United States leadership in the global crypto economy and promote innovation and investment.
3) American standards and global leadership
The United States has always been known for its high standards of consumer protection, data security and financial transaction rules, and is also a leader in the capital markets.
Therefore, if other countries take the lead in this field, the United States may face the risk of unstable policies and insufficient protection of digital assets. In order to consolidate its position as the global cryptocurrency capital, the United States should lead the industry with an attitude of full trust in cryptocurrency.
Note: Stefanie Wayco is a partner, Matthew Catania is a senior associate and Gregory Bailey is an associate at Duane Morris LLP.
