The Federal Reserve has made it clear: holding Bitcoin (BTC) is off the table. Federal Reserve Chair Jerome Powell recently reiterated that legal and regulatory constraints prevent the central bank from adding Bitcoin to its reserves.
As the U.S. crypto landscape evolves, this statement highlights the cautious approach of the Fed and raises questions about the future of cryptocurrency in government policy.
Here’s a closer look at why the Federal Reserve won’t adopt Bitcoin and the broader implications for U.S. crypto policy.
Legal Barriers
Federal Reserve Act Restrictions
The Federal Reserve Act, which governs the central bank’s operations, limits its holdings to U.S. government bonds and other highly secure assets. Cryptocurrencies like Bitcoin fall outside this legal framework. Powell emphasized this during a recent press conference, stating:
“We’re not allowed to own Bitcoin. The Federal Reserve Act says what we can own, and we’re not looking for a law change.”
This stance eliminates any immediate possibility of Bitcoin integration into the Fed’s reserves. Unlike gold or other traditional reserves, Bitcoin’s speculative nature and lack of stability make it a contentious option for central banks.
Volatility Concerns
Bitcoin’s price volatility is another key issue. Powell has previously labeled Bitcoin as a “speculative asset,” unsuitable as a store of value or a stable medium of exchange.
The wild fluctuations in Bitcoin’s price—rising to $69,000 in late 2021, plunging below $17,000 in 2022, and now surging past $100,000—highlight the challenges of adopting it as a reserve asset.
Differentiating Bitcoin and CBDCs
While Bitcoin remains off the Fed’s radar, the central bank is actively exploring Central Bank Digital Currencies (CBDCs).
Powell and other officials have consistently distinguished between cryptocurrencies like Bitcoin and CBDCs, which are digital versions of fiat currency controlled by central banks.
CBDCs offer several advantages over Bitcoin, including stability, government backing, and regulatory control. These characteristics align more closely with the Fed’s objectives of maintaining monetary stability and reducing systemic risks.
Legislative Efforts and Resistance
Proposed Bitcoin Integration
Some lawmakers, like Senator Cynthia Lummis, have pushed for integrating Bitcoin into the U.S. financial system. Lummis’ Bitcoin Act aims to pave the way for broader adoption of Bitcoin, including government-held reserves. However, these proposals face significant opposition due to concerns about crypto’s regulatory gaps and potential misuse in illegal activities.
Trump’s Bitcoin Reserve Proposal
President-elect Donald Trump has taken a starkly different approach, announcing plans to establish a national Bitcoin reserve. This initiative would involve the U.S. government acquiring significant Bitcoin holdings, potentially starting with assets seized in criminal cases.
Trump’s plans have already sent shockwaves through the cryptocurrency market, driving Bitcoin prices to over $100,000.
The appointment of David Sacks as AI and crypto czar further signals a shift toward integrating digital assets into U.S. economic strategy. However, this policy direction diverges sharply from the Fed’s conservative stance, setting up potential tensions between federal agencies and the executive branch.
Implications for the Crypto Market
The Fed’s refusal to hold Bitcoin reflects its cautious approach to cryptocurrencies. However, Trump’s proposed Bitcoin reserve and other legislative efforts could reshape the crypto landscape in the U.S.
If the U.S. government begins to stockpile Bitcoin, it could legitimize the asset and potentially drive its adoption globally. On the other hand, the Fed’s focus on CBDCs suggests a parallel path where traditional monetary systems adapt to the digital age without embracing decentralized cryptocurrencies.
The coming years could see a tug-of-war between conservative financial policies and bold crypto initiatives, with significant implications for both investors and the broader market.
