Senator Lummis proposes swapping Federal Reserve’s gold for Bitcoin reserves

Senator Cynthia Lummis has a plan. In a sweeping move that would upend the U.S. financial status quo, the Wyoming Republican wants the Federal Reserve to trade part of its gold stash for Bitcoin.

That’s right — ditch gold, buy Bitcoin. The idea, which Lummis plans to introduce in Congress next year, would create a strategic Bitcoin reserve for the United States, without adding a single dollar to the national debt. The goal is to accumulate one million Bitcoin—5% of all the Bitcoin in existence. At today’s prices, that’s $90 billion.

The bill—dubbed the BITCOIN Act (Boosting Innovation, Technology, and Competitiveness through Optimized Investment Nationwide)—would create a national Bitcoin reserve held for a minimum of 20 years.

Trump has reportedly already warmed up to the concept, seeing it as an investment that could, theoretically, appreciate in value over the long haul and help reduce the national debt.  

Trump’s push for a Bitcoin Reserve

Trump himself has shown an interest in a Bitcoin reserve, but his version is a bit lighter. He wants the government to hold on to the roughly 200,000 Bitcoin it already has through various asset seizures, not to go on a $90 billion shopping spree.

But the political reception is lukewarm. As it stands, the bill has zero co-sponsors, and some analysts are quick to remind the crypto crowd of Bitcoin’s volatility.

So there’s also some market skepticism. Michael Novogratz, head of Galaxy Digital and one of the biggest names in crypto, has his doubts. “I don’t think the U.S. will set up a Bitcoin reserve anytime soon,” he said. But he did add that if they did, Bitcoin’s price could skyrocket to $500,000 as other countries might feel the need to jump in and set up their own stockpiles. 

The gold vs. Bitcoin standoff

For Lummis’s plan to work, the Fed would need to unload some gold. The Fed’s gold certificates are currently valued at a statutory price of $42.2222 per ounce—a price locked in since 1973. That valuation puts the gold reserve at around $11 billion on the books, a far cry from its real value at today’s market prices.

If marked to current rates, the gold stash would be worth roughly $675 billion, more than enough to make Lummis’s Bitcoin purchase without depleting the country’s gold supply. But dumping government gold? That could shake up the market and potentially drive gold prices down.

And then there’s timing. The bill will hit the floor in a crypto-friendly Congress. The recent elections saw a lot of pro-crypto lawmakers make their way to Capitol Hill, giving the industry a fighting chance.

GOP newcomer Bernie Moreno, a Bitcoin backer who defeated Sherrod Brown in Ohio, brings crypto enthusiasm to the Senate, too. Brown’s ousting was backed by $40 million from the pro-crypto super-PAC Fairshake, which spent around $135 million in total to support crypto-friendly candidates. 

Crypto advocates see this Congress as their best shot, but it’s far from a sure bet. The crypto-based prediction platform Polymarket currently gives only a 31% chance that Trump will actually create a Bitcoin reserve. Still, Lummis is pushing forward, hoping the support will come.

Market shows signs of cooling

Trump’s election victory over Kamala Harris sent Bitcoin prices soaring, hitting record highs way above $93,000. Yet the markets are starting to show cracks. K33 Research reported a decline in the premium on CME-listed Bitcoin futures—contracts favored by institutional investors.

CME basis has dropped from 13-16% to around 10%, indicating a potential cooling off. Open interest in put options with an $80,000 strike price has also surged, signaling a cautious mood among investors.

At the time of writing, Bitcoin is trading at around $89,350, down from the peak of $93,462. Market analysts point to leveraged bets and profit-taking as the culprits behind the slowdown. Data from Coinglass shows that liquidations of bullish positions have been twice as high as bearish positions, with long liquidations at $447 million and short liquidations at $207 million. Traders are taking profits, especially around the $90,000 mark.

Traders are also eyeing a potential rally, with options interest climbing for strike prices of $110,000 and $120,000, according to Deribit data. Offshore exchanges have seen funding rates go up on Bitcoin perpetual futures.