The rise and fall and rise again of Bitcoin

Donald Trump was once a crypto sceptic. Now his re-election has sent the volatile price of Bitcoin sky-high.

Donald Trump used to be a crypto sceptic, but now his re-election campaign is sending the volatile price of bitcoin sky-high.

Key points:

Some analysts expect the value of bitcoin to keep rising, particularly if the US government is using taxpayer money to purchase large amounts of the cryptocurrency.

One of the best-known examples is the US Strategic Petroleum Reserve (SPR), an emergency stockpile of crude oil that was created by Gerald Ford's government in 1975.

At this stage, the most concrete proposal for a bitcoin reserve comes from a pro-crypto junior Republican senator called Cynthia Lummis.

It's no secret that Donald Trump was dead against bitcoin and cryptocurrencies a few years ago.

During his first term as US president, Mr Trump said cryptocurrencies are "not money", and that its value was "highly volatile and based on thin air".

"For too long, our government has violated the cardinal rule that every bitcoiner knows by heart: Never sell your bitcoin," he said at the time.

But fast forward to 2024, and the Republican politician has changed his tune.

During his re-election campaign, Mr Trump was the headline speaker at a bitcoin convention. He launched his own crypto venture (called World Liberty Financial) and received millions of dollars in donations (in the form of bitcoin, ether and XRP) from supporters, including a handful of pro-crypto billionaires.

Since pledging to make America the "crypto capital of the planet", Mr Trump's promises to enact pro-cryptocurrency policies have helped push the value of bitcoin to new records (as high as $US108,000 ($173,000) in mid-December).

Mr Trump has also appointed cryptocurrency advocates to key roles in his administration.

However, one of Mr Trump's more controversial policies is the creation of a "strategic bitcoin reserve" — which would essentially require the US to stockpile bitcoin and hold onto it for a substantial period of time.

At this stage, there isn't much detail on what a strategic reserve would look like. Some analysts expect the value of the highly volatile cryptocurrency to keep rising, particularly if the US government is using taxpayer money to purchase large amounts.

What is a strategic reserve?

When people talk about "strategic reserves", they're most likely thinking about oil.

One of the best-known examples is the US Strategic Petroleum Reserve (SPR), an emergency stockpile of crude oil that was created by Gerald Ford's government in 1975.

This was in response to the Arab oil embargo, which caused great damage to the US economy (with petrol prices, inflation and unemployment surging).

More recently, in 2022, these crude stockpiles came in handy — when the Biden administration released a record 180 million barrels from the SPR to dampen the impact of an oil price spike caused by Russia's invasion of Ukraine.

China also has strategic reserves, containing millions of tonnes worth of copper, aluminium, zinc and other metals that are crucial to its property and tech industries.

Canada also gets a special mention for being the only country to have a maple syrup strategic reserve — the supply of which fell to 3.1 million kilos last year, its lowest in 16 years.

The idea is that these commodity stockpiles can be released during emergencies, to minimise the impact of supply shortages and inflation shocks.

It's quite clear that bitcoin, which has only been in existence for 15 years, has nothing in common with oil, industrial metals and maple syrup.

While a backup supply of oil, for example, can be used as fuel for tanks and fighter jets during national emergencies, the usefulness of bitcoin as an emergency resource is questionable.

And while the government buying bitcoin could help crypto investors by driving up prices, its benefits to the economy are harder to discern.

The practicality of a bitcoin reserve

Mr Trump told a crowd of supporters at the Nashville Bitcoin Convention in May that the US government would never sell off its bitcoin holdings if he won the election.

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"For too long, our government has violated the cardinal rule that every bitcoiner knows by heart: Never sell your bitcoin," he said at the time.

But the United States already owns around 200,000 bitcoin tokens worth more than $US21 billion ($33.6 billion).

It was the result of the US government seizing bitcoin from criminal syndicates, including its high-profile shutdown of illegal drug marketplace Silk Road.

At this stage, the most concrete proposal for a bitcoin reserve comes from a pro-crypto junior Republican senator called Cynthia Lummis. (She previously interviewed for the role of Mr Trump's interior secretary, but was unsuccessful.)

In July, she circulated a bill in Washington