Background and context
- Bitcoin’s scarcity and security. The White House explains that Bitcoin’s protocol permanently caps the supply at 21 million coins and it has never been hacked. Because of this scarcity, Bitcoin is often called “digital gold”. The March 6 2025 executive order establishing a U.S. Strategic Bitcoin Reserve notes that there is a strategic advantage to being among the first nations to build a reserve because Bitcoin’s fixed supply makes it a unique store‑of‑value asset .
- Purpose of the U.S. Strategic Bitcoin Reserve (SBR). A primer from the law firm Davis Wright Tremaine (DWT) explains that the BITCOIN Act aims to contribute to economic stability, provide a hedge against monetary instability and encourage integration of digital assets into the U.S. financial system . The reserve could help pay down national debt and provide geopolitical flexibility because Bitcoin is a deflationary asset that can help protect against excessive inflation . It also diversifies government reserves .
- Existing reserves and other countries. DWT notes that other countries are already accumulating Bitcoin. El Salvador holds Bitcoin in reserve and Bhutan keeps mined Bitcoin in a state‑owned operation; China holds large amounts of Bitcoin that authorities seized in criminal cases . According to news reports, Chinese authorities have confiscated roughly 194 000 BTC (about $16 billion) from fraud cases. Local governments have been selling some of these coins offshore because domestic crypto trading is banned, yet experts propose that China’s central bank could manage seized assets or build a crypto reserve instead .
- Speculation about China’s own reserve. Cointelegraph reports that China seized nearly 195 000 BTC from the PlusToken Ponzi scheme and may still hold it. Observers suggest that China could create a reserve rivaling the U.S. if those coins have not been sold . Although China has not officially disclosed its holdings or plans, the speculation illustrates the geopolitical significance of Bitcoin reserves.
Economic rationale for holding Bitcoin reserves
- Hedge against inflation and monetary instability. Countries view Bitcoin reserves as a hedge against inflation and geopolitical uncertainty because Bitcoin is not controlled by any central bank. A Bitpace analysis notes that nations are exploring Bitcoin reserves to protect value because the asset’s limited supply prevents dilution and its decentralised network reduces the risk of currency devaluation and government intervention . The U.S. BITCOIN Act emphasises that Bitcoin’s deflationary nature can help stabilise the dollar’s value in times of stress .
- Diversification and economic sovereignty. Holding Bitcoin diversifies national reserves away from gold and fiat currencies. Bitpace points out that a Bitcoin reserve promotes economic sovereignty by reducing reliance on external monetary policies and global reserve currencies . DWT similarly notes that a Bitcoin reserve would diversify the government’s reserves and provide an innovative hedge against monetary instability .
- Potential for high long‑term returns. Although Bitcoin is volatile, DWT argues that long‑term returns have been extremely strong—approximately 400 % over four years, 2 500 % over six years and 9 900 % over eight years. These returns mean short‑term volatility may be acceptable if the reserve is managed with a long‑term horizon . Volatility risks can be hedged using financial instruments .
- Transparency and auditability. Bitcoin is stored on a public blockchain, which means the entire country could audit the reserve at any time. DWT notes that public tracking of reserve movements would ensure security and accountability on a scale unseen with gold or oil reserves .
- Network effects and adoption. Bitcoin’s network effect means that increasing adoption makes the asset more valuable. DWT points out that Bitcoin supply is limited to 21 million coins; with 19.9 million already mined, the supply–demand curve is likely to favour long‑term value appreciation . Corporate adoption—from MicroStrategy and Tesla to PayPal and Bitcoin ETFs—helps accelerate its mainstream use . Adoption by nation‑states, such as El Salvador and Russia, further builds momentum .
Cross‑border payment benefits
- Lower transaction costs and frictionless trade. Research from Georgetown University explains that blockchain‑powered cryptocurrency offers a digital cross‑border payment option that lowers payment costs and mitigates friction in less‑developed financial markets . Cryptocurrencies can substitute for or complement traditional banking systems, especially in countries with underdeveloped payment infrastructure . Using Bitcoin for settlement could make cross‑border transactions between the U.S. and China faster and cheaper compared with traditional banking channels.
- Financial inclusion and resilience. The same study notes that cryptocurrencies help people who are underserved by traditional banks and can provide direct access to financial tools, bypassing conventional infrastructure . This attribute is particularly relevant for facilitating trade and remittances between the U.S. and China’s large overseas communities.
- Need for coordinated regulation. Cryptocurrencies pose risks such as money‑laundering, and Georgetown University stresses the importance of coordinated regulation and anti‑money‑laundering (AML) standards . A joint reserve initiative could incorporate shared regulatory frameworks, demonstrating responsible stewardship.
Benefits of a
joint
U.S.–China Bitcoin reserve
- Shared leadership in digital finance. By collaborating on a Bitcoin reserve, the world’s two largest economies could shape global standards for digital asset custody, auditing and regulation. A joint reserve would demonstrate that cryptocurrencies can be incorporated safely into national reserves, encouraging other nations to adopt consistent frameworks.
- Enhanced market stability. Coordinated purchases and policies would reduce the risk of a nation‑state “Bitcoin arms race”. Pooling a portion of the U.S.’s and China’s Bitcoin holdings (already substantial in both countries ) would create a larger, more stable reserve that can be used to smooth market volatility and support liquidity during crises.
- Diversified geopolitical hedge. Bitcoin reserves provide a hedge against inflation and potential de‑dollarisation . A joint reserve would allow both nations to reduce vulnerability to monetary policy shifts and sanctions regimes while signalling commitment to a shared digital future.
- Cross‑border payment corridor. Incorporating Bitcoin into trade settlements could reduce transaction costs and accelerate payments. Georgetown research shows that blockchain‑based payments reduce cross‑border friction . A jointly managed reserve could pilot cross‑border settlement projects that complement existing payment systems and support bilateral trade.
- Transparency and trust. The public blockchain allows any party to audit the reserve’s balance . Joint custody and transparent reporting would build trust between the U.S. and China at a time when bilateral relations are strained. This transparency could also reassure global markets.
- Risk sharing and technological cooperation. Managing a large digital reserve requires advanced cyber‑security, risk‑management and custody solutions. Collaboration would enable the U.S. and China to share best practices and technology, improving the security of both countries’ digital assets. It would also create opportunities for joint research in cryptography, distributed ledger technology, and digital payment infrastructure.
Conclusion
Bitcoin’s fixed supply and deflationary nature make it an attractive reserve asset. The U.S. has already moved to establish a Strategic Bitcoin Reserve, citing scarcity, inflation hedging and diversification benefits . China holds a large quantity of seized Bitcoin and could use it to build its own reserve . Beyond economic returns , a joint U.S.–China Bitcoin reserve offers strategic advantages: it would reduce inflation risk, diversify away from fiat dominance, lower cross‑border transaction costs, promote financial inclusion, and foster trust through blockchain transparency. By cooperating on digital assets, the two nations could set the standards for responsible cryptocurrency adoption and pave the way for a more resilient, interconnected global financial system.