Former Federal Reserve Bank of Atlanta Vice President Gerald Dwyer weighs in on the recent Strategic Bitcoin Reserve Executive Order.
A federal government executive order on March 6, 2025 created a Strategic Bitcoin Reserve and a United States Digital Assets Stockpile. The Strategic Bitcoin Reserve currently will hold all bitcoin held by the federal government, mostly if not entirely due to criminal and civil asset forfeitures. The Digital Assets Stockpile will hold all other digital assets acquired by federal government agencies. These holdings will be managed by an office in the Department of the Treasury. Additional asset forfeitures will result in additions to the reserve and stockpile. No provision is made for selling the bitcoin or other digital assets.
What are the implications of this order for the government’s asset holdings? Bitcoin is characterized in the executive order as “digital gold” and the Digital Assets Stockpile is intended to be a “secure account for orderly and strategic management of the United States’ other digital asset holdings.”
The Strategic Bitcoin Reserve has been anticipated since President Trump’s announcement of his desire to create such a reserve at Bitcoin 2025 in July 2024 and his subsequent election. Aside from the obvious implication that less bitcoin will be available to be bought and sold by others, what are the implications of this reserve? Given the current lack of details concerning other digital assets, it is not possible to say much about other digital assets. It is quite possible to say more about the implications of holding bitcoins.
Are there benefits to diversifying the federal government’s assets into bitcoin? The most obvious comparison is to the government’s holdings of gold, called the U.S. Government’s Gold Reserve. If the federal government will keep holding gold, does it make sense to hold bitcoin as well. The short answer is: yes.
Diversification of holdings is a basic lesson from modern financial theory. It can be summarized as the old adage: Don’t put all your eggs in one basket. Not surprisingly, it is more complicated than that for financial assets. But the basic message is the same. Holding assets besides gold provides insurance against bad outcomes.
The federal government has substantial holdings of gold and other assets. Many of them are not likely to be sold, such as its large real estate holdings and equipment. Most of the federal government’s large land holdings in the United States are not likely to be sold, at least any time soon. It is not so far-fetched to think about the federal government disposing of assets such as office buildings, which has come up in the context of recent discussions associated with the Department of Government Efficiency (DOGE). In that case, the risk of changes in their value is pertinent. Without a lot more information, there is little more that can be said about these assets.
The federal government holds a large amount of gold. This mostly is a hangover from the gold standard and subsequent monetary arrangements. The federal government held 261.5 million troy ounces of gold at the end of 2024. The price of a troy ounce of gold at the end of 2024 was $2610.85 on the London Bullion Market Association. The implied value of the gold stock held by the Treasury is $682.7 billion. This is not large compared to the federal government’s marketable debt of $27.7 trillion. Still, it also is not trivial even compared to the government’s debt.
Gold is a relatively risky asset. A standard way of measuring the risk of an asset is by the standard deviation, a measure of the volatility of an asset’s return. A standard deviation reflects the deviations of an asset’s return from its average value. The standard deviation can be measured over different time periods. For long-term holdings, a reasonable period is variation across years. Treasury bills – short-term securities issued by the federal government – are in one sense risk-free: whatever the federal government promises to pay, it will pay that number of dollars. On average from January 2015 to December 2024, the federal government paid 1.8 percentage points per year. The return did vary over time though, and the standard deviation of the return on one-month Treasury bills over the ten years from 2015 through 2024 is 6.8 percentage points per year. Is this large or small? This standard deviation can be compared to the standard deviation, also called volatility, of stocks over the same period. The volatility of the return for a portfolio consisting of all stocks in the United States is 16.1 percentage points per year. A portfolio of U.S. stocks has quite a bit higher volatility than a portfolio of one-month Treasury bills over the same period. The return on stocks compensates for the higher risk by stock’s much higher return of 11.4 percentage points per year.
Gold is hardly risk-free and had an annual return of 7.3 percent from 2015 through 2024, higher than the return on low-risk Treasury bills and lower than the return on stocks in the United States. Its volatility of 12.6 percent per year was lower than the 16.1 percent volatility of stocks. It was quite a bit higher than the volatility of the return on Treasury bills. The federal government could sell its gold and lower its outstanding debt. Taken in isolation from other assets, the federal government can be thought of as issuing relatively low-risk debt to finance its holdings of gold.
The federal government does not seem disposed to sell its gold holdings. There is a relatively simple way to improve its portfolio if is not going to sell its gold. The federal government can diversify its assets and not put all its eggs (assets) in one basket (gold).
The executive order adds bitcoin to its portfolio. Bitcoin is riskier than gold. It might seem that adding much bitcoin to its portfolio will add to the risk, but bitcoin also has a higher return than gold because it is riskier than gold.
A portfolio of gold and bitcoin can have a higher return than holding gold alone with little or no increase in risk. Bitcoin had a return of 75.5 percent per year from 2015 through 2024. That is quite high, and it is hard to imagine that it will continue. The volatility of the return also was quite high: 407.4 percent per year. The return and volatility of the return on bitcoin dwarfs the return and volatility of the return on gold.
The effect on the volatility of the federal government’s asset holdings depends on the correlation of bitcoin’s return with the return on gold. That correlation is 0.276. To provide perspective, the correlation would be one if bitcoin and gold always went up and down proportionally. If the returns on bitcoin and gold went up and down independently, the correlation would be zero. The returns on bitcoin and gold do tend to go up and down together but many times one is going up when the other is going down. A portfolio of bitcoin and gold has a return that is an average of the two returns. Many times when gold’s price is going down, the price of bitcoin is rising. The higher return on bitcoin would partly offset the lower return on gold. Similarly, when bitcoin’s price is going down, the price of gold often is rising.
The federal government is estimated to hold about 207,000 bitcoins due to seizures by law enforcement. At recent prices of about $90,000 per bitcoin, these bitcoins are worth $18.6 billion. A portfolio of the current holdings of gold and 207,000 bitcoins implies that bitcoin is about 2.7 percent of the value of the current portfolio of bitcoin and gold.
Given the current fraction of the portfolio and past returns, the return on holding bitcoin and gold for the next year would be 9.2 percent instead of gold’s average return of 7.3 percent per year. A two percentage points higher return is a solid improvement. The return on either gold or bitcoin is not guaranteed. The volatility of that return is 16.6 percentage points per year, which means that the portfolio is riskier with bitcoin added but not dramatically riskier than gold alone.
While it is possible to simply hold these assets over the years, the portfolio’s value eventually will consist almost entirely of bitcoins if bitcoin’s price continues to increase faster than gold’s price. A portfolio of one percent bitcoin at the start of 2015 would have been 97.4 percent bitcoin by 2024. It would look prescient to have done this over this period because bitcoin appreciated so much.
A balanced approach to managing the federal government’s bitcoin and gold holdings is one way to increase returns while not dramatically increasing associated risk. However, if the purpose of holding bitcoin is to generate a higher return, it will be important to think about when to realize some of those gains by selling bitcoin, gold or both.
