Under Sen. Lummis' proposal, the US would convert gold certificates held by the Federal Reserve to today's fair market value before selling them and using the proceeds to buy bitcoin.

That's not inconsequential, Kumar said: "It is incredibly inflationary, and you're going to have to rethink how the Fed works. You're sort of adding a time component to all of this."

Other lingering questions remain, such as whether the US public — most of whom does not own bitcoin — will favor the idea.

Whatever the obstacles may be, investors are largely optimistic that a reserve is coming in the next year. According to the betting market Kalshi, there's a 64% chance it will happen before 2026.

But it might all depend on Congress, where support appears to be lacking right now, crypto billionaire Michael Novogratz said.

"While the Republicans control the Senate, they don't have 60 seats," the Galaxy founder told Bloomberg TV, while questioning the need for a reserve.

For those hoping that the incoming administration could create the reserve through executive action, it will require guardrails that may be too big for a presidential order to handle, Mason said.

"Who controls the balance? Who controls the ability to buy and sell?" he told Business Insider.

Congress will ultimately have to collaborate with the Federal Reserve and the Treasury, and it could take a while for that to happen. Both Kumar and Mason said they don't expect Capitol Hill to prioritize the reserve. Even in terms of crypto legislation, other bills will likely come first.

What would happen to bitcoin?

Novogratz predicted that the event would amount to such a paradigm shift that it would send bitcoin to $500,000. His forecast is based on the idea that other countries would feel pressured to follow suit and establish their own bitcoin reserves.

The same theory is why Matt Mena, crypto research strategist at 21Shares, previously told BI that bitcoin could soar to $1 million "almost overnight."

"Such a move would trigger a rush by other countries to front-run the US and their neighbors, spurring global competition to build reserves," he said over email. "In this scenario, Bitcoin's total market cap could easily surpass gold's."

Kumar doesn't expect the reserve's impact to be that direct. Crypto bulls may be taking an example from the fact that countries tend to have an oil reserve, and the price of oil can be impacted when they. add to or reduce their stockpile.

However, the difference is that oil is strategically important during major supply disruptions, while bitcoin's importance as an asset for governments to own is still being debated.

Read the original article on Business Insider