(NewsNation) — The price of bitcoin is up after President Donald Trump announced plans to move forward with a new strategic reserve of cryptocurrencies that would hold a variety of digital assets.

Trump said in a post on Truth Social that his administration is working toward a “U.S. Crypto Reserve,” which would include popular cryptocurrencies like bitcoin and ether but also three lesser-known cryptocurrencies: XRP, solana and cardano.

“I will make sure the U.S. is the Crypto Capital of the World,” the president wrote on social media Sunday.

Trump pledged support for a “strategic national bitcoin” stockpile on the campaign trail but Sunday’s post is the first indication he wants other types of cryptocurrencies to be included.

The announcement immediately boosted crypto prices, which had pulled back after soaring following Trump’s re-election. The price of bitcoin dipped below $80,000 last week but shot up to more than $90,000 following the president’s post.

David Sacks, an entrepreneur and Trump’s AI and Crypto Czar, said more details will be revealed on Friday during the first White House Crypto Summit.

What is bitcoin?

Bitcoin, which has been likened to “digital gold,” is the largest and oldest cryptocurrency, a form of digital money that can be traded online without relying on traditional banks.

Trump has argued that a reserve would help the U.S. dominate the global crypto market, however, it’s still unclear what a strategic crypto reserve would actually look like. The president offered no details on how it would be funded, how big it would be and when it might launch.

Trump issued an executive order in January directing his administration to create a “working group” to look into a “national digital asset stockpile.” The order suggests the reserve would be “potentially derived” from cryptocurrencies the government seized through its law enforcement efforts.

A more controversial proposal would involve the government buying up large amounts of bitcoin to hold it as a reserve.

At the federal level, Sen. Cynthia Lummis, a Republican from Wyoming, sponsored a bill that would form a strategic bitcoin reserve and require the government to buy one million bitcoin over five years. The BITCOIN Act hasn’t gained traction so far.

Talks of a strategic bitcoin reserve are also happening at the state level. Strategic crypto reserve bills have been introduced in 24 states so far, according to database Bitcoin Laws. Several have already failed, and none have been enacted into law.

The state and federal proposals have focused on bitcoin, not other cryptocurrencies as Trump has now suggested.

Proponents of a strategic bitcoin reserve say it could be a hedge against inflation and allow the U.S. to remain at the forefront of financial innovation. Meanwhile, critics worry the asset is too volatile and fear promoting it could chip away at the dollar’s reserve currency status.

What are the potential benefits of a strategic bitcoin reserve?

A strategic bitcoin reserve is exactly what it sounds like — the U.S. would keep a large amount of the cryptocurrency and hold it as a reserve.

National reserves are meant to act as a buffer against market volatility. The Strategic Petroleum Reserve — the world’s largest stockpile of emergency crude oil — is one well-known example, but the U.S. also has reserves of gold and emergency medical supplies.

The Lummis plan would kick off a bitcoin purchasing program to acquire approximately 5% of the total bitcoin supply over time.

If that happens, bitcoin’s value could surge to new heights, and Lummis thinks her proposal can help reduce the national debt, though that’s questionable.

The Bitcoin Policy Institute (BPI), a bitcoin research and advocacy organization, recently made the case for a strategic bitcoin reserve, arguing it would ease fears of currency devaluation and strengthen the credibility of the U.S. financial system.

BPI said that embracing bitcoin would also allow the U.S. to gain an advantage over adversaries attempting to undermine America’s dollar dominance.

“While China and Russia double-down on analog gold, the U.S. can countermove to digital gold,” the BPI report said.

One of the main arguments in favor of bitcoin is that its limited supply protects it from the inflationary pressures other currencies face. Only 21 million bitcoin can ever be mined and nearly 19.9 million are already in existence. In theory, if market demand remains strong, bitcoin’s price could be propelled long-term.

What are the risks?

Bitcoin may be up over the past few days, but price swings are a major concern.

After climbing to nearly $69,000 in November 2021, bitcoin’s price fell to about $33,000 in January 2022, losing more than half of its value in just a few months. After the collapse of Sam Bankman-Fried’s FTX, bitcoin fell below $17,000 in late 2022.

That volatility presents a risk to the U.S. government, which could incur significant losses if bitcoin fails to go up in value. Other cryptocurrencies are considered even riskier.

Those fears are amplified by the fact that bitcoin isn’t a tangible asset like gold.

“In the absence of any fundamentals, (cryptocurrencies) are driven entirely by supply and sentiment-driven demand,” James Mackintosh of The Wall Street Journal noted in a November column.

Eswar Prasad, a senior fellow at the Brookings Institution, shares that concern.

“Bitcoin, in particular, has essentially become a purely speculative financial asset, whose value seems to hinge solely on its scarcity rather than any useful purpose it serves,” Prasad wrote in a New York Times op-ed.

Others, like the Atlantic Council’s Ananya Kumar, point out that stockpiling bitcoin doesn’t make much sense compared to a petroleum reserve.

“Oil is one of the basic inputs that powers our economy and daily living — crypto is not,” she wrote.

Kumar added: “Holding a bitcoin reserve would be the equivalent of the government holding a lot of iPhones in case it needed to intervene to reduce iPhone prices in the future. It is not a crucial commodity or input in our economy.”

Will bitcoin replace the dollar?

While more companies have started accepting cryptocurrency as a form of payment, bitcoin is unlikely to replace the dollar any time soon.

Even if every consumer and business had access to it — which they currently don’t — bitcoin’s unstable value makes it hard to imagine as a widespread medium of exchange.

Prasad put it like this: “It is as though your $10 bill could buy you a beer on one day and a bottle of fine wine on another.”

Price swings aren’t the only problem. Bitcoin also has high transaction fees and slow processing times, rendering it “ineffective as a means of payment,” Prasad noted.

The dollar has been the world’s main reserve currency since the end of World War II and is still the most widely used currency for international trade.

With that said, recent geopolitical shifts have put the dollar’s dominance at risk, prompting some nations to consider alternatives. Over time, digital assets like bitcoin have the potential “to significantly alter the currency landscape,” according to a Morgan Stanley report.

“These innovations, while still in their nascent stages, hold opportunities to both erode and reinforce the dollar’s hegemony in global finance,” wrote Andrew Peel, head of digital asset markets at Morgan Stanley.

An October J.P. Morgan analysis warned about “de-dollarization” but said a “meaningful erosion of dollar dominance” would likely take decades.

The Associated Press contributed to this report.