Strategic Crypto Reserve

Posted 16 Apr 2025

Updated 24 Apr 2025

4 min read

Why in the News?

The U.S. President signed an executive order establishing a Strategic Bitcoin Reserve (SBR) and the U.S. Digital Asset Stockpile to have a Strategic Crypto Reserve (SCR).

What is Cryptocurrency?

Cryptocurrency is a digital or virtual currency that uses cryptography for security and operates on decentralized blockchain technology.
Unlike traditional fiat currencies, cryptocurrencies are not controlled by any central authority such as a government or central bank.
Examples: Bitcoin (BTC), Ethereum (ETH), Ripple (XRP), Tether (USDT).

The below image gives key features of Cryptocurrencies.

About Strategic Crypto Reserve (SCR)

SCR is a government-held stockpile of cryptocurrencies maintained as part of national financial reserves to hedge against economic uncertainties, enhance financial sovereignty, and leverage blockchain technology for economic resilience.
Functions as a digital alternative to traditional reserves such as foreign exchange (forex) and gold.
The operational mechanics of a strategic cryptocurrency reserve remain to be fully defined,
- Some see similarities to the Strategic Petroleum Reserve, which serves as a way for the government to limit the impacts of petroleum supply disruptions.

Should India have a Strategic Cryptocurrency Reserve?

Arguments in favour

Diversification of National Reserves: Cryptocurrencies exhibit low correlation with traditional assets like gold, bonds, and equities, reducing portfolio risk.
Hedging Against Economic Shocks: Acts as a hedge against US dollar fluctuations and global monetary instability.
- Example; Reduces vulnerability to geopolitical shifts (e.g., sanctions, trade wars).
Cost-Efficient Remittances: Crypto transactions could slash remittance fees from 6.4% (global average) to less than 1%, saving India billions annually.
Technological Leadership: Leverages India's tech talent pool to innovate in blockchain and DeFi (Decentralized Finance).
High Return Potential: Historical crypto returns outpace traditional assets, offering asymmetric growth opportunities.
- Example: Bitcoin's 200X growth over a decade outperformed stocks like NVIDIA (50X) and Apple (10X).
Financial Sovereignty: Reduces reliance on external financial systems (e.g., SWIFT) and strengthens economic independence.

Arguments Against

Volatility and Market Risks: Extreme price swings (e.g., Bitcoin's 80% drop in 2022) could destabilize reserves.
RBI's Reservations and Policy Stance: The Reserve Bank of India (RBI) has repeatedly warned against the risks of cryptocurrency, citing financial instability.
- RBI favors a Central Bank Digital Currency (CBDC) over decentralized cryptocurrencies, seeing them as a threat to monetary sovereignty.
Regulatory Challenges: Conflicts with existing financial laws and the uncertainty of future regulations.
Security Vulnerabilities: Cyberattacks on crypto wallets or exchanges could lead to massive losses.
- Example: $600M Poly Network hack (2021).
Environmental Impact: Energy-intensive mining (e.g., Bitcoin's proof-of-work) conflicts with climate goals.
Adoption Barriers: Public scepticism and limited institutional trust in crypto as a reserve asset.
- Liquidity challenges in converting large crypto holdings to fiat currency.

Way forward for India

Start Small: Can allocate 1-2% of forex reserves ($6–12 billion) to crypto for controlled experimentation.
Build Regulatory Frameworks: Can learn from Singapore and Japan's balanced models to mitigate risks while encouraging innovation.
Leverage Tech Expertise: Can develop secure custody solutions and blockchain infrastructure using domestic talent.
Focus on Utility: Can prioritize crypto use cases like remittances and DeFi to drive real-world adoption.
Monitor Global Trends: Can align with evolving international standards (e.g., US Bitcoin ETFs, EU's MiCA regulations).