Aug 6 (Reuters) - "Never sell your bitcoin," Donald

Trump told a cheering crowd at a crypto convention in Nashville,

Tennessee in late July.

The Republican presidential candidate's speech was the

latest overture in his effort to court crypto-focused voters

ahead of November's election and offered a bevy of campaign

promises, including a plan for a state bitcoin reserve.

"If elected, it will be the policy of my administration to

keep 100% of all the bitcoin the U.S. government currently holds

or acquires into the future," Trump said, adding the funds would

serve as the "core of the strategic national bitcoin

stockpile."

Indeed, Trump isn't the only one with such a proposal. U.S.

Senator Cynthia Lummis has introduced legislation that would see

the U.S. government purchase one million bitcoin, around 5% of

total supply, while independent candidate Robert F Kennedy Jr

has suggested a government stockpile of four million bitcoin.

A strategic reserve would be one use for the massive amount

of bitcoin held by the U.S. government. The jury's out on what

it would be used for, whether it's feasible, or if it's even

welcome for the broader crypto market, though.

The U.S. government holds a bumper cache of crypto: around

$11.1 billion worth which includes 203,239 bitcoin tokens,

according to data firm Arkham Intelligence which said the pile

came from criminal seizures, including from online marketplace

Silk Road, which was shut down in 2013.

At current levels, the U.S. holds about 1% of overall global

bitcoin supply - which stands at about 19.7 million tokens,

according to Blockchain.com. Bitcoin's total supply is capped at

21 million coins.

To compare against big non-state investors, Michael Saylor's

Microstrategy ( MSTR ) holds about 226,500 bitcoin tokens, as

per second-quarter results. BlackRock's iShares Bitcoin Trust

and Grayscale Bitcoin Trust hold 344,070 and

240,140 tokens respectively, according to data site

BitcoinTreasuries.

A government bitcoin stockpile could shore up bitcoin's

price.

"It would have a positive impact on price. It would have to

because we've never had such a limited supply commodity, albeit

digital, assume a new state of a reserve asset," said Mark

Connors, head of global macro at Onramp Bitcoin.

Yet such a reserve also means fewer tokens for crypto

investors to trade with and could leave them exposed if the

government ever sold part of its reserves.

"RFK talked about having 19% of bitcoin, the same amount of

the gold supply - I can't imagine a single bitcoiner would be

happy about that," Connors added.

Governments besides the United States also boast bumper

hoards of bitcoin, with BitcoinTreasuries reporting China is the

second largest government holder, with 190,000 coins.

'A LOT TO FIGURE OUT'

While the prospect of a national bitcoin reserve is

uncertain, crypto watchers are nonetheless pondering what form

it could take.

Connors suggested the Federal Reserve could manage the

reserves for the Treasury Department, as it does with gold. On

the other hand, the stockpile could be more akin to the

Strategic Petroleum Reserve, where both the president and

Congress have varying amounts of control, according to Frank

Kelly, senior political strategist at asset manager DWS Group.

"There's a lot to parse and figure out there," Kelly said.

There's also an irony that jars with many true bitcoin

believers: the digital asset intended to be decentralized and

free of government control becoming part of a state reserve.

Regardless of what happens with a bitcoin stockpile, many

market players are happy enough to see crypto becoming a

significant campaign talking point.

"There's a general view in the industry that both parties

are paying much more attention to digital assets," said Rahul

Mewawalla, CEO of Mawson Infrastructure Group ( MIGI ) which

operates data centers for bitcoin mining.

"The expectation is that will continue post November."