WASHINGTON, Jan 24 (Reuters) -

President Donald Trump ordered the creation of a

digital asset working group

on Thursday which, among other things, would be tasked with

exploring a U.S. cryptocurrency stockpile.

He has directed the group, by July, to turn in a report

addressing criteria for such a stockpile, potentially derived

from cryptocurrencies seized by the federal government.

Some market participants were disappointed Trump did not

immediately begin accumulating a bitcoin strategic reserve.

Here are some of the issues at hand:

WHAT IS A STRATEGIC RESERVE?

A strategic reserve is a stock of a critical resource that

can be released at times of crisis or supply disruptions. The

best-known example is the U.S. Strategic Petroleum Reserve, the

world's largest supply of emergency crude oil, which was created

by an act of Congress in 1975 after a 1973-74 Arab oil embargo

throttled the U.S. economy. Presidents have tapped the stockpile

to calm oil markets during war or when hurricanes hit oil

infrastructure along the U.S. Gulf of Mexico.

Canada has the world's only strategic reserve of maple

syrup, while China has strategic reserves of metals, grains and

even pork products.

HOW WOULD A U.S. STRATEGIC BITCOIN RESERVE WORK?

Trump's Thursday order shed little light on the scope or

structure of what may be under consideration. The working group

was directed to evaluate potentially deriving a stockpile from

cryptocurrency seized through law enforcement efforts.

Currently, that stands at around 200,000 tokens, worth about

$21 billion at market prices, according to

bitcointreasuries.net. It remains unclear what the legal process

would be for moving them out of the Justice Department.

Trump has not said if the government would add to that

stockpile by buying more bitcoin in the open market and the

order offers no further specific instructions.

The most concrete bitcoin reserve proposal circulating in

Washington comes from pro-crypto Republican Senator Cynthia

Lummis, who personally holds five bitcoins.

In July she introduced a bill, yet to gain traction, that

would create a reserve operated by the Treasury.

The bill envisages that the Treasury would create a program

to buy 200,000 bitcoins annually for five years until the

stockpile hit one million tokens. This would represent about 5%

of the total global supply of bitcoin of around 21 million. The

Treasury would fund the purchases with profits on Federal

Reserve banks' deposits and gold holdings.

The bitcoin reserve would subsequently be maintained for a

minimum of 20 years.

WHAT ARE THE BENEFITS OF A BITCOIN RESERVE?

In a July speech, Trump suggested a bitcoin reserve would

help the U.S. dominate the global bitcoin market in the face of

growing competition from China.

Other proponents argue that by holding a stockpile of

bitcoin, which they say is likely to continue appreciating over

the long term, the U.S. could reduce its deficit without raising

taxes, strengthening the U.S. dollar.

In November, Lummis told Fox Business that her plan would

allow the United States to cut its debt in half in 20 years.

"What that does is help us protect ourselves against inflation

and protect the U.S. dollar on the world stage," she said.

A strong dollar would in turn give the United States more

leverage over foreign adversaries like China and Russia,

proponents say.

WHAT ARE THE RISKS?

Crypto skeptics say that, unlike most other commodities,

bitcoin has no intrinsic use and is not crucial to the

functioning of the U.S. economy.

Created in 2008, bitcoin remains too young and volatile to

presume its value will continue to rise in the long term, while

crypto wallets remain notoriously vulnerable to cyber attacks,

they also argue. And given its volatility, any government

purchases or sales could have an outsized impact on bitcoin's

price.