This is not a strategic reserve! A Government Bitcoin Hoard Makes No Sense


A strategic reserve is a stock of a systemically important inputwhich can be managed to mitigate economic disruption. The key example we all think of is the US Strategic Petroleum Reserve (SPR), created in response to the Arab oil embargo half a century ago. It was recently used to reduce pressure on energy prices after the Russian invasion of Ukraine. Inventories are essential to the economy: without oil, the economy will grind to a halt. On the other hand, not only is bitcoin not essential to the economy, but, according to the numbers, it has no use. So why would the United States need it, strategic or otherwise?

Strategic reserve proposals

While it’s not my place to comment on American policy, I can’t help but notice that there is a new president and one of the proposals he floated is a “strategic reserve” in which the United States would accumulate billions of dollars in assets. cryptocurrency. Senator Cynthia Lummis introduced the BITCOIN Act of 2024, which proposes that the U.S. Treasury establish this reserve by acquiring one million BTC over five years, with annual purchases of 200,000 BTC. This initiative positions Bitcoin as a strategic asset to protect against inflation, reduce the national debt, and strengthen U.S. financial leadership globally. A million bitcoins would cost around $100 billion at current prices: but if we knew that the US government a price-insensitive buyer the government could then easily acquire the coins at $1,000,000 per coin, creating a trillion-dollar reserve.

But what is such a reserve for? Bitcoin is useless. As a first approximation, bitcoin is only used for speculation (and I suspect some ransomware too). If Bitcoin disappears, it doesn’t matter. Planes will still fly, towers will still turn, corn will still be harvested. My point of view remains that Bitcoin holdings do not constitute a reserve at all, but rather could be characterized as a reserve, and it is fair to observe that economists consider such a reserve of little value to taxpayers but of great value to the “whales” crypto who hold the majority of it. Given that the cryptocurrency market is manipulated by these whales, it is not surprising that their sentiment is in favor of the government buying bitcoin.

One of their arguments for such action is that bitcoin is a form of digital gold and since the government holds real gold, it should sell some of it and replace it with a modern alternative . But this gold also has no use. Gold reserves (around a sixth of the world’s reserve assets) are no longer used to settle international accounts but serve as a hedge against exchange rate risk. The fact is that a large part of the world’s official gold reserves are held for no other reason than pure inertia. There is no benefit to replacing them with gold (or lithium, or water or anything else that might become rarer in the future).

(It doesn’t matter about national reserves, because some observers believe the creation of a strategic Bitcoin reserve is much more likely to happen first at the state level. Ten U.S. states have already proposed some form of reserve, (including a proposal in Texas to build a Bitcoin reserve simply by encouraging the state’s Bitcoin miners to pay their taxes in Bitcoin.)

The United States is not the only jurisdiction debating a Bitcoin reserve. Germany’s former federal finance minister pushed the European Central Bank (ECB) to consider adding Bitcoin to its reserves, one of Hong Kong’s lawmakers proposed incorporating Bitcoin into the country’s budget reserves and in Poland, a libertarian politician pledged to do so. Poland will become a crypto hub if elected president by creating a national Bitcoin reserve to position the country as a leader in crypto-friendly regulations and policies (although I have to be honest and say I don’t see the relationship between hiding cryptocurrencies and being a leader). in crypto-friendly regulations, whatever they may be).

In Switzerland, where I am currently in Davos, there will be a public referendum that could make the country the first to officially hold Bitcoin as a reserve asset. I have to say that it is not at all clear how the adoption of such a volatile and manipulated asset aligns with traditional Swiss characteristics such as stability and financial independence.

Pressure for a strategic reserve

Proposals to create a bitcoin reserve, in which the United States would store billions of dollars’ worth of bitcoins in a project that experts say has no value to taxpayers but could increase the value of the currency to the enrichment of major Bitcoin holders – seem far removed from the values ​​of the Bitcoin vanguard who disdained market manipulation by governments. It is reasonable to observe that if Bitcoin is “freedom money”, a tool of financial sovereignty, then perhaps its fundamental properties could be questioned as institutional actors. co-opt his story.

The push for a reserve has nothing to do with the original vision of peer-to-peer electronic money and freedom from censorship. Bitcoiners are excited because, as Brendan Greeley wrote in the Financial Times, if you held a portfolio of Andy Warhol paintings and someone in Washington offered a Warhol strategic stash, you’d be excited too.

As it stands, the cryptocurrency community were certainly disappointed that when President Trump took office, neither his inaugural address nor his first executive actions mentioned a strategic reserve of Bitcoin or, indeed, digital assets of any kind. In fact, the price of Bitcoin fell and, bizarrely, the price of the DOGE token rose after he declared the creation of the Department of Government Efficiency (DOGE), even though it has nothing to do with it .

With a new, seemingly more pro-crypto administration in place, I think I can safely predict at least one thing: the push for a strategic reserve is not going to go away, no matter what economists think.

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