Lately, the concept of a Strategic Bitcoin Reserve (SBR) has sparked a lot of discussion among Bitcoin enthusiasts. While some, including former President Trump, have suggested keeping a reserve of confiscated Bitcoins, others have proposed more ambitious plans. For instance, Senator Lummis’ BITCOIN Act suggests that the US government should acquire 1 million Bitcoins over five years. However, I personally find it unlikely and undesirable. Let me explain why.
Stockpile, Sovereign Wealth Fund, or Reserve: What are we discussing?
Trump, in his pre-election speech in Nashville, proposed a “stockpile” of Bitcoins. He pledged to retain all Bitcoins currently held or acquired by the US government if he was elected. Although I fully support this stockpile idea, my focus is on the proposals for the US government to actively purchase additional Bitcoins. These proposals vary, with estimates ranging from acquiring approximately 800,000 BTC to 4 million BTC.
Many, including Senator Lummis, Michael Saylor, and the Bitcoin Policy Institute, have discussed a “Strategic Bitcoin Reserve.” Senator Lummis’ framework suggests the US Government should acquire 1 million BTC over five years and hold them for at least 20 years. The primary aim is to “strengthen the financial condition of the United States, providing a hedge against economic uncertainty and monetary instability.”
However, I disagree with the idea of establishing a “strategic” Bitcoin reserve and assigning it any monetary role.
Will a Bitcoin Reserve Strengthen or Undermine the Dollar?
Contrary to popular belief, I argue that a Bitcoin reserve won’t fortify the dollar. As the issuer of the global reserve currency, the US does not need to hedge its exposure to the dollar. If the US starts acquiring Bitcoins and giving them a monetary role, it would imply a loss of confidence in the current dollar-based system. It could throw the system into chaos and lead to a massive redistribution of wealth as financial markets tumble and Bitcoin values soar.
A Strategic Bitcoin Reserve: A Politically Imprudent Move
From my perspective, any legislation proposing a Strategic Bitcoin Reserve would face significant resistance in Congress. An SBR implemented by executive order would be undemocratic and likely reversed by subsequent administrations if not approved by Congress.
Public Perception and the Strategic Purpose of a Bitcoin Reserve
An SBR policy could be perceived as a major wealth transfer from taxpayers to Bitcoin holders, which could lead to public backlash. Also, the term “strategic” in SBR is confusing as Bitcoin has no instrumental use like other commodities held for strategic purposes by the US government.
Why Bitcoin? Why Now?
Why should the reserve be in Bitcoins and not any other asset? Also, why should we create a Bitcoin reserve now? There’s no urgency to establish a reserve, and the US has nothing to lose by waiting. If Bitcoin continues to grow and becomes a global monetary asset, the US government can acquire it at any point.
Caution: Be Careful What You Wish For
If the US government decides to acquire Bitcoins, they could do so through various means, which might not be beneficial for Bitcoin holders. They could acquire Bitcoin through open market purchases or by setting a price cap, banning private ownership, and forcing conversion of US-held Bitcoins.
Strengthening the Dollar Without Bitcoin
Rather than focusing on Bitcoin, efforts should be made to increase GDP growth, reduce government expenditures, limit political intervention into dollar markets, and allow inflation to run hot for a while to reduce the debt load in real terms. The incoming Treasury Secretary Scott Bessent’s 3-3-3 plan basically does this, without the need for Bitcoin.
This article is a guest post by Nic Carter. The opinions expressed are solely his own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.
