How the United States Could Create a Strategic Bitcoin Reserve

A bitcoin stash is an interesting idea, but more complicated than it first seems… [+]

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With former President Donald Trump and Senator Lummis (R-WY) announcing plans to establish a strategic reserve of bitcoin and/or establish a bitcoin policy for the U.S. government to follow, the topic has moved from abstract to more concrete. Whether it’s the growing importance of cryptocurrencies as an issue for swing voters, the continued rise in the price of bitcoin and other cryptoassets, or the rise of tokenized assets by TradFi institutions, the fact remains that cryptocurrencies have quickly become a major political issue. However, even with this increased visibility, these announcements have sparked significant debate in political and financial circles. As bitcoin has moved from a financial instrument closely associated with the margins of the financial world to one embraced by the largest financial institutions, the geopolitical implications have grown alongside its market capitalization.

The likelihood of the United States or other major economic powers around the world codifying a strategic reserve of bitcoin (or other cryptocurrencies) remains somewhat unlikely, but bitcoin’s rise to political prominence has made it at least possible. With organizations investing in bitcoin and allocating capital to crypto assets more generally as a diversification tool, it’s logical to conclude that nations will follow El Salvador’s lead. The fact that the U.S. debt has reached (and now exceeds) $35 trillion reinforces the urgency of finding a way to address the growing debt or develop assets that could be used to offset this growing burden.

Let’s take a look at some of the things policymakers should keep in mind and investors should be aware of as the possibility of a strategic bitcoin reserve moves forward.

The United States already has a strategic reserve

What might surprise investors and policy experts who aren’t immersed in the cryptocurrency debate is that the United States could establish a strategic reserve of bitcoin almost immediately with minimal additional expenditure. While the exact number has fluctuated slightly over time due to additional sales and seizures, the U.S. government remains one of the largest holders of bitcoin in the world, with over 200,000 bitcoins currently in custody. Notably, the U.S. government has already generated millions in profits from these holdings through repeated sales of bitcoins directly on exchanges.

Although multiple agencies, including the head of the IRS’s Cyber ​​and Forensic Services Section, have repeatedly denied the existence of a profit motive or market-driven strategy, the facts remain uncontested. The Bitcoin Strategic Reserve bill proposed by Sen. Lummis (R-WY) calls for the U.S. bitcoin stockpile to eventually reach 1 million coins, but the U.S. is already well on its way to reaching that goal, even though the acquisition of those bitcoins was not done with that intention in mind.

As is often the case with major political changes, political and geopolitical considerations prove more complex than market forces.

Making Bitcoin a reserve asset could hurt it

One of the underlying appeals of bitcoin is that the asset itself is decentralized and distributed in nature. Designating bitcoin as a strategic asset of the United States would, by default, lead to more centralization and overt government oversight and control over bitcoin. Given the leadership of the US dollar and the size of the US federal debt market, the federal government might have an incentive to print/issue dollars to buy more bitcoin. Given that the appeal of bitcoin is to serve as a hedge against inflation, having the US government print dollars to acquire more bitcoin seems counterproductive to that goal.

By treating bitcoin as a strategic asset and deliberately acquiring it as part of U.S. policy, government policy seeking to elevate bitcoin could end up damaging many of the fundamental qualities that made bitcoin attractive in the first place.

Using a reserve asset is complicated

As U.S. debt continues to climb and recently surpassed $35 trillion, one of the main reasons behind the promotion of bitcoin as a strategic asset is the ability of bitcoin holdings to repay U.S. debt. As appealing as this idea may be, the practicality of 1) centralizing bitcoin as a strategic asset, 2) using bitcoin holdings to repay debt, and 3) not expecting other factors to influence bitcoin price/liquidity makes this idea less than ideal.

Reserve assets, whether in the form of commodities, currencies, or digital assets, are politically and economically difficult to deploy. From a strictly geopolitical perspective, the power of the United States to develop and manage a strategic reserve of bitcoin would lie in the indirect benefits that such an approach would bring. The adoption of bitcoin, digital assets, and the digitization that accompanies the adoption of these technologies will lead to improvements in energy management, fiscal policy, and the financial system as a whole.

Bitcoin as a strategic asset is a powerful idea, an idea whose time has come, but it is a concept and an idea that must be managed thoughtfully and carefully to ensure that the anticipated results become reality.

Sources 1/ https://Google.com/ 2/ https://www.forbes.com/sites/digital-assets/2024/08/04/how-the-us-could-establish-a-strategic-bitcoin-reserve/ The mention sources can contact us to remove/changing this article

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