Regarding a "Strategic Bitcoin Reserve"

Certain political candidates have promoted the idea of a "strategic Bitcoin reserve" (most recently at the Bitcoin conference). This would be bad for our government, taxpayers, and the broader crypto economy. Here's why.

Bitcoin isn't like anything governments usually stockpile

Governments routinely decide to maintain stockpiles (aka "strategic reserves") of everything from disease-prevention tools like masks and hazmat gear (as we saw first-hand in 2020) to instruments of war or oil to, of course, international currencies.

The term "strategic Bitcoin reserve" is a fabricated term meant to confuse you into thinking that a stash of Bitcoin is much the same as a strategic reserve of Euros or Yen.

When people make up authoritative terms like this and brazenly throw them around, it's a safe bet that they're doing it to quietly and quickly rush past a shaky presupposition that, if questioned, may not pass muster.

They do this because if you did question whether Bitcoin could qualify as an asset worthy of a strategic reserve, the idea would fall apart before it even got started.

Because Bitcoin isn't a currency.

One more time for those in the back.

Bitcoin IS NOT a currency

It is a novel technological invention that occasionally mimics a currency (in form more than function) but, in reality, is unable to serve as one effectively because:

1. It's slow and expensive to transact with.
2. Its value is erratic. Entering into long-term contracts or issuing debt with Bitcoin would be a nightmare.
3. Its pseudonymous nature both erodes privacy and often fails to protect against bad actors.

Currency has been a world-altering invention precisely because it effectively facilitates transactions of goods and services in a low-friction, near-instant, and reliable way.

This isn't to say that currency is perfect or that Bitcoin doesn't do anything better than traditional currency (because it certainly does). However, in attempting to reinvent currency, Bitcoin does away with far more good than it can invent its way out of.

A stockpile of Bitcoin doesn't help advance any national goals

Government stockpiles of international currencies help those governments facilitate trade between nations. Of course, private enterprises will also transact in foreign currencies or keep some reserves of foreign currencies if they import/export goods or facilitate international transactions (aka banks), but Central Banks are the primary players in this space (holding over $12T in total foreign reserves).

Governments hold these reserves primarily to facilitate foreign trade and hedge against economic shocks in that government's own currency/economy.

So, let's see if a Bitcoin reserve can accomplish either of those goals:

1. Facilitate foreign trade: Only one government in the world considers Bitcoin an official method of exchange, El Salvador, so holding a reserve in the US could only potentially facilitate trade with them thus far (officially, anyway). El Salvador has a national GDP of ~$35B, and for context, the US state with the smallest GDP is Vermont, with a GDP of ~$44B. So, it's safe to say that a Bitcoin reserve will not meaningfully enhance our capacity for trade on the global stage.
2. Protect against economic shocks at home: Currency values can get a little whacky during economic turmoil. That said, even in the most turbulent economic times in the US, the USD has rarely seen intense levels of inflation or deflation. Even the recent period where we saw inflation rise upwards of 8-10% annualized in 2022/2023 is relatively mild compared to hyperinflation (defined as 50%+ inflation per month). And significant deflation hasn't been seen in the US since the Great Depression. So, while it may seem a little glib to say that the US doesn't need to worry about extreme economic shocks, there's a lot of truth to that. The argument that the US needs a Bitcoin reserve to protect against economic volatility holds little to no water. I suspect that those who believe otherwise are simply ignorant of the historical context (that they were born into one of the strongest economies the world has ever seen despite its problems).

So, a Bitcoin reserve fails to accomplish the primary goals of a currency reserve for the US government (and that shouldn't be surprising given that Bitcoin is NOT a currency).

There's even more you could go into, particularly around the second point here, but I'll table that for now.

A "strategic Bitcoin reserve" comes with a non-negligible cost

One prominent candidate for President proposed using the already-seized Bitcoin the government holds custody over from criminal prosecutions—about 210,000 Bitcoin—plus purchasing additional Bitcoin until the government reached 4 million Bitcoin in reserve. That would cost roughly $220-270B in USD at today's market prices (August 2024), but the total would likely be significantly higher as the price of Bitcoin rose as the government took more out of the supply (by buying it). It wouldn't be crazy if the final price tag were closer to the $700B-$1.5T range.

And, as a reminder: the US's total asset reserves today sit at around $240B, so this proposed Bitcoin reserve would instantly become the US government's largest asset reserve, by a lot.

Those hundreds of billions of USD are coming out of our paychecks as taxpayers.

Those hundreds of billions of USD could have renovated almost every school in the country up to modern standards, built 1,500-3,000 miles of high-speed rail, or funded any number of other productive assets that pay long-term dividends to quality of life and/or the economy at large.

Or, the money could have remained in taxpayers' take-home pay and, therefore, represented $250B+ in consumer spending/investing.

Holding onto a digital "asset" whose value is more speculative than real is a plainly silly idea for a government to engage in. Governments deal with real-world problems, which call for real-world assets to solve them.

Bitcoin is ultimately a speculative asset whose valuation rests on the idea that it will someday, somewhere, be used as the medium of exchange for a significant volume of commerce—a truly decentralized currency.

I think that proposition is dubious at best (if that wasn't already obvious).

And I think the government certainly shouldn't treat Bitcoin like a currency (and spend billions of real USD on it) until it actually becomes one (if it ever does).

Bitcoin is being used as a political ploy to manipulate voters

The fact that politicians are using this idea of a "strategic Bitcoin reserve" to nakedly bribe potential voters (crypto investors) with a promise that Uncle Sam will inflate their bags if they vote for the candidate is gross.

The world is certainly no stranger to political candidates promising to make their voters wealthier if they vote for them. This certainly won't be the last time (or the last time they use crypto to do it).

But blockchain deserves better.

Having this poorly thought-out "public policy" associated with crypto will only further erode crypto's already shaky reputation.

And that isn't good for its long-term economic validity.

The technology is fascinating (I've said that for years) if only it can shake out these charlatan-esque "bag-holders" who seek only short-term profit at any cost.