Recently, the concept of a Strategic Bitcoin Reserve has started to excite Bitcoin supporters. Trump has promoted the idea of maintaining a collection of confiscated Bitcoins, but some proposals have advanced beyond this. Currently, draft legislation like Senator Lummis’ BITCOIN Act suggests that the US government should procure 1 million BTC over a span of five years.
Among Bitcoin advocates, the concept of a Strategic Reserve is nearly taken for granted. However, I don’t find it plausible, nor do I believe it’s a wise strategy.
Let me clarify.
Are we discussing a stockpile, a sovereign wealth fund, or a reserve?
Initially, there’s the idea of a “stockpile” of Bitcoins. Trump pledged to this during his pre-election address in Nashville, stating, “I am announcing that if I am elected, it will be the policy of my administration, United States of America, to retain 100% of all the bitcoin the US government currently possesses or acquires in the future. […] This will effectively serve as the foundation of the strategic national bitcoin stockpile.”
This isn’t what I mean at all. (Indeed, I’m very much in favor of the stockpile concept). I’m referring to the US government actually purchasing additional Bitcoins. Proposals vary from acquiring approximately 800,000 BTC (BPI), to 1 million BTC (Lummis), to 4 million BTC (RFK Jr).
Senator Lummis, Michael Saylor, and the Bitcoin Policy Institute (among various others) have been discussing a “Strategic Bitcoin Reserve.”
Under Senator Lummis’ proposed framework, the US Government would accumulate 1 million BTC over a five-year duration, retaining them for a minimum of 20 years. The rationale behind the reserve is to “enhance the financial standing of the United States, providing a safeguard against economic instability and monetary uncertainty.” Lummis’ bill specifically states that the SBR would “fortify the position of the dollar,” likening it to the historical role of gold in previous monetary periods.
It’s crucial to differentiate these proposals from the idea of incorporating Bitcoin into a sovereign wealth fund, as George Selgin notes. As far as I can determine, none of the primary proponents for the SBR are viewing it as an asset within a state investment portfolio – they are explicitly linking Bitcoin to the dollar, suggesting that Bitcoin will genuinely enhance the dollar. This indicates they foresee a monetary framework where Bitcoin assumes an active role – at present, serving a similar function as FX reserves, but potentially later, forming the actual foundation for a new commodity standard, akin to Bretton Woods I. (For those who believe I’m overstating the case, simply look at the language used by the advocates of the SBR themselves.)
To clarify, I’m not opposing the idea of merely retaining existing seized Bitcoin (which I believe is the path Trump will ultimately choose), nor am I against the idea of incorporating Bitcoin into a sovereign wealth fund (although the US lacks one). My contention lies with the concept of establishing a “strategic” reserve of Bitcoins and ascribing it any form of monetary function.
A Bitcoin Reserve would weaken, not bolster, the dollar
My principal and most critical argument is that a Bitcoin reserve would not support the dollar. Unlike other nations, the US issues the global reserve currency. Other countries can play around with obtaining Bitcoin, and indeed a handful are doing so.
It might seem rational, if you are Russia or Iran, to contemplate an unconfiscatable asset in your FX reserves, particularly after the US seized Russia’s treasuries in 2022. However, the US does not need to protect itself against its exposure to the dollar because it itself issues the dollar.
Acquiring Bitcoins and ascribing them a monetary role—whether as FX reserves or something more substantial—would suggest the US is losing faith in the current dollar-centric system.
The US government explicitly signaling a shift away from the non-convertible fiat standard would unleash chaos upon the system. At present, the dollar is “backed” by America’s position as the overseer of global trade, the resilience of the US economy, the solvency of the US Government, the capabilities of the US to exert hard and soft power, the depth of US securities markets, and the prevalence of the dollar in global commerce and finance.
If the US government were to make a sudden turn and declare, “we’re re-evaluating this entire Washington Consensus,” markets would begin to question what the government is aware of. Are they preparing for a default? Are they planning to dissolve the Bretton Woods institutions? Are they projecting enormous deficits with soaring rates?
To clarify, I don’t believe the government is considering any of these scenarios, but I do think bond traders would be immediately alarmed.
“But we’re not discussing a transition to a neo-gold standard, where the dollar corresponds to a weight of Bitcoin. We’re just talking about purchasing some Bitcoin and adding it to the US balance sheet,” you might argue.
This wouldn’t be how the markets would perceive it. If Bitcoin on the balance sheet serves merely as a token, it would be an exceedingly costly one. One million Bitcoins would amount to $100 billion at present value – and naturally, if it became known that the US government was a price-insensitive buyer, the US might end up acquiring the coins at $1,000,000 per coin – spending $1 trillion on the reserve. This is an incredibly substantial expenditure that could be allocated to other more pressing needs.
I would suspect markets would interpret the Bitcoin purchases not as symbolic, but rather as the initial step towards a return to a new commodity standard for the dollar with Bitcoin, rather than gold, serving as the backing.
Austin Campbell states that this would “accelerate the downfall of the dollar, as it would indicate to the world that the US does not intend to manage its fiscal responsibilities effectively and will likely re-denominate in BTC at some stage.”
Imagine if the probability of a Lummis-style SBR actually began to approach certainty. You would know, as financial markets would go into meltdown mode. Interest rates would surge dramatically as investors in US debt would start to question whether the US was contemplating a hard departure from Bretton Woods II.
The cost of capital for everyone globally would escalate sharply. Inflation would likely rise. A significant redistribution of wealth would occur, as financial markets plunged and Bitcoin soared.
In other terms, the US considering an imminent abandonment of the current, relatively stable monetary system in favor of a monetary standard based on a highly volatile, emerging asset, would incite utter panic among its creditors.
In my view, if we approached even a fraction of a Lummis-style reserve, markets would start to react preemptively in a frenzy, and Trump would be compelled to retract the policy.
While BSR supporters may assert they are not advocating for a full neo-gold standard with Bitcoin as the underpinning, their declared intentions (once more, just examine their proposals) are aggressive enough that they would significantly unsettle the Treasury markets if the reserve neared reality.
An SBR would be politically unwise
It’s clear to me that any proposed legislation for a Strategic Bitcoin Reserve would be a total non-starter in Congress. I speak from firsthand experience, having met with numerous pro-crypto congressional members inWashington just a few weeks back. Congress stands delicately balanced, with the Republicans holding a narrow edge. They wouldn’t be able to push something through along party lines, nor is it apparent that the Republicans would even unify in their voting on this issue.
Advocates for the reserve assert that the executive branch can secure the funding for a reserve without the need for legislative approval. Clearly, there are mechanisms by which the executive could allocate funds without prior Congressional consent. Bitcoin proponents have suggested various approaches. Yet, these entirely overlook the main issue. A Bitcoin reserve instituted by executive decree would be established in an undemocratic manner, and would likely be reversed in future administrations if it does not receive Congressional approval.
Consider it in this light. The executive could unilaterally opt to initiate an expensive foreign conflict and devise methods to allocate funds through assorted unconventional strategies. However, such an action would be exceedingly unpopular, as the populace would justifiably view it as highly undemocratic. The distribution of authority in our Republic delineates that the President executes, but Congress authorizes (and allocates). We do not have a despot in power.
Since Congress regulates financial expenditures, American citizens are essentially engaged in significant spending choices.
In other words, in a family setting, the husband might not be bothered if his wife utilizes his credit card for minor purchases. However, if she opts to acquire a new vehicle or a house, he would definitely prefer to be included in that discussion. Of course, technically, she might be capable of purchasing a car using her husband’s credit card if the limit is sufficiently high. But that sidesteps the issue. She ought to discuss major decisions like that with her husband. The President ought to confer with Congress (and consequently, the American public) regarding any significant expenditure. A Bitcoin reserve would unequivocally qualify as such.
“But Trump possesses a mandate,” you might argue. However, that is not accurate. He lacks a mandate to spend hundreds of billions of dollars on a Strategic Bitcoin Reserve. He did not run on this issue. It did not arise in debates or substantially in the media.
He mentioned a Bitcoin stockpile (referring to holding existing seized Bitcoins) in his Nashville address, not the additional acquisition of Bitcoins for governmental use. Trump attempting to circumvent Congress to allocate governmental resources for Bitcoin would be extremely politically unpopular. It would squander most of his limited political capital. And Trump has a wider agenda that extends beyond Bitcoin. I anticipate that this political rationale will eventually become evident to him, even if he is temporarily intrigued by the concept of a reserve.
The additional complication of coercing Bitcoin acquisitions through executive order (assuming this is even plausible) is that actions that are easily enacted can likewise be easily overturned. Should such a policy prove unpopular – and I believe it would be – a subsequent Democratic administration would certainly liquidate the reserve immediately, resulting in turmoil in Bitcoin markets.
What Bitcoin enthusiasts should aspire to create is a democratic agreement that a Bitcoin reserve or stockpile is a sensible concept, and to implement this policy through bipartisan legislation or even a constitutional amendment. Typically, significant monetary modifications are carried out through legislation, such as the 1934 Gold Reserve Act, or the Gold Clause Resolution in 1977 after Nixon’s suspension of Bretton Woods I.
Bitcoiners should desire a Bitcoin Reserve to be long-lasting, rather than a fleeting occurrence. A policy derived from executive order executed by fiat from the new Trump administration would not endure.
US Government purchases of Bitcoin would significantly alienate the general populace
Undoubtedly, an SBR policy would be perceived as a massive transfer of wealth from US taxpayers to already affluent Bitcoin holders. This would be sharply regressive and unappealing. Bitcoin enthusiasts form a comparatively small demographic. The Federal Reserve discovered in 2022 that merely 8 percent of US adults have any cryptocurrency as an investment, with affluent individuals being disproportionately represented in that group.
Even if the SBR was funded in a somewhat fiscally “neutral” manner (for instance, by adjusting the value of gold to its market rate and liquidating some of the gold), it would still be regarded as an unwarranted giveaway to Bitcoin advocates. Those resources could be allocated for any purpose – and they would be diverted to Bitcoin supporters.
A major monetary reform that advantages a tiny segment of Americans would turn everyone who doesn’t possess Bitcoin against the Bitcoin community. And I doubt many Americans would understand the reasoning behind the SBR, particularly since there is no visible crisis with the US dollar at present.
Attitudes might vary in ten or twenty years if de-dollarization accelerates, if the US encounters a default situation, interest rates soar, or many other nations begin to adopt Bitcoin as a reserve asset. But that is not our current reality.
If you recall, the proposal for student loan forgiveness was relatively unpopular because it was viewed as a bailout for middle and upper-class Americans who had the resources to attend college and obtain worthless liberal arts degrees. (Interestingly, Elizabeth Warren suggested a unilateral expenditure of $640 billion without Congressional consent to erase student loans back in 2019/20. I doubt Bitcoiners would wish to open that particular Overton window.)
Biden’s student loan forgiveness initiative would have benefited approximately 43 million Americans, a larger population than Bitcoin holders. The backlash over a Bitcoin reserve would be significantly greater.
Currently, the financial sector is gradually becoming more receptive to Bitcoin, due to organic adoption trends. A reserve would set ordinary Americans against Bitcoin supporters, which would create substantial obstacles in the path of Bitcoin’s acceptance.
A Bitcoin reserve lacks any “strategic” rationale
The term SBR itself is perplexing, particularly the “strategic” aspect. The US government maintains several commodities for genuinely strategic reasons. Most notably, the Strategic Petroleum Reserve serves to stabilize oil markets.
Biden, to his credit, recently sold a large portion of our oil during peak pricing and later repurchased it, yielding a profit. We also hold or have previously maintained in reserve various quantities of heating oil, gas, grain, dairy products, rare minerals like cobalt, titanium, tungsten, helium, and medical equipment.
The common theme is that these commodities serve some functional purpose, with the government having a vested interest in keeping them for emergencies or market stabilization.
In contrast, Bitcoin has no industrial utility. The US government does not “require” Bitcoin to trade at any certain price point. It bears no significance to the government if Bitcoin trades at $1 or $1 million. Bitcoin also does not produce any cash flows, meaning a reserve would not assist in servicing debt interest in the future.
The only “strategic” function Bitcoin could fulfill would be equivalent to that of the US government’s existing reserve assets, such as gold and foreign currency – which is to say, none. As George Selgin painstakingly elucidates, the US possesses modest FX reserves, comparatively speaking, when set against other developed nations. This arises because the dollar operates as a genuinely free-floating currency and the US does not manipulate the peg whatsoever. The approximately 8130 tons of gold in US possession have had no relevant use since 1971. They are simply vestigial and held merely for traditional reasons. The last substantial interventions to influence the dollar’s exchange rate occurred in the 1980s.
Bitcoin advocates discussing the prospect of a Bitcoin reserve concept tend to greatly overstate the significance of gold within the dollar framework. Ultimately, the balance sheet of the US government is of little consequence when it comes to the prevalence of the dollar system.
The factors that truly
Factors that bolster the dollar are:
- Growth in US GDP, generating tax obligations that can solely be settled in dollars
- The reliability and steadiness of the US government and its monetary policy
- The US capital markets being the most appealing and liquid globally, drawing in international investment (in dollars)
- The network effects arising from dollar supremacy in trade settlement, commodity markets, foreign exchange markets, and debt markets
- America’s sustained position as the global superpower and protector of worldwide trade and security
Gold – along with Bitcoin – holds no significance in the current American monetary framework. They may have a future role, but the existing inconvertible standard is not rooted in any form of commodity reserves.
No rationale exists for a SBR exclusively focused on Bitcoin
Why maintain a reserve of Bitcoins? Why not opt for an alternative? Proponents of Bitcoin have yet to furnish a convincing rationale. Bitcoin boasts a substantial value (~$2 trillion), is globally liquid, and is owned by many individuals, or so you might argue. However, Bitcoin is not distinct in this regard. Can a case be made for a Bitcoin reserve that wouldn’t equally apply to, for instance, Apple or NVIDIA stock?
“Well,” you could respond, “these represent claims on corporate cash flows and are not bearer assets. Bitcoin stands out because it’s immune to seizure or disruption.” Presumably, though, the US isn’t at risk of having Apple or NVIDIA’s assets and intellectual property confiscated by itself. This argument pertains more to the risk of another nation acquiring a reserve of equity from a US-based firm. Yet we’re discussing the US government.
There’s also no justification for a Bitcoin reserve that excludes gold. If the goal is to remonetize a tangible asset and base your currency system on it, gold is the clear option. If we seek to “surpass” other nations regarding reserve assets (a common argument in favor of the SBR), gold is ideal since we possess more of it than any other country. Simply remonetize gold (adjust its price from the official figure to its current market value), and we gain a distinct advantage from the start.
Gold is also a “bearer” asset because ownership entails nothing more than simple possession of bars and ingots. Should Bitcoin advocates successfully convince the US government to abandon the Bretton Woods II standard and revert to a commodity-based system akin to pre-1971, gold would genuinely be a superior choice. It boasts a longer history, has a wider ownership base (so remonetizing it would affect fewer individuals), is valued around nine times higher than Bitcoin, exhibits significantly lower volatility, and we already possess it, making monetization much more economical (if not free).
If your aversion to gold stems from its lack of “high growth” potential like Bitcoin, you might consider fast-growing (and productive) assets such as NVIDIA, Apple, or Microsoft stock. When discussing commodities the US might invest in for strategic reasons, my top suggestion would be AI data centers or chip manufacturing. These serve a clear strategic function and would also be economically beneficial. However, this leads into conversations about utilizing Treasury or Fed resources for “industrial policy.”
Many conservatives and libertarians are wary of such top-down government allocation of resources, advocating for the private sector to manage it. I had reservations about Biden’s substantial infrastructure spending, which I found quite wasteful; thus, I oppose further governmental intrusion into the private sector, primarily through direct dollar issuance.
Generally, the US government refrains from actively intervening in markets with its monetary tools beyond adjusting interest rates; its role is to establish the rules of engagement and maintain stability, not to aggressively channel government funds into commodities for speculative trading. (This skepticism surrounded Biden’s releases from the strategic petroleum reserve.) We function within a market-based capitalist system, not a centrally controlled one. It isn’t the government’s responsibility to operate a commodity hedge fund.
This responsibility falls to the private sector, with the government only stepping in when there’s an urgent strategic necessity to enhance reserves of a critical commodity. Ultimately, the US government benefits if the private sector makes investments in commodities and assets that appreciate, through capital gains taxes.
I would have more faith in fund managers and capital allocators handling this instead of bureaucrats.
No justification exists for establishing an SBR at present
Why should we create a reserve of Bitcoin right now? What makes this particular time frame critical for a Bitcoin reserve? There is nothing especially pressing. The dollar is not collapsing – in fact, it’s flourishing. The DXY has been on an upswing for the last 15 years, potentially to the detriment of US manufacturing and foreign nations with dollar debts.
The US is experiencing GDP growth compared to the rest of the globe, especially Europe, which is steadily declining, and China, grappling with a significant economic crisis for the first time since Deng. American stocks are outperforming global counterparts, with the US stock market comprising around 50% of the world’s total. There are no indicators to suggest these patterns won’t persist.
“But the dollar is depreciating against physical assets, such as gold,” one might argue. “And its purchasing power is diminishing, as demonstrated by the notably high and fluctuating inflation we are experiencing.” Yet, there’s no visible crisis affecting the dollar.
Interest rates are somewhat elevated compared to the past decade, but there’s no widespread anxiety regarding the US government’s solvency. The dollar’s portion of global foreign exchange reserves has declined slightly over the last couple of decades, but there’s no genuine crisis there either. The dollar remains overwhelmingly dominant on the global stage, with no credible competitors visible anywhere. Neither the stagnant Euro nor the (managed) Renminbi possess the capability or the desire to contest the dollar as the preferred global reserve asset.
The sole reason the SBR is being considered seriously at this time is the outcome of Trump’s election. Advocates for Bitcoin have seized on this for political leverage in the hope that he might not only promote more favorable regulations, but potentially become a purchaser of Bitcoin at the state level.
However, Bitcoin is not nearly large or liquid enough to impact the US reserve portfolio in any significant way, nor is it ready to serve as a monetary instrument like gold within the gold standard framework. Its current value stands at approximately $2 trillion, in contrast to gold’s $17 trillion valuation. Bitcoin remains highly volatile and is manifestly inappropriate as a unit of account (if we were to transition to some sort of Bitcoin-denominated dollar system).
Bitcoin advocates should simply practice patience. Bitcoin has performed remarkably well during its brief 15-year existence and is increasingly recognized as a global monetary asset of significance. It has undergone complete institutionalization, with the ETF marking a major validation.
As time progresses, its volatility will decrease (and its market capitalization and liquidity will expand), making it a more viable asset for governments to consider adding to their portfolios. But as it stands, it doesn’t hold a consequential role in America’s monetary system.
Be cautious with your aspirations
The reality is, there’s no rush to establish any type of reserve. The US stands to gain nothing by simply waiting. Should Bitcoin continue to gain traction and ultimately pose a challenge to gold, and if other nations begin incorporating Bitcoin into their sovereign wealth funds, or even start to “back” their currencies with it, the US has plenty of opportunity to respond.
US entities, investors, and individuals currently hold more Bitcoin than any other nation. The US Government possesses sufficient means to acquire…Bitcoin at any stage in the expedition, should they determine that they truly desire it.
They could obtain Bitcoin through open market transactions. More plausibly, in my view, they might opt for the significantly more economical choice of establishing a price limit, prohibiting private possession, and mandating conversion of US-held Bitcoins, as they did with gold back in 1933.
They might also directly seize the Bitcoins kept on domestic exchanges – US-based custodians are by far the largest. They could nationalize miners. They could raise capital gains taxes and demand they be paid in-kind. They might detain individuals recognized for holding a substantial amount of Bitcoin and confiscate their assets. They could allocate resources toward creating quantum computing capable enough to capture the ~4m coins that are susceptible to quantum attacks.
“Hold on… not like that.” But that’s the issue. You don’t get to dictate the methods by which the US government acquires Bitcoins. If you succeed in convincing them of Bitcoin’s merits, and they genuinely fixate on a reserve, they’ll pursue it using whatever methods are most politically convenient.
This may not align with what is most beneficial for American bitcoiners. If it comes down to acquiring 1 million BTC at $1 million/coin (totaling $1 trillion dollars), or simply seizing 1 million coins through an alternative approach, they will choose the more efficient route.
If not Bitcoin, how should we strengthen the dollar?
The long-term viability of the US government is undoubtedly a concern. The debt-to-GDP ratio is near the upper limit of the historical spectrum at 120%. Interest expenses relative to GDP are at a 60-year peak and continue to rise. Federal net expenditures as a portion of GDP are at the high end of the range over the past century, surpassed only by the levels during and following WWII.
Although the deficit has decreased from its peaks during Covid, it remains high, offering us very little latitude if a recession occurs. The reckless expenditure of the past four years (and honestly, there was a bipartisan agreement on this) resulted in a surge of inflation, which we are still confronting.
The dollar’s portion of global foreign exchange reserves has dropped from 70% to 60% over the last twenty-five years (yet no other specific currency has meaningfully increased its share). Furthermore, certain debt purchasers are now hesitant to buy US Treasuries after the US confiscated Russia’s reserves in 2022.
All of this indicates a potential long-term challenge for the dollar, although no crisis seems to be on the immediate horizon. This situation could change if we endure a recession and the government finds itself incapable of engaging in extensive stimulus spending, especially since interest rates are already relatively high, and we are operating with a considerable deficit.
If it were my decision, I would implement the following:
- Enhance GDP growth through all possible avenues. This involves facilitating cheaper energy, promoting high-growth sectors like AI, and generally freeing the private sector from constraints
- Significantly reduce the magnitude of government spending, which is far more inefficient than equivalent investments in private markets, to alleviate the deficit
- Limit political interference in dollar markets, acknowledging that the power to impose sanctions with the dollar compromises its global utility
- Permit inflation to run high for a period to decrease the debt burden in real terms
The encouraging news is that incoming Treasury Secretary Scott Bessent’s 3-3-3 plan essentially accomplishes this. No Bitcoin required.
This is a guest post by Nic Carter. Views expressed are solely their own and may not necessarily reflect those of BTC Inc or Bitcoin Magazine.