I don’t support a Strategic Bitcoin Reserve, and neither should you

Recently, the notion of a Strategic Bitcoin Reserve has begun to animate Bitcoiners. Trump has advocated for holding a stockpile of seized Bitcoins, but certain proposals have gone further. Now, draft legislation like Senator Lummis’ BITCOIN Act proposes that the US government acquire 1m BTC over five years.

Among Bitcoin enthusiasts, the notion of a Strategic Reserve is almost a foregone conclusion. But I don’t think it’s likely, nor do I think it’s a good idea.

Allow me to explain.

Are we talking about a stockpile, a sovereign wealth fund, or a reserve?

First, there’s the notion of a “stockpile” of Bitcoins. Trump committed to this in his pre-election speech in Nashville, saying “I am announcing that if I am elected, it will be the policy of my administration, United States of America, to keep 100% of all the bitcoin the US government currently holds or acquires into the future. […] This will serve in effect as the core of the strategic national bitcoin stockpile.”

This isn’t what I’m talking about at all. (In fact, I’m strongly supportive of the stockpile idea). I’m talking about the US government actually acquiring additional Bitcoins. Proposals range from acquiring ~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 many others) have been talking about a “Strategic Bitcoin Reserve.”

Under Senator Lummis’ framework, the US Government would acquire 1 million BTC over a five year period, and hold them for at least 20 years. The stated logic of the reserve is to “strengthen the financial condition of the United States, providing a hedge against economic uncertainty and monetary instability.” Lummis’ bill specifically says that the SBR would “strengthen the position of the dollar,” and compares it to the role of gold in prior monetary eras.

It's important to distinguish these proposals from the notion of acquiring Bitcoin in a sovereign wealth fund, as George Selgin does. As far as I can tell, none of the main advocates for the SBR are treating it as an asset in a state investment portfolio – they are explicitly connecting Bitcoin to the dollar, and suggesting that Bitcoin will actually strengthen the dollar. This means that they envision a monetary system where Bitcoin plays some kind of active role – for now, playing the same role as FX reserves, but perhaps in the future, as the actual basis for a new commodity standard, like Bretton Woods I. (For those who think I’m exaggerating, you simply have to read the words written by the advocates of the SBR itself.)

To be clear, I’m not contradicting the notion of simply holding on to existing seized Bitcoin (which I think is the policy Trump will ultimately settle on), nor am I even against the notion of putting Bitcoin in a sovereign wealth fund (although the US doesn’t have one). I’m instead arguing against the idea of creating a “strategic” reserve of Bitcoins and giving it any sort of monetary role.

A Bitcoin Reserve would undermine, not support, the dollar

My main, and most important point, is that a Bitcoin reserve would not bolster the dollar. Unlike other countries, the US issues the global reserve currency. Other nations can toy around with acquiring Bitcoin, and indeed a few are.

It might make sense, if you are Russia or Iran, to consider an un-seizable asset in your FX reserves, especially after the US confiscated Russia’s treasuries in 2022. But the US does not need to hedge its exposure to the dollar, because it itself issues the dollar.

Acquiring Bitcoins and assigning them a monetary role—whether as FX reserves or something more significant—would imply the US is losing confidence in the current dollar-based system.

The US government explicitly signaling a move away from the inconvertible fiat standard would throw the system into chaos. Right now, the dollar is “backed” by America’s role as the steward of global trade, the robustness of the US economy, the solvency of the US Government, the ability of the US to project hard and soft power, the depth of US securities markets, and the ubiquity of the dollar in global trade and finance.

If the US government were to make an abrupt shift and say “we’re reconsidering this whole Washington Consensus thing,” markets would start to wonder what it is exactly that the government knows. Are they planning a default? Are they going to disband the Bretton Woods institutions? Are they projecting enormous deficits and sky-high rates?

To be clear, I don’t think the government is considering any of these things, but I do think bond traders would be immediately concerned.

“But we’re not talking about moving to some kind of neo-gold standard, with the dollar being a weight of Bitcoin. We’re just talking about buying some Bitcoin and putting it on the US balance sheet,” you might protest.

This isn’t the way markets would see it. If Bitcoin on the balance sheet serves only as a symbol, it would be an extraordinarily expensive one. One million Bitcoins would cost $100 billion at current prices – and naturally, if the US government was known to be a price-insensitive buyer, the US could end up acquiring the coins at $1,000,000 per coin – spending $1T on the reserve. This is an incredibly meaningful expense which should be spent on other things.

I would suspect that the market would treat the Bitcoin purchases not as symbolic, but rather as the first step in a process of returning to a new commodity standard for the dollar with Bitcoin, rather than gold, as the backing.

Austin Campbell says that this would “accelerate the demise of the dollar, as it would signal to the world that the US does not intend to manage its fiscal house well and will likely re-denominate in BTC at some point.”

Let’s say the probability of a Lummis-style SBR actually started to converge to 1. You would know, because financial markets would enter a meltdown. Interest rates would spike dramatically as investors in US debt would start to wonder if the US was considering a hard break with Bretton Woods II.

The cost of capital for everyone on the planet would rise sharply. Inflation would likely ramp up. A massive redistribution of wealth would occur, as financial markets tumbled, and Bitcoin skyrocketed.

Put another way, the US considering a near term abandonment of the current, relatively stable monetary system and replacing it with a monetary standard not based on gold, but a highly volatile, emerging asset, would cause utter panic among its creditors.

In my view, if we even got close to a Lummis-style reserve, markets would anticipatorily start to go berserk, and Trump would be forced to withdraw the policy.

While BSR advocates may claim not to be advocating a full neo-gold standard with Bitcoin as the basis, their stated intentions (again, simply read their proposals) are aggressive enough that they would seriously spook the Treasury markets if the reserve came anywhere near to being a reality.

An SBR would be politically imprudent

It’s obvious to me that any piece of legislation proposing a Strategic Bitcoin Reserve would be a complete non-starter in Congress. I’m speaking from first-hand experience having visited a number of pro-crypto members of Congress in Washington mere weeks ago. Congress is finely poised, with the Republicans having a slim majority. They couldn’t jam something through on a partisan basis, nor is it clear to me that the Republicans would even vote as a single bloc on this anyway.

Proponents of the reserve insist that the executive can find the funds for a reserve without passing a law. Certainly, there are ways in which the executive could spend money without prior authorization from Congress. Bitcoiners have proposed a variety of methods. But these completely miss the point. A Bitcoin reserve imposed by executive fiat would be imposed undemocratically, and would likely be undone in subsequent administrations if not voted on by Congress.

Think of it like this. The executive could decide unilaterally to wage a costly foreign war and find ways to appropriate the cash through various esoteric schemes. But such an undertaking would be incredibly unpopular, as the people would rightly consider it highly undemocratic. The balance of power in our Republic specifies that the President acts, but Congress authorizes (and appropriates). We don’t have a tyrant in charge.

Because Congress controls the purse strings, American citizens are effectively consulted for major spending decisions.

Put another way, in a household, the husband may not mind if his wife uses his credit card for incidental purchases. But if she decides to buy a new car, or a house, he would certainly prefer to be consulted. Of course, mechanically, she might be able to buy a car with her husband’s credit card if the limit is high enough. But that misses the point. She should consult her husband for a major decision like that. The President should consult Congress (and by extension, the American people) for any major outlay. And a Bitcoin reserve would certainly fall into that category.

“But Trump has a mandate,” you might say. But this isn’t true. He doesn’t have a mandate to spend hundreds of billions of dollars on a Strategic Bitcoin Reserve. He didn’t campaign on this. It didn’t come up in the debates or meaningfully in the press.

He talked about a Bitcoin stockpile (as in, holding existing seized Bitcoins) in his speech in Nashville, not the additional purchase of Bitcoins for the government. Trump trying to find an end-around around Congress for the purpose of spending government funds on Bitcoin would be supremely politically unpopular. It would exhaust most of his finite political capital. And Trump has an agenda that’s far broader than just Bitcoin stuff. I expect that this political logic will eventually become clear to him, even if he is momentarily excited by the notion of a reserve.

The other problem with forcing through Bitcoin purchases by executive order (assuming this is even doable) is that something that is easily done is easily undone. If such a policy were unpopular – and I believe it would be – a future Democratic administration would undoubtedly sell off the reserve immediately, causing chaos in Bitcoin markets.

What Bitcoiners should want is a democratic consensus that a Bitcoin reserve or stockpile is a good idea, and to effectuate this policy through bipartisan legislation, or even a constitutional amendment. Generally, meaningful monetary changes are done through legislation, like the 1934 Gold Reserve Act, or the Gold Clause Resolution in 1977 following Nixon’s suspension of Bretton Woods I.

Bitcoiners should want a Bitcoin Reserve to be enduring, rather than a flash in the pan. An executive-order based policy done by fiat by the new Trump admin would not last.

US Government purchases of Bitcoin would massively alienate the general public

Without a doubt, an SBR policy would be seen as a massive wealth transfer from US taxpayers to already wealthy Bitcoiners. This would be massively regressive and unpopular. Bitcoiners are a relatively small group. The Fed found in 2022 that only 8 percent of US adults hold any crypto as an investment, with wealthier individuals being over-represented in that cohort.

Even if the SBR was funded in a kind of fiscally “neutral” way (for instance, by revaluing gold to its market rate, and selling off some of the gold), it would still be seen as an undeserved handout for Bitcoiners. Those funds could be used for anything – and they would be appropriated to Bitcoiners.

A major monetary change which benefits a tiny group of Americans would turn everyone who doesn’t hold Bitcoin against the Bitcoiners. And I doubt many Americans would see the logic of the SBR, since there is no apparent crisis with the US dollar at present.

Attitudes might be different in ten or twenty years if de-dollarization accelerates, the US enters some kind of default situation, rates skyrocket, many other countries start to adopt Bitcoin as a reserve asset. But that’s not the world we live in today.

If you recall, student loan forgiveness was fairly unpopular because it was seen as a bailout for middle and upper class Americans who had the means to go to college and get worthless liberal arts degrees. (Interestingly, Elizabeth Warren proposed a unilateral outlay of $640 billion without Congressional approval to extinguish student loans back in 2019/20. I doubt Bitcoiners would want to open that particular Overton window.)

Biden’s student loan forgiveness plan would have benefited around 43 million Americans, a larger group than Bitcoin holders. The furore over a Bitcoin reserve would be far worse.

Right now, the financial world is warming up to Bitcoin, due to gradual and organic adoption. A reserve would pit ordinary Americans against Bitcoiners, which would seriously complicate the trajectory of Bitcoin’s adoption.

A Bitcoin reserve has no “strategic” purpose

The actual term SBR is puzzling, specifically the “strategic” component. The US government holds a number of commodities for genuinely strategic purposes. Most importantly, the Strategic Petroleum Reserve is a means to stabilize oil markets.

Biden, to his credit, actually sold a lot of our oil off during high prices and bought it back later, turning a profit. We also hold or have held in reserve quantities of heating oil, gas, grain, dairy products, rare minerals like cobalt, titanium, tungsten, helium, and medical equipment.

The common thread is that these commodities have some kind of instrumental use, with the government having an interest in maintaining them for emergencies, or market stabilization.

Bitcoin by contrast has no industrial use. The US government does not “need” Bitcoin to trade at any specific price level. It makes no difference to the government if Bitcoin trades at $1 or $1 million. Bitcoin also doesn’t generate cash flows, so a reserve would not help with paying interest on the debt in the future.

The only “strategic” purpose Bitcoin could serve would be equivalent to that served by the US government’s existing reserve assets, such as gold and foreign currency – which is to say, none. As George Selgin painstakingly explains, the US actually has modest FX reserves, relatively speaking, compared with other developed nations. This is because the dollar is a truly free-floating currency and the US does not manage the peg at all. The roughly 8130 tons of gold the US holds have had no relevant use whatsoever since 1971. They are purely vestigial and just held for tradition’s sake. The last major interventions to manage the exchange rate of the dollar came in the 1980s.

Bitcoiners discussing the Bitcoin reserve idea tend to vastly overrate the role of gold in the dollar system. Ultimately, the US government’s balance sheet scarcely matters when it comes to the ubiquity of the dollar system.

The things that really support the dollar are:

• US GDP growth, creating tax liabilities which can only be extinguished in dollars
• The credibility and stability of the US government and monetary policy
• US capital markets being the most attractive and liquid in the world, making them a sink for global investment (in dollars)
• The network effects that come from dollar dominance in trade settlement, commodity markets, FX markets, and debt markets
• America’s continued role as the global hegemon and guarantor of global trade and security
  
  

Gold – and Bitcoin – are simply not relevant in the American monetary equation today. Perhaps they will one day have a role to play, but the current inconvertible standard is not based in any way on commodity reserves.

There’s no argument for an SBR which uniquely specifies Bitcoin

Why a reserve of Bitcoins? Why not something else? Bitcoiners have yet to provide a compelling answer. Bitcoin is worth a lot (~$2 trillion), is globally liquid, and is held by many individuals, you might say. Well, Bitcoin isn’t unique in this regard. Is there an argument you could make in support of a Bitcoin reserve that would also not apply to, say, Apple or NVIDIA stock?

“Well,” you might say, “these are claims on the cashflows of companies, and not bearer assets. Bitcoin is special, because it cannot be seized or interfered with.” Presumably, though, the US is not at risk of having the assets and IP of Apple or NVIDIA confiscated by itself. This would be an argument against another nation acquiring a reserve of the equity of a US-based company. But we’re talking about the US government.

There’s also no argument for a reserve of Bitcoin which does not include gold. If you want to remonetize a hard asset and use it as the basis for your currency system, gold is the obvious choice. If we want to “get ahead” of other nations in terms of reserve assets (a common argument made in favor of the SBR), gold is perfect, since we own more of it than anyone else. Simply re-monetize gold (re-price it from its official price to its current market price), and we are already ahead.

Gold is also a “bearer” asset, in that ownership is not a claim on anything other than simple possession of bars and ingots. If Bitcoiners are successful in persuading the US government that we should exit the Bretton Woods II standard, and move back to a pre-1971 commodity based standard, gold would genuinely be a better choice. It has a longer track record, more people own it (so remonetizing it would alienate fewer people), it’s worth about nine times more than Bitcoin, it has much lower volatility, and we already own it, so monetizing it would be far cheaper (if not free).

If you disfavor gold because it’s not a “high growth” asset like Bitcoin, then you could consider fast-growing (and productive) assets like NVIDIA, Apple, or Microsoft equity. If we’re considering what commodities the US might invest in for strategic purposes, my first choice would be AI datacenters or chip manufacturing. Those serve an obvious strategic purpose and would also be economically productive. However, we are then getting into discussions of using Treasury or Fed resources for “industrial policy”.

Most conservatives and libertarians are suspicious of top-down government apportionment of resources in this manner, preferring to let the private sector sort it out. I wasn’t a fan of Biden’s massive infrastructure spending, which I felt was extremely wasteful, and for that reason I don’t support further incursion into the private sector by the government, especially not via naked dollar issuance.

Typically, the US government doesn’t really intervene in markets with its monetary tools beyond setting rates; its role is setting the rules of the road and keeping the system stable, not aggressively deploying government funds into commodities for day trading. (This is why many were skeptical of Biden’s releases from the strategic petroleum reserve.) We are a markets-based capitalist economy, not a centrally planned one. It’s not the government’s job to manage a commodity hedge fund.

This is left to the private sector, with the government only stepping in when there’s some immediate strategic necessity to bolster reserves of a specific vital commodity. At the end of the day, the US government still benefits if the US private sector makes investments in commodities and assets that appreciate, via capital gains taxes.

I would trust the fund managers and capital allocators to do this rather than bureaucrats.

There’s no argument for acquiring an SBR today

Why create a reserve of Bitcoin today? What’s special about the present moment that makes a Bitcoin reserve an imperative right now? Nothing in particular. The dollar isn’t collapsing – in fact it’s thriving. The DXY has been rallying for the last 15 years or so – to the possible detriment of US manufacturing, and foreign countries with dollar liabilities.

The US is growing its GDP relative to the rest of the world, especially Europe, which is in slow decline, and China, which is dealing with a serious economic crisis for the first time since Deng. American equities are trouncing the rest of the world, with the US stock market accounting for ~50% of the global total. There’s nothing to indicate these trends won’t continue.

“But the dollar is falling relative to hard assets, like gold,” you might say. “And its purchasing power is falling, as evidenced by the relatively high and variable inflation regime we find ourselves in.” But there’s no apparent crisis in the dollar.

Rates are a bit higher than they’ve been in the last decade, but no one is panicking about the US government’s solvency. The dollar’s share of global FX reserves has fallen a bit in the last couple decades, but there’s no real crisis there either. The dollar is still utterly dominant globally, with no likely challenger evident anywhere. Neither the moribund Euro nor the (managed) Renminbi have the ability or the ambition to challenge the Dollar as the global reserve asset of choice.

The only reason the SBR is being discussed seriously today is due to Trump’s election victory. Bitcoiners have latched on to this for political expediency reasons in the hope that he might not only usher in more favorable regulation, but actually become a buyer of Bitcoin at the state level.

But Bitcoin is not anywhere near sufficiently large or liquid to make any kind of dent in the US’ reserve portfolio, and it certainly isn’t ready to be a monetary good like gold under the gold standard. It’s only worth ~$2 trillion today, compared to gold’s ~$17 trillion. Bitcoin is still extremely volatile, and clearly unsuitable to be a unit of account (if we were to graduate to some kind of Bitcoin-denominated dollar system).

Bitcoiners should simply be more patient. Bitcoin has done tremendously well over its short 15 years of life and is becoming a global monetary asset of consequence. It has undergone a full institutionalization with the ETF being a final major ratification.

Over time, its volatility will temper (and its market cap and liquidity will grow), and it will become a more suitable asset for governments to consider in their portfolios. But as of right now, it doesn’t have a meaningful role to play in America’s monetary system.

Careful what you wish for

The truth is, there’s no urgency to establish any sort of reserve. The US has nothing to lose by simply waiting. If Bitcoin continues to monetize and ultimately challenges gold, and other nations adopt Bitcoin as part of their sovereign wealth funds, or even start to “back” their currencies with it, the US has plenty of time to act.

US institutions, investors, and individuals hold more Bitcoin than anyone else. The US Government has ample means to acquire Bitcoin at any point along the journey, should they decide that they really covet it.

They could acquire Bitcoin via open market purchases. More likely, in my opinion, they would go for the much cheaper option of setting a price cap, banning private ownership, and forcing conversion of US-held Bitcoins, as they did with gold in 1933.

They could also simply expropriate the Bitcoins held on domestic platforms – US-based custodians are the biggest by far. They could nationalize miners. They could hike capital gains taxes and insist they be paid in-kind. They could arrest individuals known to hold a lot of Bitcoin and expropriate their funds. They could put resources into developing quantum computing good enough to steal the ~4m coins that are quantum vulnerable.

“Wait… not like that.” But that’s the trouble. You don’t get to decide the manner in which the US government acquires Bitcoins. If you are successful at persuading them of the virtues of Bitcoin, and they really set their heart on a reserve, they’ll do it through whatever means are most politically expedient.

This is not necessarily consistent with what is best for American bitcoiners. If it’s a choice between buying 1 million BTC at $1 million/coin (for $1 trillion dollars), or simply confiscating 1 million coins through some other method, they will go for the more efficient method.

If not Bitcoin, how should we shore up the dollar?

The long-term solvency of the US government is certainly a concern. Debt to GDP is near the top of the historical range at 120%. Interest costs as a share of GDP are at a 60-year high and going higher. Federal net outlays as a share of GDP are at the top end of the range over the last century, exceeded only by the level during and after WWII.

While the deficit has declined from its highs during Covid, it’s still elevated, and gives us very little breathing room if a recession hits. The reckless spending of the last four years (and frankly, there was bipartisan consensus on this) led to a burst of inflation, which we are still dealing with.

The dollar’s share of global FX reserves has declined from 70% to 60% over the last quarter century (though no other individual currency has gained meaningful share). And certain buyers of the debt are now leery of purchasing US Treasuries, after the US confiscated Russia’s reserves in 2022.

All of this points to a potential long-term issue with the dollar, although no crisis seems to be imminent. This might change if we experience a recession and the government finds itself unable to engage in massive stimulus spending, given that rates are already fairly high, and we are running a significant deficit.

If it were up to me, I would do the following:

• Increase GDP growth through any means possible. This means allowing for cheaper energy, fostering high growth industries like AI, and generally unshackling the private sector
  
  
• Slashing the size of government expenditures, which are far more wasteful than equivalent capital deployed in private markets, to reduce the deficit
  
  
• Limit political intervention into dollar markets, as in, realize that the sanctions-making power of the dollar trades off against its international usefulness
  
  
• Allow inflation to run hot for a while to reduce the debt load in real terms

The good news is that incoming Treasury Secretary Scott Bessent’s 3-3-3 plan basically does this. No Bitcoin needed. 

This is a guest post by Nic Carter. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.