Did the strategy succeed? Yes — and no. The positive takeaway for bitcoin enthusiasts is that bitcoin has surged in popularity: As we entered this year, formerly worthless digital tokens were being traded for over $100,000 each. Unfortunately, the downside is that, rather than replacing cash and bank deposits for everyday transactions, bitcoins are largely being accumulated, a practice referred to as “HODLing” in the bitcoin community, which keeps the dollar stable as ever.
Bitcoin’s evolution from a prospective alternative currency to just another scheme for quick wealth has shifted the bitcoin community’s perspective on government. Motivated by El Salvador’s lead — which began stockpiling bitcoin in 2021 — many now desire governmental involvement rather than a separation from it, inspired by a burgeoning and youthful voter base, with politicians occasionally caught up in the excitement.
In a notable occurrence during the previous presidential campaign, both Donald Trump and Robert F. Kennedy Jr., who was contesting against him, suggested the establishment of official bitcoin reserves. Trump proposed utilizing approximately 200,000 bitcoins currently held by the federal government as the backbone of a “strategic national bitcoin stockpile” intended to “benefit all Americans.” On the other hand, Kennedy advocated for a government reserve of up to 4 million bitcoins, representing one-fifth of the current supply. Senator Cynthia Lummis, a Republican from Wyoming, also introduced the BITCOIN Act, aiming to finance a million-coin official bitcoin reserve by revaluing and remonetizing the gold stored in Fort Knox.
Kennedy’s ambitious proposal failed to gain traction, while Lummis’s bill was recently reintroduced in the Senate. However, on March 6, Trump signed an executive order that established a “Strategic Bitcoin Reserve,” fulfilling a promise made during his campaign.
Proponents of a Strategic Bitcoin Reserve argue that its primary purpose extends beyond merely satisfying the bitcoin lobby. The White House claims that the initiative aims to “position the United States as a leader among nations in government digital asset strategy.” Others assert that a bitcoin reserve could potentially help reduce government debt, while some believe it would directly enhance the dollar’s stability.
The list of arguments for a government bitcoin reserve is extensive, not because they are compelling, but due to a lack of substantiating evidence, forcing advocates to continually propose new reasons. What the Trump administration’s “digital asset strategy” entails, aside from appeasing bitcoin supporters, remains unclear, while alternative justifications are less ambiguous but equally unsatisfactory.
Consider the BITCOIN Act’s claim that a bitcoin reserve would aid in reducing government debt. For this to be valid, two conditions must be met: first, the value of bitcoin must significantly rise — for instance, under current interest rates, the proposed million-coin reserve would need to more than double in value over a 20-year span just to offset the implied interest costs. Second, the stockpile must eventually be sold to realize profits, and it’s certain that existing bitcoin holders would oppose any attempts to sell newly acquired coins.
The assertion that an official bitcoin reserve would strengthen the dollar is equally questionable. It presumes that a bitcoin reserve would function like the 8,133 metric tons of gold primarily stored at Fort Knox and also that this gold itself supports the dollar. Granting the first assumption, the latter is false: The dollar ceased being backed by gold after Richard Nixon dismantled the gold standard in August 1971. If the government were genuinely interested in addressing its debt, it could easily do so by selling some, or all, of the now-unneeded gold, thus avoiding the creation of additional stockpiles. The dollar would likely remain unaffected or even improve as a result.
Ironically, the White House’s initiative hasn’t benefited bitcoin itself. By simply preventing the sale of government-held bitcoin, it left many bitcoin enthusiasts disillusioned as they had hoped for increased government-backed capital gains. Additionally, the inclusion of a “United States Digital Asset Stockpile” partially funded by rival cryptocurrencies not only opens a potential conflict of interest (given that some Trump family members and officials have financial ties to various cryptocurrencies), but it also fell short of designating bitcoin as the government’s favored digital asset. This disappointment contributed to a drop in bitcoin’s price, which fell from over $92,000 following the executive order to about $82,000 just a week later.
Nonetheless, bitcoin HODLers might have the last laugh. The executive order allows for potential “budget-neutral” acquisitions of both bitcoin and other cryptocurrencies, implying that these would not necessitate additional government spending or borrowing. However, this appears to be a mere crack in the door.
Taxpayers should remain cautious: “Budget neutral” can encompass a variety of interpretations. The proponents of the million-coin BITCOIN Act, for instance, describe it as budget neutral since the proposed purchases would not increase federal debt and would operate off-budget. Yet, this would still entail the government incurring debt and paying interest, albeit to banks rather than bondholders. Therefore, do not count on avoiding further investment in cryptocurrencies, even if you aren’t well-versed in blockchain technology.
