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Trump Ignites Talk of Bitcoin as a Strategic Reserve Asset
LAS VEGAS, NEVADA – Trump’s embrace of digital assets on the campaign trail has brought renewed attention to … [+] The role bitcoin could play as a strategic reserve asset (Photo by David Becker/Getty Images)
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“We want all remaining Bitcoin to be produced in the USA!”
In a social truth send Last month, Republican presidential candidate Donald Trump expressed strong support for bitcoin. In the same post, he acknowledged the geopolitical significance of the world’s largest cryptocurrency, warning that any policy that seeks to hinder bitcoin “only helps China and Russia.” Trump’s statement not only positioned him as the first pro-bitcoin candidate from a major political party, but also put a spotlight on discussions about classifying bitcoin as a strategic reserve asset.
These discussions are gaining traction in political circles thanks to pro-bitcoin political leaders. Former presidential candidate Vivek Ramaswamy, for example, has been advising President Trump on bitcoin and digital assets since January. Ramaswamy took a unique stance in the final weeks of his campaign by proposing that the dollar be backed by a basket of commodities that could eventually include bitcoin.
Ramaswamy’s plan echoed a similar concept proposal by independent presidential candidate Robert F. Kennedy, Jr., in which a small percentage of U.S. Treasury bonds “would be backed by hard currency, either gold, silver, platinum or bitcoin.” The intent behind Ramaswamy and Kennedy’s proposals is to curb inflation by pegging the dollar to deflationary assets that hold their value over time.
Senator Cynthia Lummis, the “Crypto Queen” of Congress, is another proponent of using bitcoin to improve the nation’s finances. In February 2022, she suggested that the Federal Reserve diversify the $40 billion in foreign currencies it held on its balance sheet by adding bitcoin. And it continues to see benefits in holding the digital currency as part of the nation’s financial portfolio.
After Trump’s post alluding to bitcoin’s growing political importance, I asked Senator Lummis her thoughts on the discussions about bitcoin as a strategic reserve asset. Senator Lummis seems enthusiastic about the idea. In her own words: “Bitcoin is an incredible store of value, and I certainly see the benefits of diversifying our country’s investments.”
Trump, Lummis, Kennedy, and Ramaswamy represent a new generation of politicians open to the potential of bitcoin as a tool for economic governance.
So how could the United States leverage a digital commodity like bitcoin to bolster its fiscal health and geopolitical position?
Leveraging Bitcoin as a Strategic Reserve Asset
To answer this question, I reached out to Alex Thorn, head of corporate research at Galaxy Digital. Thorn has written extensively about the impact bitcoin could have on the global financial system. And he sees merit in the idea of bitcoin as a strategic reserve asset.
“As a global decentralized commodity currency with robust properties, bitcoin will undoubtedly play an increasing role in geopolitics and international trade,” Thorn said. “What began as a hobby using home computers has expanded to industrial manufacturing, institutional wallets, and corporate balance sheets. There is every reason to believe that bitcoin’s network layer will further expand to include nation states.”
Here’s the logic behind Thorn’s thinking: As with any scarce commodity, be it oil, gold, or rare earth minerals, countries often engage in fierce competition with one another to secure the largest share of the resources. And since it’s one of the rarest commodities on planet Earth, there’s little reason to believe bitcoin would be any different, especially if its value continues to rise as many financial analysts expect.
As a concrete example, Jurrien Timmer, global macroeconomics director at Fidelity, described bitcoin as “exponential gold.” If it were to reach parity with gold’s current market cap, a single bitcoin would be worth about $700,000, more than ten times its value today. The potential for such stratospheric returns makes it all the more tempting for sovereigns to accumulate bitcoin now rather than wait for other countries to do so first.
Despite the lack of a coherent bitcoin strategy, the United States is currently leading the digital gold rush. It is the largest bitcoin-holding nation-state, having seized the majority of its bitcoin stack from illicit actors over the past decade. The country also boasts the most bitcoin network nodes, hashrate, and mindshare of any country in the world. And if Trump wins in November, the nation would have its first pro-bitcoin president.
These factors place the United States in a strong position to become the MicroStrategy of the nations, should this become a policy priority for a future administration.
Case Studies: MicroStrategy and El Salvador
MicroStrategy is a legacy technology company that was in decline in the 2010s. But it returned to prominence in August 2020 after announcing that it had begun accumulating bitcoin as a treasury reserve asset.
Since this announcement, MicroStrategy’s stock price has increased by over 900%, making it the world’s largest corporate holder of bitcoin. The company currently owns 226,000 total bitcoins, more than the United States or any other country.
Some financial policymakers are now wondering whether MicroStrategy’s success can be replicated at the nation-state level. El Salvador is serving as an exciting beta test for this strategy.
In 2021, El Salvador’s President Nayib Bukele declared bitcoin legal tender and announced that the country would begin buying bitcoin as a treasury reserve asset. El Salvador is up about 50% on bitcoin purchases ahead of the bull market. And President Bukele has made clear his intentions to hold bitcoin for the long term. In his words: “We will not sell, of course. In the end, 1 BTC = 1 BTC.”
MicroStrategy Playbook Scalability
One way the United States could leverage Bitcoin as a strategic reserve is to take inspiration from the strategies of MicroStrategy and El Salvador.
As the largest bitcoin-holding nation-state, the United States already has a head start on other countries in accumulating digital gold. But classifying (and then treating) bitcoin as a strategic reserve asset would give the nation-state race for bitcoin a leg up.
As Alex Thorn explained, “Simple game theory dictates that adoption by one nation implies that other nations, whether friend or foe, will also consider the same thing.”
This game theory would only accelerate if the United States, the world’s richest nation and the home of global capital, were the first developed country to begin accumulating bitcoin as a strategic reserve asset. This move would accelerate the global acceptance of bitcoin as a long-term savings instrument and a form of digital gold. In this scenario, the United States would enjoy the largest profit windfall among OECD countries as a result of first-mover advantage.
Weighing the pros and cons
Of course, as with any bold strategy, there are always trade-offs. To get a broader sense of the pros and cons of adopting bitcoin as a strategic reserve asset, I reached out to Matthew Pines, a national security fellow at the Bitcoin Policy Institute.
On the plus side, Pines said the move “could position the U.S. well against authoritarian challengers (who may be considering their own asset diversification and hedging strategies), while also signaling an intent to lead emerging open digital financial networks.”
But among the drawbacks: “This strategy would face substantial challenges, including regulatory hurdles, the introduction of additional uncertainty into the U.S. Treasury market (although it could serve as a gold-like substitute for physical assets in the national balance sheet), and political opposition that could undermine its sustainability.”
Bitcoin and Stablecoin Pairing
However, policymakers could ease uncertainty in the U.S. Treasury market by pairing a bitcoin adoption strategy with robust promotion of dollar-backed stablecoins.
Stablecoin providers are now the 18th largest holder of US debt, Jack approximately $120 billion in US Treasuries. To put this figure into perspective, stablecoin providers now hold more US Treasuries than some of the US’s largest trading partners, including Germany and South Korea. Additionally, brokerage firm Bernstein predicts that the stablecoin market will grow exponentially over the next decade, reaching a total market capitalization of $3 trillion by 2028.
As former Speaker of the House Paul Ryan said he wrote in the Wall Street Journal last month, USD stablecoins could create unprecedented demand for U.S. Treasuries and even avert a debt crisis. Ryan says it’s up to U.S. policymakers to see stablecoins for what they are: a generational opportunity to expand dollarization and prop up the Treasury market.
A holistic digital asset strategy is essential to achieving this goal. Such a strategy would seek to increase demand for U.S. debt via stablecoins while also strengthening the nation’s overall balance sheet via bitcoin.
A strong balance sheet, bolstered by bitcoin in the early stages of nation-state adoption, would only increase the resilience of the American economy. And a stronger economy would only increase confidence in Treasuries backed by the “full faith and credit” of the U.S. government. With this strategy, policymakers could then lay the groundwork for an unexpected future, in which bitcoin and the dollar grow together.