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The case for a strategic Bitcoin reserve
Since Election Day, Bitcoin’s value has climbed nearly 50% and, this week, it broke the $100,000 price barrier. Propelling the asset’s rapid ascent is talk of the United States creating a strategic Bitcoin reserve.
In July, President-elect Donald Trump vowed to create a “national Bitcoin stockpile.” Republican Senator Cynthia Lummis introduced a bill to use existing government funds to purchase 1 million bitcoins. And Democratic Congressman Ro Khanna came out in favor of the United States using its large stash of seized Bitcoin as a strategic reserve asset.
Bipartisan support for a strategic reserve is growing as policymakers recognize that Bitcoin—like every novel technology before it—can serve the national interest. Not only could a strategic Bitcoin reserve significantly reduce our national debt; it could also strengthen the dollar and increase our economic leverage over China and Russia.
Consider first the critical role Bitcoin could play in curbing the deficit without raising taxes. Bitcoin’s value may be volatile over the short term. But over the long term, its price has always moved in one direction: up.
Spotting this trend, MicroStrategy CEO Michael Saylor made the bold decision to accumulate Bitcoin as the company’s primary treasury reserve asset in 2020. Saylor’s investment saved a stagnant corporation from financial irrelevance, increasing its market cap from $1.3 billion to $94.78 billion in just four years.
Saylor made a simple bet: Bitcoin’s value will continue to appreciate as more institutions and countries grok its use case as a long-term savings instrument. Now, policymakers are doing the same. Hence the momentum behind a strategic bitcoin reserve.
Following MicroStrategy’s price models, the bitcoin reserve proposed by Senator Lummis could cut the national debt in half over the next 20 years. Better yet, it would come at no expense to taxpayers.
Lummis’ bill would simply convert a small portion of the US government’s gold reserves and other holdings to purchase 1 million bitcoin, or approximately 5% of the global supply. This would bring the nation’s ownership stake in digital gold on par with its ownership stake in physical gold. And it would position the United States as the indisputable leader in the fastest-growing monetary network in the world.
But the benefits of embracing Bitcoin go far beyond alleviating the national debt; policymakers could also use the cryptocurrency as a counterweight to China and Russia’s economic hostility.
In recent months, BRICS countries have accelerated plans to introduce their own currency as part of a broader move towards de-dollarization. Leading the charge are China and Russia, which are dumping US Treasuries by the thousands in exchange for gold bullion. In effect, these countries are leveraging gold reserves to reduce their dependence on the US dollar-system. And by their actions, they are encouraging others to do the same.
But what if the United States had a check against gold weaponization? Enter Bitcoin.
As Federal Reserve Chair Jay Powell noted this week, Bitcoin is not a competitor to the dollar—"it's a competitor for gold." As a store of value, Bitcoin possesses many of the same properties of gold. Like gold, Bitcoin is durable, scarce, and difficult to mine. But unlike gold, it is easily verifiable, infinitely divisible, and can be sent anywhere in the world at the speed of light. These superior characteristics have driven much of bitcoin’s price appreciation over the last decade.
The United States has much to gain by moving first. As with any new technology, the greatest benefits accrue to early adopters. And being the first G20 country to embrace bitcoin as a reserve asset would all but require other countries to follow suit. Just as the launch of BlackRock’s Bitcoin ETF marked Bitcoin’s debut on Wall Street, the creation of a US strategic Bitcoin reserve would mark Bitcoin’s debut on the global stage.
The game theory dynamics of nation-state adoption would spark a digital gold rush, slowing—and possibly even reversing—the flight to physical gold. US policymakers could thereby use bitcoin as a tool of economic statecraft, counterbalancing China and Russia’s attempts to move away from the dollar towards precious metals. And which country’s balance sheet would benefit the most in this scenario? The United States’.
A stronger and more diversified balance sheet would strengthen the US economy—and by extension, confidence in the US dollar. But policymakers could boost confidence in the dollar even further by pairing a strategic bitcoin reserve with a robust strategy to champion US dollar-based stablecoins—digital assets backed 1-to-1 by a reserve of dollars—and promote their use abroad.
This bitcoin-stablecoin barbell strategy would eliminate any perception that the United States’ decision to hold bitcoin reflects a lack of confidence in the dollar. At the same time, it would supercharge demand for US treasurys, which back dollar-based stablecoins. Consider that stablecoin providers today hold approximately $120 billion in U.S. treasuries, making them the 18th-largest treasury holder in the world—ahead of countries like Germany and South Korea. Advocating for stablecoins abroad while accumulating Bitcoin at home is the 1-2 punch our country needs to counter China and Russia’s economic aggression.
Money is a technology. And the future belongs to countries that embrace new technology to advance their national interests. The incoming Trump administration can do this now by embracing digital assets and creating a strategic Bitcoin reserve.
Sam Lyman is the director of public policy for Riot Platforms, the former chief speechwriter to Senator Orrin G. Hatch, and the former speechwriter to the President and CEO of the US Chamber of Commerce.