With the significant shift in the economic paradigm that a Strategic Bitcoin Reserve would usher in, skepticism about who stands to benefit most is only natural. But there's more to an SBR than self-interested Bitcoiners.
As proposals for a Strategic Bitcoin Reserve (SBR) have gained traction in recent weeks, they have also sparked a growing number of objections and concerns. These proposals represent a significant shift in the economic paradigm, which naturally elicits skepticism and pushback. This skepticism is both healthy and welcomed, as it highlights the challenges an SBR is likely to face during the legislative process.
One major concern is that an SBR could result in a disproportionate transfer of wealth to current bitcoin holders. Relatedly, some worry that establishing an SBR would amount to the U.S. government picking a “winner” in the cryptocurrency market.
The first argument is based on the premise that if the U.S. were to begin purchasing bitcoin, the resulting increase in demand would drive up the price. As a result, existing bitcoin holders would see the value of their assets increase as bitcoin's price rises. In effect, the government would be transferring wealth to current bitcoin holders, as would be the case whenever a government purchases any commodity on a large scale.
However, it’s important to emphasize that the creation of an SBR primarily serves the national interest. Any benefit to bitcoin holders is incidental, not the primary aim of the initiative. As Senator Lummis recently argued on CNBC:
“Because of the way bitcoin has been appreciating since inception, this would be an asset that could help shore up the US dollar as the world reserve currency, and serve as a reserve that could be used to reduce the national debt significantly.”
But how exactly would an SBR achieve these particular goals and serve other national interests?
As outlined in a recent BPI report authored by Matthew Ferranti, bitcoin can be a crucial diversifier in the reserves of central banks around the world. Dr. Ferranti argues that bitcoin could be the most effective asset in counteracting a wide array of risks, including those related to inflation, geopolitical tensions, capital controls, sovereign default, bank failures, and financial sanctions. To the extent that the U.S. wishes to preserve and strengthen its financial resilience, an SBR could serve a crucial role in our portfolio of reserve assets.
With the dollar’s position as the global reserve currency coming under growing pressure, integrating bitcoin into national reserves could serve as a hedge against systemic risk in the Treasury market. Further, as concerns about inflation and fiscal sustainability increase, an SBR can provide option value, offering the U.S. government flexibility and a source of revenue to pay down debt. Holding bitcoin in national reserves would demonstrate the U.S. government’s proactive approach to modern financial challenges, reinforcing confidence in the system’s resilience and stability.
Bitcoin’s uniqueness in the capital market has an additional strategic advantage. If investors know that the U.S. government owns a substantial amount of bitcoin and that (a) bitcoin is likely to appreciate during debt monetization and (b) that the government is likely to use that price appreciation to pay down the debt, fears of debt monetization may diminish. An SBR would also address long-standing concerns over the lack of gold-like assets on the U.S. balance sheet. For the first time in over 50 years, the U.S. would be adding a non-fiat, non-debt-based asset to its reserves.
Bitcoin also stands to serve critical national security interests. Network competition is and will be the defining feature of 21st-century geopolitics, and monetary networks are no exception. As the U.S. looks to counter China’s attempts to establish alternative financial networks that route around traditional U.S. dollar networks and bypass sanctions, bitcoin could serve as a strategic asset.
Recently, central banks have been accumulating gold at record levels, surpassing the previous record of official reserve holdings set in 1965. This trend, combined with the rise of the BRICS coalition, signals a potential economic shift that could challenge the dominance of the U.S. dollar system. However, instead of signaling inevitable decline, this shift presents an opportunity for the U.S. to embrace Bitcoin as a tool to sustain global financial leadership. By incorporating bitcoin into its reserves, the U.S. would showcase its adaptability to evolving financial systems and its commitment to diversification, thereby reinforcing confidence in its role as a global economic leader. Similarly, if the U.S. were to move swiftly to implement the SBR, it could reap the rewards of a quasi-first-mover advantage as other Central Banks begin to follow suit.
Crucially though, as nation states begin accumulating bitcoin and first mover advantages begin to weaken, it is paramount that the U.S. moves swiftly to implement the SBR. El Salvador and Bhutan have both publicly stated that they have started accumulating bitcoin on their balance sheets, and rumors have long been circulating that sovereign wealth funds in the middle east are doing so as well. Moving quickly to adopt bitcoin as a reserve asset would help insulate the United States from other sovereigns gaining economic power in this potential shift. By embracing Bitcoin, the U.S. would reinforce its leadership in digital monetary systems and preempt moves by adversaries to undermine the dollar’s dominance.
On the question of the government tipping the scale toward bitcoin, as BPI Senior Fellow Josh Hendrickson recently noted in an interview: “I don’t think the U.S. government can pick a favorite. I think the market has picked a favorite.” Bitcoin stands fundamentally apart from other digital assets, assuming the role of digital gold within the digital asset space. With its fixed supply, predictable issuance schedule, lack of a central authority, and other unique attributes, bitcoin is uniquely suited as a reserve asset. For this purpose, bitcoin simply fits the bill best.
As the global financial landscape evolves, the U.S. must adapt to maintain its strategic advantage. Establishing a Strategic Bitcoin Reserve isn’t about enriching current bitcoin holders or picking winners; it’s about safeguarding the nation’s financial future.
