If The US Wanted To Build A Bitcoin Reserve, How Would It?
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the cliff-notes:
- The United States considering Bitcoin as a reserve asset could bolster the dollar's position as the foremost global reserve currency due to Bitcoin's absolute scarcity
- Allocating Bitcoin would act as an internal hedge against fiscal recklessness, appreciating on the US Treasury's balance sheet amidst a widening deficit
- If the US pursued this strategy, it would trigger a global race among superpowers to allocate Bitcoin
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Would the United States ever strategically allocate Bitcoin as a reserve asset? And even if a president wanted to do that, how would they go about doing it?
Those are the two questions that have circulated as of yesterday and early today. There was some reporting, I won't say from whom, but what I will say is that you shouldn't believe everything you read and only believe half of what you see, as Ben Franklin and Edgar Allan Poe advised. And that's what I would exercise here until it comes from the horse's mouth, until it comes from the actual presidential candidate. Don't believe anything you read. But if the United States wanted to, what would be the reasons behind it?
One reason is that our position as the world's largest and foremost reserve currency, that being the US dollar for global trade and US Treasuries, which are denominated in dollars for collateral for global lending, would be bolstered with our allocation to Bitcoin. Because it has a fixed 21 million supply, in the same way that tying the dollar to an underlying gold reserve held at Fort Knox by the US Treasury strengthened the dollar's value and ensured that the United States dollar remained strong, Bitcoin would do the same thing, if not better, due to its absolute scarcity.
Bitcoin's absolute scarcity would also help the United States with its fiscal recklessness. We know how wide the deficit is—six and a half percent, the widest it's ever been outside of something like COVID. Holding on to Bitcoin would serve as an internal hedge that would appreciate on the United States Treasury's balance sheet or the Fed's, wherever they decide to hold it, as the deficit widens. Because new dollars are printed into the system from out of the ether, and our spending is higher than our revenues.
If this is true, if the United States planned to do this, it would be the proverbial gunshot that would kick off the race between global superpowers to allocate to Bitcoin. It would be a pretty big race because you have infinite balance sheets flooding into finite Bitcoin. But that's why they would want to do it. And if this were to happen, the other question is the viability of it. Could it happen?
Matthew Pines put out a tremendous X thread, which I suggest you take a look at. He talked about the method through which the United States would actually go about buying Bitcoin. The first method, according to Pines, is Trump, the candidate who's pro-Bitcoin now, instructing the Treasury Secretary to buy Bitcoin using funds in the Exchange Stabilization Fund. The relevant statute within the ESF that constrains its use is the Gold Reserve Act of 1934.
Some changes would need to be made within the Gold Reserve Act of 1934, or at the very least, some legal cases would have to be won revolving around the definition of Bitcoin for it to be purchased within the ESF. Either the Secretary of the Treasury directly or through an agency can purchase gold, foreign exchange, and other instruments of credit or security. Through those two definitions, Bitcoin could be argued to fit. They could argue that Bitcoin is a foreign exchange, citing El Salvador's use of it as a sovereign currency, or they could restrict Bitcoin purchases to just securities, such as ETF shares.
The second method Pines suggests is for the United States to pressure the Fed to use its emergency authorities for unusual and exigent circumstances to set up a Special-Purpose Vehicle. This special vehicle would operate outside the existing binding restrictions of what the Fed can and can't purchase. It used an SPV during COVID to buy a bunch of corporate bonds. Through that SPV, it was allowed to make such purchases because the Fed itself is not permitted to buy those kinds of assets. This scenario of the acquisition of BTC by the US involves some pressure being put on the Fed to buy Bitcoin through a new Special-Purpose Vehicle.
Pines goes on to say that this would be a totally unprecedented application of these authorities and probably wouldn't stand up to legal challenge unless Trump could get explicit congressional authorization. But it seems Trump is leaning toward having an official Bitcoin policy and wants to make the United States a Bitcoin powerhouse—so it isn't much of a stretch to suggest that we may have a strategic Bitcoin strategy in the future, particularly given the size of Bitcoin in 5 to 10 years.
If Trump has the right people around him, something like this could happen. At the very least, we could hold on to the several hundred thousand Bitcoin seized by the US government from criminal proceedings rather than selling them, as Germany and others have done. We could hold onto them and put them in a digital Fort Knox, so to speak.
Final thought: have a great weekend.
Take it easy,
Joe Consorti
Theya is the world's simplest Bitcoin self-custody solution. With our modular multi-sig vaults, you decide how to hold your keys.
Whether you want all your keys offline, shared custody with trusted contacts, or robust mobile vaults across multiple iPhones, it's Your Keys, Your Bitcoin.
Download Theya on the App Store.