Several politicians have recently floated the idea of establishing a Strategic Bitcoin Reserve. Donald Trump broached this issue earlier this year and made an explicit promise at the Bitcoin 2024 conference in late July: if he wins the presidency, the federal government will keep the bitcoins that it holds and all that it acquires in the future through law enforcement actions. The US government currently holds 212,848 of the roughly 19,732,900 bitcoins in existence. Its current holdings would be the basis of a Strategic National Bitcoin Stockpile.
Robert F. Kennedy Jr., another presidential candidate, also delivered a keynote speech at Bitcoin 2024. His speech could have been entitled “I am a Bitcoiner, too.” He proposed that the federal government keep its current holdings of bitcoins and then acquire 550 bitcoins daily until it holds at least 4 million bitcoins. Compare that to the maximum number of bitcoins that can be created, which is 21 million. At nearly 20 percent of the total supply, the bitcoins to be purchased under Kennedy’s plan is quite a lot. He was not explicit about the sources of the funds used to acquire so many bitcoins. If debt were issued to finance the purchases, the debt would amount to 35 million dollars per day. about 13 billion dollars per year at current prices. This is quite small compared to the current deficit.
At the same conference, Senator Lummis from Wyoming announced a bill that would create a strategic bitcoin reserve of one million bitcoins, which would be held for at least 20 years. A major purpose of the bill would be to enhance returns on the Treasury’s assets, such as gold, and help to pay off the national debt.
The sums involved are staggering on a personal basis. They are not so staggering compared to many of the government’s recent undertakings.
While the details differ, the proposals all involve the federal government holding a positive amount of bitcoin for a couple of decades.
The proposals themselves seem to take it as self-evident that it would be good for the government to hold some bitcoins. What are the arguments for and against the federal government holding bitcoins?
One part of the argument for the federal government holding bitcoins is based on projections of extraordinary future returns. Senator Lummis was explicit about this at the conference. Without being explicit about the extraordinary future returns, they are much of the basis of an argument in a Forbes column by Sam Lyman for acquiring bitcoin. All that can be said about that is: maybe so, maybe not.
Is there an intended use of the strategic reserve of bitcoin beyond a highly speculative investment? The bitcoin reserve is nothing like a commodity reserve, such as the US’s strategic oil reserve. It is more similar to the US’s holdings of gold. Despite some remaining misperception, the US dollar has not been related to gold in any way since 1971.
The gold reserve could be thought of as an investment in an appreciating asset, but the price of gold goes down as well as up. Besides, it is not obvious that the federal government is the best investor of its citizen’s funds.
Perhaps the gold reserve could be considered an emergency fund. Valued at current market prices and leaving aside gold held for minting coins, $601 billion in gold held is quite large. It is equal to about $1800 for every person in the United States. Selling the gold over a short period of time would decrease the price substantially. It would be less disruptive to simply print dollar bills in the event of an emergency. For comparison, $601 billion is less than three percent of the total stock of money in the United States.
So much for the gold reserve as an emergency fund. There is no reason to think that bitcoin would be a better or worse emergency fund than gold.
Given that the reserve of gold can be viewed only as the federal government holding it for investment purposes, there is no particular reason to focus only on gold and not include other assets, including cryptoassets such as bitcoin.
A better solution is for the federal government to sell its gold. The proceeds could be used to temporarily decrease taxes, reduce the government’s debt or temporarily increase spending.
If the government temporarily reduced taxes or gave taxpayers a check for the proceeds from selling the gold, taxpayers would be free to use the funds as they saw fit. Some no doubt would buy bitcoin. Some would not, because they are sufficiently risk averse that they do not want to hold a risky asset such as bitcoin. Some would buy gold. Some would use the funds to pay off student loans. In short, taxpayers would be able to use the funds as they saw fit, rather than having people in the federal government determine the use of the funds.
Reducing the government’s debt has similar effects. Lower debt means lower interest payments, which can be reflected in lower current and future taxes. People get to choose what to do with their higher after-tax income.
Increasing spending temporarily is the other alternative. There is no reason to tie government purchases of goods and services or hiring people to sales of gold. Either the purchases or employment are worthwhile or they are not. The source of funds does not affect their desirability. The funds could be used to purchase assets, which could include bitcoin.
Given that financial freedom was one of the motivations for a private digital currency such as bitcoin, it is incongruous to have the federal government acquire part of the stock of bitcoin. Indeed, such an acquisition can be considered partial nationalization. The asset most similar to bitcoin currently held by the government is gold. Rather than acquiring bitcoin, the better solution is to sell the gold reserve and let members of the public decide how to invest their funds.
Gerald P. Dwyer
Gerald P. Dwyer is a Professor and BB&T Scholar at Clemson University and a Senior Fellow at the Bitcoin Policy Institute. From 1997 to 2012, he served as Director of the Center for Financial Innovation and Stability and Vice President at the Federal Reserve Bank of Atlanta. Dwyer’s research has appeared in leading economics and finance journals, as well as publications by the Federal Reserve Banks of Atlanta and St. Louis. He serves on the editorial boards of the Journal of Financial Stability, Economic Inquiry, and Finance Research Letters. He is a past President and member of the Executive Committee of the Association of Private Enterprise Education. He is also a founding member of the Society for Nonlinear Dynamics and Econometrics, an organization for which he served as President and Treasurer.
Dwyer earned his Ph.D. in Economics at the University of Chicago, his M.A. in Economics at the University of Tennessee, and his B.B.A. in Business, Government, and Society at the University of Washington.
Dwyer is a Senior Fellow at Bitcoin Policy Institute
