Has the plan worked? Yes — and no. The good news for bitcoin fans is that bitcoin became spectacularly popular: By the start of this year, the once-worthless digital ledger entries were fetching more than $100,000 each. The bad news is that, instead of taking the place of paper dollars and bank deposits in routine payments, bitcoins are mostly being hoarded, or “HODLed” in bitcoiner argot, leaving the dollar as secure as ever.
The change in bitcoin’s status, from would-be alternative currency to digital get-rich-quick scheme, has in turn changed bitcoin fans’ attitude toward the government. Inspired by El Salvador’s example — its government began stocking up on bitcoin in 2021 — instead of wanting to keep bitcoin beyond governments’ reach, many now want governments to reach for it. Seeing a chance to win over a young and growing constituency, and sometimes buying the hype themselves, politicians have joined their cause.
So it happened that, during the run-up to last year’s presidential election, both Donald Trump and Robert F. Kennedy Jr., who was then running against him, proposed official bitcoin stockpiles. Trump called for making some 200,000 coins already in the federal government’s possession “the core” of a “strategic national bitcoin stockpile” to “benefit all Americans.” In contrast, Kennedy would have had the government stockpile up to 4 million bitcoins, an amount equal to a fifth of today’s supply. Finally, Senator Cynthia Lummis, a Republican from Wyoming, introduced the BITCOIN Act, which would have the government revalue and remonetize the gold in Fort Knox to finance a 1 million coin official bitcoin stash.
Kennedy’s extreme plan went nowhere, and Lummis’s bill was only recently reintroduced to the Senate. But on March 6, Trump issued an executive order establishing a “Strategic Bitcoin Reserve,” which fulfilled a campaign promise.
Of course, champions of a Strategic Bitcoin Reserve don’t say that its only purpose is gratifying the bitcoin lobby. The White House says its plan is aimed at “positioning the United States as a leader among nations in government digital asset strategy.” Others say that a bitcoin reserve will help the government pay down its debt. Still others believe that a bitcoin reserve will directly strengthen the dollar.
The list of justifications for a government bitcoin stockpile is long, not because there are many good ones, but because there are none, so the schemes’ apologists must keep trying. Just what “digital asset strategy” the Trump administration has in mind, apart from pleasing bitcoin enthusiasts, is anybody’s guess. The other justifications are less vague, but no less inadequate.
Take the BITCOIN Act’s claim that a bitcoin stockpile will help the government pay off its debt. For that to be true, two things have to happen. First, bitcoin’s value must go up — a lot. For example, at today’s interest rates, the plan’s million-coin stash would have to more than double in value during its 20-year holding period just to compensate for the plan’s implicit interest cost. Second, the stockpile must eventually be sold to realize the gains, and you can bet that the same bitcoin holders who have managed to get the government to keep the bitcoin it already has will cry foul if it ever tries to sell any new coins it acquires.
The claim that an official bitcoin hoard will strengthen the dollar is just as dubious. It assumes, first, that a bitcoin hoard will serve the same purpose as the 8,133 metric tons of gold mostly kept at Fort Knox, and second, that all that gold is itself propping up the dollar. Even granting the first assumption, the second is false: Gold hasn’t propped up the dollar since Richard Nixon ended the gold standard in August 1971. Were the government serious about paying down its debt, it could do it easily enough just by selling some or all of that no longer necessary gold, instead of creating other useless stockpiles. And the dollar would be none the worse (and probably better) for it.
Ironically, the White House’s plan hasn’t done much for bitcoin itself. By merely preventing the sale of bitcoin already in the government’s hands, it disappointed bitcoiners looking forward to further government-funded capital gains. And by also providing for a “United States Digital Asset Stockpile” to be at least partly “capitalized” by rival cryptocurrencies, besides opening a Pandora’s box of potential conflicts of interest (some Trump family members and administration officials have financial interest in various cryptocurrencies and cryptocurrency platforms), it fell far short of declaring bitcoin the government’s particular favorite. The disappointment is one reason why, instead of going up, bitcoin’s price, which was above $92,000 when the executive order came out, was about $10,000 lower a week later.
But bitcoin HODLers may yet have the last laugh. The executive order leaves the door open to further “budget neutral” acquisitions of it and other cryptocurrencies, meaning ones that won’t involve more government spending or borrowing. That seems like a mere crack.
But taxpayers beware: “Budget neutral” can mean lots of things. The sponsors of the million-coin BITCOIN Act, for example, call it budget neutral because the proposed purchases won’t increase the federal debt and are also off-budget. Yet they would still have the government borrowing and owing plenty of interest, though to banks rather than bondholders. So don’t count on not having to invest more in cryptocurrency, even if you don’t know a protocol from a hole in the ground.
