‘Strategic Bitcoin Reserve’ Plans Warrant Caution

At the recent Bitcoin Bitcoin -1.1% 2024 conference in Nashville, speakers proposed many good policies to tame the federal government’s regulatory hostility to Bitcoin and other cryptocurrencies. Among these – from the keynote speech of former President Donald Trump and other speaker presentations – were proposals to fire Gary Gensler as chairman of the Securities and Exchange Commission (Axios published a recent article on how this feasibly could be done, and I will have more to say on this in future columns), end the current “Chokepoint 2.0” in which financial regulators strongly discourage banks from serving crypto-related businesses, and block the creation of a government-backed central bank digital currency (CBDC).

But one proposal advanced there deserves skepticism: the call for the government to purchase or maintain bitcoin for what is being hailed as a Strategic Bitcoin Reserve.

Critics of Bitcoin and cryptocurrency at large immediately pounced on the idea of the government stockpiling what they see as a faddish asset. American Compass chief economist Oren Cass mocked the idea by tweeting: “Our founding fathers had the vision to acquire a continent. WE will speculate in crypto,” and then adding in his X post: “We have ceased to see the world in terms of real value for real people and now think merely about piles of financial assets.”

Yet even those bullish on Bitcoin’s long-term value as an asset should treat the idea of a government reserve with skepticism, particularly the more grandiose plans.

Let’s first go through the types of ideas being proposed for such a reserve. One is for the federal government to simply hold on to much of the Bitcoin it already seized in efforts against criminal activity, such as the Silk Road contraband market. Trump has been cited as a proponent of a “bitcoin reserve,” but in his Nashville speech, he only went as far as proposing that the government “keep 100% of all the Bitcoin the U.S. government currently holds or acquires in the future,” without outlining any plans to acquire more in the future.

Holding (or even hodling) on to at least some of the bitcoin the government currently holds is sensible and is in fact a more market-neutral policy than selling a large amount at once. Germany’s recent large sale of bitcoin in its possession has been fingered as a partial cause in bitcoin’s recent sharp drop in price. So, the U.S government keeping some of the bitcoin and other cryptocurrencies it has may be the least market-distorting alternative.

Read more at Forbes