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The US Government's Strategic Bitcoin Reserve concept gains traction amid President Trump's executive order, hinting at Bitcoin's potential role in bolstering the dollar against geopolitical pressures, especially from China.
Was the US Government’s Strategic Bitcoin Reserve a mirage? Recently, President Donald Trump broke Bitcoiners' hearts by announcing the creation of a Working Group to “evaluate the potential creation and maintenance of a national digital asset stockpile.” That’s right, that executive order doesn’t even mention Bitcoin. Instead, it uses the suspicious “digital assets” moniker.
However, let’s be honest, what conclusion could the Working Group reach other than “Bitcoin is the only digital asset worth owning”?
No-coiners, 99% of the country, will have other questions in mind though. Why does the US need a Strategic Bitcoin Reserve in the first place? Wouldn’t that jeopardize the Dollar’s status as the world’s reserve asset? We’ll answer their questions, but first, consider this quote by former U.S. Secretary of the Treasury Henry H. Fowler:
"Providing reserves and exchanges for the whole world is too much for one country and one currency to bear."
Let’s explore the dark side of issuing the world’s reserve currency and how a Strategic Bitcoin Reserve might make sense in that scenario.
Besides President Trump’s “national digital asset stockpile,” 13 states are reportedly considering local Strategic Bitcoin Reserves, and Sen. Cynthia Lummis proposed a national one under the authority of the Treasury. Each project has a life of its own and will develop at its own pace, so, the Strategic Bitcoin Reserve concept is still alive.
The US Government might be playing an even deeper game, though.
Luckily for us, Blink’s CEO Lukas Duczko discussed the possibility of a US Strategic Bitcoin Reserve for years in his Global Bitcoin Fest and other Twitter Spaces. In his current view, the playbook is the following: the national digital asset stockpile’s objective is “to draw attention away from Bitcoin. They’re playing 4D chess.”
According to Duczko, “They can’t announce the Strategic Bitcoin Reserve until they have all their ducks in a row. Right now, they’re building it, and they’re keeping a low profile until they have everything figured out.”
That’s the lead right there. Let’s unpack it.
Interviewed in "Live From Bitcoin Beach," Blink’s CEO explained that while evaluating Bitcoin’s prospects he realized “China might take over the reserve currency status. The US may be losing that status.” That’s one of the possible scenarios ahead, and this article will provide the rationale behind the idea.
Back to Blink’s CEO story, he introduced an important concept related to the Strategic Bitcoin Reserve:
“There’s something called the Triffin dilemma, where you can only hold the reserve currency for a certain amount of time before you hollow out your economy and you have to pass the torch to somebody else. And I realized that game theoretically, they could actually extend the lifetime of the US Dollar as reserve currency by backing it with Bitcoin.”
We’ll discuss the Strategic Bitcoin Reserve as a lifeline for the Dollar, but let’s clarify something first: The US was well aware of Triffin’s dilemma when it made its play to make the US Dollar the world’s reserve currency.
We asked Mr. Duczko about the Triffin dilemma and its implications:
“When you have the world’s reserve currency, you have to export it, and you do that by buying goods from others. However, by not buying at home, you’re not supporting your industry and services. This weakens them and hollows out your product base.
How do you keep the industry at home solvent? You borrow money to cover the difference.
If you depend on credit instead of profit, everyone is in debt. And someone who’s broke is not a reliable partner. How do others know that you’re not going to print bills out of thin air to get out of debt? You will, and when you do, you’ll lose credibility.
On that note, Fitch downgraded USA’s long-term credit rating from AAA to AA+ on August 1st, 2023.
Triffin’s dilemma poses having the world’s reserve currency forever is a mathematical impossibility. At the end of the cycle, the issuer has to pass the baton to the next rising power.”
The costs of being the world’s reserve currency are inflation, a perpetual trade deficit —when a country's imports exceed its exports— and a decline in national manufacturing caused by exporting industries that cannot compete worldwide.
Recently, Binance CEO Changpeng Zhao predicted, “countries will compete to list Bitcoin as a reserve asset in the coming years; no country wants to be the last to take action.” That arms race of sorts is one of the reasons for a Strategic Bitcoin Reserve.
The US’s main worry is China. In a paper titled “A “Global Economic Reordering” US-China Competition and Bitcoin as Tool of US Statecraft,” the Bitcoin Policy Institute warns, “China’s “dual circulation” strategy bolsters domestic production while expanding global market share, challenging open-market principles and fostering dependency among partner nations.” Later on, the Institute elaborates:
“Adversarial powers, particularly China, which are leveraging alternative financial and technological systems—including the Digital Silk Road initiative, the Cross-Border Interbank Payment System (CIPS), nascent BRICS-based trade and currency arrangements, and the digital yuan— to evade US financial network power and create rival blocs.“
If China successfully manages to impose the yuan as a reserve currency, the US dollar would surely lose ground against other currencies. This would lower the trade deficit and help the country's national industry, but it would also increase the difficulty of paying the US’ significant debts.
Is a Strategic Bitcoin Reserve the answer to that threat?
Digital asset stockpile or not, the BITCOIN Act of 2024 proposed by Senator Cynthia Lummis is still out there. In a press release presenting the project, Senator Lummis wrote:
“Bitcoin is transforming not only our country but the world and becoming the first developed nation to use Bitcoin as a savings technology secures our position as a global leader in financial innovation. This is our Louisiana Purchase moment that will help us reach the next financial frontier.”
The ”Boosting Innovation, Technology and Competitiveness through Optimized Investment Nationwide Act of 2024” AKA the BITCOIN Act of 2024 proposes to “purchase not more than 200,000 Bitcoins per year over a 5-year period, for a total acquisition of 1,000,000 Bitcoins.” It also establishes, “to ensure the long-term stability and security of the Strategic Bitcoin Reserve, the Secretary shall hold all Bitcoin acquired through the Bitcoin Purchase Program for not less than 20 years.”
The proposal sounds perfectly rational to Bitcoiners, but, how will the no-coiner 99% of the country react? The majority will probably sound like the Financial Times' “The delusions behind a bitcoin strategic reserve” article:
“A bitcoin reserve would serve exactly one strategy. A Treasury with a million bitcoin would be trapped by its own portfolio. Congress could never exercise monetary sovereignty by limiting bitcoin mining or trading, because the price of the Treasury’s own assets would immediately collapse.”
Their reasoning makes sense on a surface level, but they’re missing the bigger picture.
The Bitcoin Policy Institute’s paper presents a case for the Strategic Bitcoin Reserve. First, Bitcoin’s “unique properties—including decentralization, a fixed supply, and robust digital infrastructure—position it as a next-generation reserve asset uniquely suited to a fragmented and technologically advanced global financial system.”
Bitcoiners will have no problem agreeing to that, but, no-coiners might ask: why should the US invest? Diversification is a good reason:
“As a portfolio diversifier, bitcoin offers low correlations with traditional reserve assets like gold and US Treasuries, enhancing its utility in reserve portfolios. Bitcoin's price movements are driven by distinct macroeconomic forces, such as inflation expectations, making it a complementary addition to gold-heavy portfolios.”
And then, there are huge geopolitical reasons. Bitcoin’s game theory dictates that the country that shoots first earns an immense advantage over the field.
The Bitcoin Policy Institute concludes:
“Integrating bitcoin as “digital gold” presents a unique opportunity to diversify national reserves, hedge against systemic risks, and secure a first-mover advantage in the evolving global monetary landscape. Establishing a Strategic Bitcoin Reserve and supporting dollar-backed stablecoins would bolster confidence in US fiscal strength, expand the global dollar network, and provide a powerful counterweight to China’s digital and gold related alternatives.”
The untrained eye would not detect it, but The Bitcoin Policy Institute introduced a major new element: “supporting dollar-backed stablecoins.” Let’s explore that concept.
We’ve explored the disadvantages of issuing the world’s reserve currency, but Triffin dilemma or not, exporting your inflation to every country on Earth is an exorbitant privilege. According to Lukas Duczko, “They’ll probably want to extend issuing the world’s reserve currency as long as possible. And now, there’s a cheat code: Bitcoin. Backing your currency with a transparent, public, and neutral commodity.”
Using gold wouldn’t work in the modern era, that boat sailed when Nixon lifted the gold standard leaving all countries stranded. Gold is centralized, hard and expensive to transport, and there’s trust involved in all transactions. Bitcoin, on the other hand, runs at the speed of light on a public ledger that guarantees it can be audited 24/ 7. And no rival country controls it.
What connects the Bitcoin network to the Dollar? You guessed it: Stablecoins. Mr. Dukzo explains:
“Stablecoins and Bitcoin are not directly related, it’s more a compatibility or UX relation. The ease of exchanging stablecoins for Bitcoin makes them a perfect trading pair, where you can seamlessly change between the volatile asset and the stable asset. They feed off each other.
As the dollar keeps being debased, as it always is, Bitcoin is the better money. However, most people will keep using the dollar for day-to-day transactions and as a unit of account. In that scenario, people can always escape into Bitcoin if they want to avoid inflation.
There’s also a technical/ practical aspect to the story. The banking system is broken. It’s extremely hard to roll out dollars through it. Stablecoins are a smooth way to supply the worldwide demand for the dollar”
Is the US government aware of this? Judging by Trump’s executive order, they are. The document proposes:
“Promoting and protecting the sovereignty of the United States dollar, including through actions to promote the development and growth of lawful and legitimate dollar-backed stablecoins worldwide.”
The signs are all around if you look for them. However, there are also warning signs.
Even though the controversial Nic Carter plays dumb about what makes Bitcoin special, he makes a good case in his “I Don’t Support a Strategic Bitcoin Reserve And Neither Should You.” Carter presents several real-life scenarios The Bitcoin Policy Institute might not be considering and avoids low-level arguments, like claiming Bitcoiners want BTC to replace the Dollar.
First, Carter clarifies that he’s not against “holding on to existing seized Bitcoin” or “putting Bitcoin in a sovereign wealth fund.” He’s specifically against buying to establish a Strategic Bitcoin Reserve. His main reason is “there is no apparent crisis with the US dollar at present”, but a purchase of this magnitude might make citizens wonder if there is. In turn, “markets would anticipatorily start to go berserk.”
Additionally, Carter questions the need for a Strategic Bitcoin Reserve with cold hard logic:
“It might make sense, if you are Russia or Iran, to consider an un-seizable asset in your FX reserves, especially after the US confiscated Russia’s treasuries in 2022. But the US does not need to hedge its exposure to the dollar, because it itself issues the dollar.”
However, Carter is playing a dangerous game by ignoring the first-mover advantage. The Bitcoin Policy Institute made its case for shooting first, but even a non-Bitcoin native publication like The Conversation sees the risk in Carter’s relaxed approach:
“If the US, another leading economic power (like China), or a series of larger emerging economies (like the rest of the BRICS) become block-holders of bitcoin or other major cryptocurrencies, it could trigger the emergence of a cryptocurrency “arms race” on a global scale. This would see country after country rushing to bolster their reserves.”
Back to Carter’s article, his most convincing reason has to do with perception. According to Carter a Strategic Bitcoin Reserve “would be seen as a massive wealth transfer from US taxpayers to already wealthy Bitcoiners.” That kind of bad PR could be devastating to the Bitcoin network, and we already established what no-coiners could think of a move of this magnitude.
To close his case, Nic Carter asks Bitcoiners to be patient:
“Attitudes might be different in ten or twenty years if de-dollarization accelerates, the US enters some kind of default situation, rates skyrocket, many other countries start to adopt Bitcoin as a reserve asset. But that’s not the world we live in today.”
Is it too early for a Strategic Bitcoin Reserve? Are Bitcoiners jumping the gun? Maybe, however, another question is, can the US afford to remain calm and don’t pull the trigger? Can the US be sure that other countries are not building their Strategic Bitcoin Reserves as you read these lines?
Even among Bitcoin circles, the Strategic Bitcoin Reserve is a controversial topic. Is Bitcoin ready for prime time? This kind of attention might come back to bite the network. The situation is reminiscent of 2010, when Wikileaks considered accepting donations in BTC and Satoshi Nakamoto wrote on Bitcoin Talk:
“I make this appeal to WikiLeaks not to try to use Bitcoin. Bitcoin is a small beta community in its infancy. You would not stand to get more than pocket change, and the heat you would bring would likely destroy us at this stage.”
Of course, Wikileaks still did it, the program was hugely successful and finances the organization to this day. And Bitcoin didn’t only survive, it thrived.
While we wrote this article, President Trump named billionaire Howard Lutnick as US Secretary of Commerce and put him in charge of creating a Sovereign Wealth Fund. That’s not exactly a Strategic Bitcoin Reserve, sure, but remember: Lutnick is the CEO of Bitcoin-friendly Cantor Fitzgerald, a company that owns 5% of Tether. Personally, he recently told Pomp he has “hundreds and hundreds of millions of dollars exposure to Bitcoin, and it will be Billions.”
So, this might be happening. In the words of Lukas Duczko, this is how the Strategic Bitcoin Reserve would play out in relationship to the dollar:
“If there’s a huge pile of Bitcoin in the basket, it may not even matter what the rest of it is. Once the world realizes what Bitcoin is, it will elevate the trust in the US. As Bitcoin rises in price, the potential Strategic Bitcoin Reserve could be worth tens of trillions of dollars. It could back up the monetary supply and they could potentially re-peg the dollar to Bitcoin.”
Is this really happening? Is a US Strategic Bitcoin Reserve inevitable?
