A strategic reserve is a stock of a systemically important input, which can be managed to mitigate economic disruption. The key example that we all think about is the US strategic petroleum reserve (SPR) which was created in response to the Arab oil embargo half a century ago. It was most recently accessed to reduce pressure on energy prices after the Russian invasion of Ukraine. The stockpile is essential to the economy: without petroleum the economy will grind to a halt. By contrast, not only is bitcoin not essential to the economy it has, so far as the numbers tell us, no utility at all. So why would the US need a reserve of it, strategic or otherwise?
Strategic Reserve Proposals
While it is not for me to comment on American politics, I cannot help but notice that there is a new President and that one of the proposals that he has floated is a “strategic reserve” where the US would hoard billions of dollars worth of the cryptocurrency. Senator Cynthia Lummis introduced the BITCOIN Act of 2024, which proposes that the US Treasury establish this reserve by acquiring one million BTC over five years, with annual purchases of 200,000 BTC. This initiative positions Bitcoin as a strategic asset to hedge against inflation, reduce national debt, and strengthen the US’s financial leadership globally. A million bitcoins would cost around $100 billion at current prices: but if the US government was known to be a price-insensitive buyer then the government could easily end up acquiring the coins at $1,000,000 per coin, making a trillion dollar reserve.
What is the point of such a reserve though? Bitcoin isn’t used for anything. To a first approximation bitcoin is used only for speculation (and I suppose some ransomware too). If bitcoin goes away, it does not matter. Planes will still fly, lathes with still turn, corn will get harvested. My view remains that bitcoin holdings are not a reserve at all but might more properly be labelled as stash, and it is fair to observe that economists consider such a stash of little value to taxpayers but of great value to the crypto “whales” who hold most of it. Given that the cryptocurrency market is manipulated by those whales, it is no surprise that their sentiment is in favour of the government buying bitcoin.
One of their arguments in favour of such action is that bitcoin is a form of digital gold, and since the government holds actual gold then it should sell some of it and replace it with the modern alternative. But that gold has little utility either. Gold reserves (about a sixth of global reserve assets) are no longer used to settle international accounts but are there as a hedge against exchange rate risk, but the fact is that much of the world’s official gold reserves are held for no better reason than sheer inertia. There is no benefit to replacing them with gold (or lithium, or water or anything else that might be more scarce in the future.
(Never mind national reserves, though, as some observers think that the creation of a strategic Bitcoin reserve is far more likely to happen at the state level first. Ten U.S. states have already proposed some form of reserve, including a proposal in Texas to build up a Bitcoin reserve simply by encouraging Bitcoin miners in the state to pay their taxes in Bitcoin.)
The US is not the only jurisdiction debating a bitcoin stash. Germany’s former federal finance minister has pushed for the European Central Bank (ECB) to consider adding Bitcoin to their reserves, one of Hong Kong’s lawmakers has proposed incorporating Bitcoin into the country’s fiscal reserves and in Poland, a libertarian politician in Poland has vowed to make Poland a crypto hub if elected president by creating a national Bitcoin reserve to position the country as a leader in crypto-friendly regulation and policies (although I must be honest and say that I do not see the relationship between stashing cryptocurrencies and being a leader in crypto-friendly, regulation, whatever that is).
In Switzerland, where I am currently at Davos, there will be a public referendum that could make the country the first to officially hold Bitcoin as a reserve asset. Quite how the adoption of such a volatile and manipulated asset aligns with traditional Swiss characteristics such as stability and financial independence is, I have to say, not clear at all.
Pressure For A Strategic Reserve
The proposals to create a bitcoin reserve, where the US would stash billions of dollars’ worth of bitcoins in a scheme that experts think has no value to taxpayers—but might jack up the value of the currency to the enrichment of the major bitcoin holders—seem distant from the values of the bitcoin vanguard who disdained market manipulation by governments. It is reasonable to observe that if Bitcoin is “freedom money”, a tool for financial sovereignty, then perhaps its fundamental properties might be challenged as institutional players co-opt its narrative.
The pressure for a reserve is not really anything to do with the original vision of peer-to-peer electronic cash and freedom from censorship. The bitcoiners are excited because, as Brendan Greeley wrote in the Financial Times, if you held a portfolio of Andy Warhol paintings and someone in Washington proposed a strategic Warhol reserve, you’d be excited too.
As things stand, the cryptocurrency community were certainly disappointed that as President Trump took office, neither his inaugural speech nor his initial executive actions mentioned a strategic Bitcoin reserve or, indeed, digital assets of any kind. In fact the Bitcoin price went down and, bizarrely, the DOGE token’s price spiked after he declared the establishment of the Department of Government Efficiency (D.O.G.E) even though it has nothing to do with it.
With a new and apparently more pro-crypto administration in place, I think I can safely predict at least one thing: pressure for a strategic reserve isn’t going to go away no matter what economists think.
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