One of the proposals President Trump is considering now that he has taken office is the establishment of a U.S. government strategic Bitcoin reserve. This would seemingly function in the same way the U.S. reserves of gold and foreign currency (almost exclusively the euro and yen) do. Those reserves allow the U.S. government to hedge against exchange range risk and other global risks and to support international trade. The goal of maintaining reserves is to protect the government and U.S. citizens from global risks and high-scale volatility. A strategic Bitcoin reserve would accomplish none of those goals. It would exasperate the very things, instability and risk, that other reserves exist to protect against.
Wealth transfer from taxpayers to crypto investors
By opening a strategic Bitcoin reserve, the U.S. government would be taking risks from current cryptocurrency holders and transferring those risks to the entirety of the U.S. population while enriching those very same holders in the process. As the U.S. government purchased Bitcoin, its price would rise as the quantity demanded would be increasing while the supply of Bitcoin would remain constant. Current holders would be rewarded with increasing value. Plus, the U.S. would be buying Bitcoin at record high prices, which is the exact opposite approach any reasonable actor should take when purchasing investments. It is not even a logical decision on its face. If you are buying Bitcoin now, you have already missed the largest gains.
That is why the crypto industry is pushing for the establishment of the reserve. They have run out of or are seeing a decline in "dumb money" and are trying to find a new way to prop up their asset class that still has zero intrinsic value and is in constant need of hype and new fads to keep or increase its value.
The proposal is not an altruistic proposal — it is a purely self-serving one in which the industry wants to enrich itself at the expense of the U.S. taxpayer and force the U.S. government to invest in an asset at an all-time high so they can win.
The false credibility trap
This brings us to the second reason a strategic Bitcoin reserve should be opposed — it would lend false credibility to the industry. The industry wants the U.S. government to invest in Bitcoin because it would lend credibility to an industry that has struggled to remain credible from its inception and lacks a legitimate use case outside of speculation and illicit activity. The Congressional Research Service found that Hamas, the terrorist organization, likely received over $100 million in cryptocurrency to fund its
This lack of legitimacy exists even before we consider high-profile crypto frauds like FTX. The industry is in drastic need of a public relations reset and it wants the U.S. government to lead the charge. Lending credibility to Bitcoin would give retail investors a false sense of security at a time when trust in institutions is at historical lows. It would be rightly viewed as a government-backed scheme for President Trump to enrich his wealthiest donors and supporters. This would further erode that trust and threaten the financial well-being of everyday taxpayers. Furthermore, imagine how it would look if the U.S. government purchased Bitcoin, and it immediately lost half or a third of its value? The headlines write themselves.
The financial implications are reason enough to oppose a strategic Bitcoin reserve. It would be a transfer of wealth to existing Bitcoin holders while transferring the risk to the U.S. taxpayer. From a credibility standpoint, Bitcoin should figure out a way to stand on its own without using the U.S. taxpayer as a crutch. Either way, if we establish a Bitcoin reserve the U.S. taxpayer loses and the wealthiest Bitcoin holders win. Heads they win; tails we lose.
