A co-founder of a U.S. nonprofit think tank pointed out on Wednesday that Republican Senator Cynthia Lummis’s idea of incorporating Bitcoin into the national strategic reserve to address the U.S. debt is “overstated.” However, he also believes that this move could help enhance investor confidence in U.S. Treasury bonds.
(Background: BlackRock: The global Bitcoin strategic reserve competition has begun, and no country can ignore BTC anymore.)
(Background supplemental: Chinese state media: The U.S. attempt to embrace Bitcoin marks the decline of the dollar era.)
Avik Roy, chairman of the nonprofit think tank Foundation for Equal Opportunity, stated that the proposal by Republican Senator Cynthia Lummis to include Bitcoin in the national strategic reserve as a means to eliminate U.S. national debt is “an exaggeration of Bitcoin’s functionality.”
According to Cointelegraph, Roy expressed on the 20th at the North American Blockchain Summit held in Texas:
He believes that the U.S. buying a “large” amount of appreciating Bitcoin may benefit U.S. finances, but it cannot compensate for the nearly exponential growth of the $35.46 trillion debt since the 1980s.
For years, the U.S. debt crisis has intensified, nearly reaching the debt default threshold in mid-2023, until Congress negotiated a bipartisan agreement in June of that year to increase the original borrowing limit to $31.4 trillion for two years, which is set to expire in January 2025. This means that Trump will immediately face the challenge of raising the debt ceiling upon taking office. Roy emphasized:
He also believes that incorporating Bitcoin into the national strategic reserve could help alleviate tensions in the bond market, stating, “We at least have the capacity to support enough dollars with Bitcoin to make the bond market feel that the U.S. will not go bankrupt.” However, he is concerned that such an arrangement could lead to the continuous erosion of these Bitcoin reserves by the U.S. government, similar to the approach taken with gold reserves in the 1970s.
Note: After the 1950s, the U.S. continuously issued dollars to fill the fiscal deficits of the Korean War and the Vietnam War, leading various governments to dump dollars for gold. By the 1970s, the U.S. gold reserves had shrunk to the point where it could no longer fulfill the obligation of dollar-to-gold conversion, resulting in the collapse of the Bretton Woods system.
Senator Lummis introduced the “2024 Bitcoin Strategic Reserve Act” at the end of July, which has continued to spark debate. The draft requires the Treasury to establish a “Bitcoin purchase plan” to buy up to 200,000 BTC annually over five years, totaling 1 million BTC (approximately 5% of the existing Bitcoin supply). These Bitcoins would be held for at least 20 years, and any sales during this period could only be used to pay off U.S. debt, with a maximum of 10% of the assets allowed to be sold every two years thereafter.
Trump, who is set to return to the White House in January, publicly committed to establishing a U.S. Bitcoin strategic reserve at this year’s Bitcoin conference.
Based on the current price of Bitcoin, establishing a reserve of 1 million Bitcoins would require at least $90 billion in funding. Where would the money come from? Recently, bill sponsor Lummis suggested that part of the Federal Reserve’s gold reserves could be sold to establish a Bitcoin reserve without increasing the government deficit.
Further reading: If Trump establishes a Bitcoin strategic reserve, it could “self-destruct” the dollar’s hegemonic status… a gift to China and Russia.
Some experts are skeptical about the prospects of Trump incorporating Bitcoin into the U.S. strategic reserve. Not only do analysts from Standard Chartered believe the chances are slim, but BitMEX founder Arthur Hayes has also stated that the plan is difficult to achieve.
Christian Catalini, co-founder of Facebook’s failed stablecoin project Diem/Libra, recently warned that, in the worst-case scenario, establishing a Bitcoin strategic reserve would raise doubts about the sustainability of the dollar and the U.S.’s ability to service its debt, which would be a poor strategic misstep, essentially gifting an advantage to Russia and China, who have long sought to undermine the dollar’s global dominance.
Chinese state media Economic Daily recently analyzed the shift in attitude among some Americans towards Bitcoin, stating that “it is an attempt to maintain the already weakened international status of the dollar.” They also noted that the volatile nature of Bitcoin could pose greater challenges for regulators and exacerbate friction in the international financial arena, questioning whether the U.S. economy, already eroded by high inflation, can withstand such shocks.
Meanwhile, asset management giant BlackRock reported this week that a Trump victory could bring “new optimism” for Bitcoin’s strategic reserve, and top VC Paradigm recently stated in its blog that “the global competition to establish Bitcoin reserves has already begun.”
