In this news:
WASHINGTON, DC - JANUARY 20: President Donald Trump signs executive orders in the Oval Office of the ... [+] White House on January 20, 2025 in Washington, DC. Trump takes office for his second term as the 47th president of the United States. (Photo by Anna Moneymaker/Getty Images)
Getty Images
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.)
