Image CC BY-NC-SA 2.0 via Patrick Imbeau
The idea of the U.S. government establishing a strategic bitcoin reserve is quickly gaining traction. Lawmakers from both sides of the aisle, including Democratic Representative Ro Khanna and Republican Senator Cynthia Lummis, are pushing for the United States to hold bitcoin as a strategic asset.
When’s the last time Khanna and Lummis agreed on anything?
Does that mean it’s a good idea? Let’s break it down.
Why a strategic bitcoin reserve makes sense
Supporters of a strategic bitcoin reserve argue that bitcoin offers a universal, non-government-controlled and uninflatable store of value. Actually, it’s a lot like gold.
Nearly every one of the world’s central banks have gold reserves already. Like bitcoin, gold offers diversification benefits, protects from inflation and (maybe best of all) mitigates counterparty risk. Bitcoin was invented to offer exactly these attributes. Furthermore, what financial analysts call “carrying costs” favor bitcoin.
Carrying costs are the costs associated with owning an asset: Storage, insurance, transportation and security. A central bank’s gold vault is expensive to build and maintain – and adding another metric ton or two to the vault involves a significant logistical effort.
In comparison, the carrying costs of owning cryptocurrency are, while non-zero, trivial.
Governments are the ones who print money, after all – so it definitely makes sense for them to diversify their reserves with non-monetary assets.
By the same logic, it makes sense for just about everybody.
- Diversification: Holding a variety of assets can reduce risk
- Inflation hedge: Bitcoin’s limited supply makes it an effective hedge against inflation
- No counterparty risk: Unlike currencies, IOUs and virtually every other financial asset, bitcoin’s value doesn’t rely on any government or institution to keep its end of the deal
- Growth potential: Bitcoin specifically and the crypto market generally has outperformed traditional asset classes by orders of magnitude (I just checked the numbers – bitcoin’s “all time” performance is 55,731,000%)
There are a lot of benefits! So when does it NOT make sense?
The U.S. government’s debt problem
There’s nothing wrong with the concept of a strategic bitcoin reserve.
But consider the context. The U.S. government is currently grappling with over $35 trillion in debt (at time of writing, precisely $35,677,760,608,035.45 to be exact). Yes, that’s the largest debt in human history – and it’s on track to grow $1 trillion a year in financing costs alone!
This raises a critical question: How would the government finance the purchase of bitcoin? Because the federal government makes dollars (well, technically the Federal Reserve authorizes the issue of dollars, while the Treasury Department issues new IOUs to replace old IOUs, which the Fed may then decide to “buy”), using dollars to buy bitcoin is probably NOT a viable strategy.
Imagine for a moment the federal government starts accumulating bitcoin while still going some $2-$3 trillion in the red every year. What message would that send to investors and governments around the world?
I believe the message would be clear: We’re giving up on the dollar. The federal government would essentially be abandoning its own ship – following the lead of dozens of central banks worldwide, dedollarizing as quickly as possible.
And then why would anyone sell their bitcoin for dollars?
Diversifying with bitcoin: A good idea (just not for everyone)
I believe everyone should be setting aside money for emergencies and for their futures.
But not if they can’t pay their bills! If you’re making the minimum monthly payment on your five-figure credit-card bill and you asked me how much you should be saving for retirement, I’d respectfully suggest $0 until you pay off that debt.
I see the Strategic Bitcoin Reserve the same way. The benefits are clear! The federal government should diversify with bitcoin – but not until they can afford to.
If you have your financial house in order, and you’re considering a personal Strategic Bitcoin Reserve to diversify your retirement savings, BitIRA can help.
We offer a user-friendly solution to incorporate cryptocurrency into your retirement savings. Here’s why BitIRA stands out:
- Easy setup: Our streamlined process makes it simple to open your Digital IRA and start diversifying with bitcoin or any of the cryptocurrencies we offer
- Expert support: Our team of experts is here to guide you through every step of the way
- Secure storage: We use top-tier security measures to protect your digital assets (which are insured end-to-end)
The conversation around a strategic bitcoin reserve is heating up, and while it might make sense for some central banks, it’s not necessarily a good idea for debt-laden governments like the U.S. Similarly, if you’re struggling financially, focusing on paying your bills should be your top priority. But if you’re in a stable position and looking to diversify your retirement savings, bitcoin could be a valuable addition to your portfolio.
BitIRA can help you navigate this new frontier in retirement savings with ease and confidence. Ready to explore how diversifying with crypto can help you achieve your long-term financial goals? Get started right now or call for white-glove assistance from our Digital Asset Specialists: (800) 299-1567