Two contrasting proposals to significantly integrate Bitcoin into the United States’ financial reserves have ignited a debate about the potential benefits and risks of such a move. Both proposals, unveiled at the Bitcoin 2024 conference, suggest holding Bitcoin as a strategic asset, mirroring the nation’s gold reserves. However, they differ significantly in scope and financing mechanisms.
The first proposal, championed by former President Trump, advocates retaining the approximately 198,000 Bitcoins, currently valued at around $19 billion, seized by the U.S. Marshals Service from criminal activities. This approach would effectively halt the current practice of selling confiscated Bitcoin, creating a substantial government-held stockpile.
Senator Cynthia Lummis (R-WY) has presented a more ambitious plan, urging the U.S. Treasury to purchase one million Bitcoins, with a 20-year commitment against selling unless used to reduce federal debt. Senator Lummis argues that Bitcoin would complement existing national reserve assets like gold, enhancing financial resilience and bolstering the U.S. dollar.
The financing for Senator Lummis’s proposal, estimated at $100 billion based on current Bitcoin prices, hinges on revaluing the U.S. gold reserves. Currently, gold is valued at $42 per ounce, significantly below market price. By adjusting the valuation to reflect current market rates, Senator Lummis believes the Treasury could generate sufficient funds to purchase the Bitcoin.
However, some economists are skeptical. George Selgin of the Cato Institute views both proposals as essentially indirect subsidies to Bitcoin investors. He questions whether holding Bitcoin would genuinely protect the dollar’s dominance and criticizes Senator Lummis’s gold-based financing as a poor deal for taxpayers. Selgin argues that the newly printed money required to revalue the gold would become interest-bearing deposits at the Federal Reserve, creating a cost for the government.
Furthermore, Selgin doubts the feasibility of using Bitcoin for debt reduction, citing the government’s reluctance to sell its gold reserves for the same purpose. He points out that selling gold would likely provoke strong opposition from gold investors and miners, and predicts a similar reaction from the Bitcoin community if the government attempted to sell its Bitcoin holdings.
