Exercise caution with Strategic Bitcoin Reserve, warns Competitive Enterprise Institute.
With the imminent change in government policy towards cryptocurrency upon President-elect Donald Trump’s inauguration, one of the proposed focal points is the concept of a Strategic Bitcoin Reserve. The cryptocurrency industry, on the brink of an enormous shift in policy under the new administration, is advocating for a groundbreaking idea of the government establishing a program to purchase and hold billions of dollars in Bitcoin.
While many enthusiasts of Bitcoin view it as a valuable asset, the proposal for a government Bitcoin reserve should be met with caution, especially the more ambitious plans put forth. Various strategies have been suggested for the implementation of such a reserve, from simply maintaining the Bitcoin already in government possession from criminal seizures like those from the Silk Road market, to more elaborate proposals like the BITCOIN Act introduced by Senator Cynthia Lummis.
Senator Lummis’s bill, which demands the federal government to acquire 1 million Bitcoin units, equating to about 5% of the total Bitcoin in circulation, carries significant cost implications. At a Bitcoin price of $100,000, the government’s purchase under this proposal would amount to a staggering $100 billion. Additionally, if the Federal Reserve were to execute this purchase, borrowing money at current interest rates would result in substantial operating losses over time.
Furthermore, the involvement of the government in a sector of the crypto industry through initiatives like a Strategic Bitcoin Reserve is viewed by some as a remedy in search of a non-existent problem, likely to induce unforeseen challenges down the line. Despite recent efforts to integrate Bitcoin into mainstream financial products such as exchange-traded funds, its price volatility remains evident, as demonstrated by its fluctuation from around $108,000 to under $90,000 and then back up to approximately $105,000.
The notion of a government Strategic Bitcoin Reserve is met with skepticism by critics from all sides, including those who are optimistic about Bitcoin’s long-term potential. While holding onto existing seized Bitcoins could be a pragmatic approach, introduced legislation like the BITCOIN Act pose substantial financial risks and could potentially disrupt market dynamics. As such, calls for caution and prudence are crucial when considering the implementation of such a wide-reaching and expensive proposal in the realm of cryptocurrency policy.
