The delusions behind a bitcoin strategic reserve [View all]

[Nevilledog]

https://www.ft.com/content/73fa6fd9-6f34-4e59-8f0f-04de3be7387a

No paywall link
https://archive.li/LzNqn

In July, Cynthia Lummis, a US senator from Wyoming, introduced a bill to establish what she called a “strategic bitcoin reserve”, a programme instructing the Treasury and the Federal Reserve to buy a million bitcoins over the next five years to then hold them for at least 20 more years.

Donald Trump made vague noises in support of bitcoin and crypto during his campaign. With his election, the hope behind Lummis’s bill has started to gather weight, particularly among the people with private bitcoin holdings of their own. This stands to reason. If you held a portfolio of Andy Warhol paintings and someone in Washington proposed a strategic Warhol reserve, you’d be excited too.

The bill lays out a mechanism for paying for the reserve. Any surplus the Federal Reserve returns to the Treasury would be spent instead on bitcoin. The Fed doesn’t currently return any money to the Treasury. No matter. The bill also proposes that Fed banks mark all their gold certificates to the current market price of gold, then remit the difference to the Treasury to buy bitcoin. This is all plausible, but the bill doesn’t answer the most important question facing any piece of legislation: how will this change anything at all, for anyone?

A reserve would present both a consummation and an irony for bitcoin’s hardcore supporters — the hodlers. The state would recognise what hodlers call freedom money, but also prop that up with a state programme. The preamble to Lummis’s bill argues that in return, a million bitcoin would diversify America’s assets, improving financial and monetary resilience. Unlike a traditional banking reserve, however, they would be held by the Treasury and couldn’t start to be sold until 2045. An asset you cannot sell does not give you resilience. It gives you storage costs.

*snip*