Sensible Limits to a Bitcoin Strategic Reserve

President Trump’s executive order and the creation of the Bitcoin Strategic Reserve is a watershed moment. But it warrants caution.

President Trump officially creating a Bitcoin Strategic Reserve for the United States is unquestionably a historic moment for Bitcoin. The journey from a fringe technology on an obscure internet mailing list to an official designation within the most powerful economy in the world is profound, no matter how you slice it. Bitcoin separated from the rest of the crypto pack and received international attention for the US recognizing it as a new store of value.

The details of the executive order are that the US will convert its current and prior holdings of bitcoin into a fund with the express purpose of not selling. The US acquired these bitcoins over the years from criminal and civil asset forfeiture. The EO also claims that any new purchase of bitcoin must be budget-neutral, yielding no incremental cost to taxpayers.

The Bitcoin community has been pushing for a strategic reserve for over a year, and now they have it. The BSR is a careful compromise. It satisfies Trump’s campaign pledge, which he announced at the Bitcoin conference in Nashville last summer, to create a national bitcoin stockpile. It does not satisfy the full wishes of the Bitcoin community, which many have argued for the US buying new bitcoin. It converts (relabels) the existing holdings into a strategic reserve. But it does establish a strong precedent for Bitcoin and makes it even less likely for the government to ban Bitcoin in the future. No question that this is good news for Bitcoin.

Converting existing assets like Fort Knox gold into bitcoin makes sense. Selling this gold and buying bitcoin would be budget-neutral since it would swap one physical asset for another. This would be an improvement because Bitcoin does everything that gold can, but in a better way because of its portability, fungibility, low transaction fees, low transportation fees, more restricted supply, and greater scarcity. Gold has value only because we, as a society, deem it so. Bitcoin is just as unique, possibly more so, and certainly more scarce. The logical conclusion is for the US to convert its gold holdings into bitcoin. This would also put the US on stronger financial footing, given that Bitcoin’s greater scarcity would likely lead to greater value in the future, almost surely more than gold.