Why the U.S. Government Having a Large Strategic Bitcoin Reserve Is Dangerous, Explains Macro Analyst and Investor

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As a seasoned researcher with over two decades of experience in the financial markets, I find myself intrigued by the recent developments in the crypto sphere, particularly the proposal for a strategic Bitcoin reserve by Senator Cynthia Lummis and the potential reentry of Donald Trump into the political scene.

As an analyst, on the 27th of July, 2024, I had the privilege of attending the Bitcoin Conference held in the vibrant city of Nashville, U.S.A., where none other than the former President of the United States, Donald Trump, delivered a speech that was the talk of the town.

In his pro-cryptocurrency speech, he claimed that the United States federal government is among the biggest possessors of Bitcoin. If elected president in November, he pledged to seize full ownership over all Bitcoins currently held by the U.S. government and any additional ones acquired subsequently.

At the same event, Republican Senator Cynthia Lummis from Wyoming presented an innovative plan to bolster the strength of the US dollar. This plan involves creating a strategic Bitcoin reserve. The goal is to shield the dollar from escalating inflation and fortify America’s dominance in the worldwide financial sphere.

Senator Lummis is advocating for establishing a Bitcoin reserve overseen by the U.S. Department of the Treasury in his proposal. The goal is to strengthen the dollar’s status as the global reserve currency, while keeping the United States at the vanguard of financial advancements. Lummis underscores the pressing importance of this move, pointing out the difficulties faced by American families due to inflation and the high levels of national debt as reasons for its necessity.

Here are the key elements of the legislation:

  1. Decentralized Bitcoin Vaults: The proposal calls for the establishment of a decentralized network of secure Bitcoin vaults. These vaults would be operated by the U.S. Department of Treasury and adhere to strict physical and cybersecurity standards to protect the nation’s Bitcoin holdings.
  2. 1-Million-Unit Bitcoin Purchase Program: Over a designated period, the U.S. would implement a purchase program to acquire 1 million units of Bitcoin, approximating 5% of the total Bitcoin supply. This approach mirrors the scale of the country’s gold reserves, aiming to diversify and strengthen the U.S. financial assets.
  3. Funding Through Diversification: The initiative would be funded by reallocating existing resources within the Federal Reserve System and the Treasury Department. This strategy ensures that the purchase program does not place additional financial burdens on the federal budget.
  4. Affirmation of Self-Custody Rights: The proposal reaffirms the self-custody rights of private Bitcoin holders, ensuring that the establishment of a national Bitcoin reserve does not infringe upon individual financial freedoms.
  5. Long-Term Commitment: The Bitcoin reserve would be held for a minimum of 20 years, with the sole permissible use being to pay down the national debt. This long-term commitment is designed to provide stability and confidence in the U.S. financial system.

Senator Lummis proposed that it’s crucial to create a strategic Bitcoin reserve to preserve the dollar’s supremacy and continue America’s lead in financial advancements. She emphasized that such a Bitcoin reserve would offer a digital asset as robust as our current reserves of gold and oil, serving as a foundation for our economic growth in the future.

In a recent conversation with Anthony Scaramucci, the founder of SkyBridge Capital, Raoul Pal, the CEO and co-founder of Real Vision and Global Macro Investor, talked about the current state of the markets.

As a crypto investor, I recently came across an intriguing perspective shared by Pal regarding the concept of a strategic Bitcoin reserve. Here’s how he put it:

As an analyst, I find it intriguing that another buyer has entered the crypto market, yet I’m also finding it peculiar. Bitcoin was designed to minimize government control over money, and now, a significant player in this market is the government itself. Frankly, I’m not comfortable with this development. If governments can manipulate the value of cryptocurrencies by dumping them or buying large quantities, they could potentially use it like interest rates to control traditional money supplies. This isn’t an ideal situation as we aim for decentralization and freedom from government intervention in financial matters.

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2024-08-19 12:26