New York
CNN
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Recently, the Trump administration unveiled a initiative that is favored by the crypto community, criticized by skeptics, and largely overlooked by the general public: a “bitcoin strategic reserve.”
The terminology may seem dull and hard to grasp, but if you wish to understand the underlying debate simply, continue reading.
According to Trump’s executive order, the U.S. will effectively aggregate all the bitcoin seized during criminal investigations and civil confiscations, holding it as a reserve, much like gold and oil are stored.
Advocates assert that such a reserve could safeguard against financial turmoil in a scenario where cryptocurrencies supplant traditional currency issued by central banks. They suggest that an investment in bitcoin could assist in reducing the national debt. (However, if the U.S. were to liquidate its holdings, it would likely trigger a decline in bitcoin’s value. Additionally, unlike oil, bitcoin does not have direct applicability for powering the U.S. economy.)
The rationale behind creating a reserve hinges on the (albeit slim) possibility that the Federal Reserve could mismanage the dollar. “It’s a small, small chance,” explained Jason Yanowitz, co-founder of the crypto news platform Blockworks. “In that situation, assets like gold and bitcoin may serve as protections against dollar depreciation and inflation.”
Detractors question the prudence of linking America’s financial prospects to a speculative and volatile asset. They contend that this reserve is primarily designed to inflate the value of bitcoin, effectively benefiting early adopters, like the approximately 30 crypto executives who met with the president last Friday.
The White House’s order specifies that the reserve will consist solely of bitcoin obtained through law enforcement activities. (Currently, the U.S. holds around $17 billion in bitcoin from various legal cases. Usually, the Treasury converts these assets to compensate victims and support law enforcement.)
Officials have made it clear that no taxpayer money will be utilized to acquire additional bitcoin.
Nevertheless, the order permits the Treasury and Commerce departments to create “budget neutral” plans for purchasing more bitcoin.
“We can only purchase more bitcoin if it does not increase the deficit or the debt, nor costs taxpayers,” stated crypto czar David Sacks prior to the White House’s crypto summit on Friday.
Many crypto investors hoped for a more assertive strategy for acquiring bitcoin, rather than merely reallocating government assets.
Following the signing of the executive order to create the reserve, bitcoin dipped from around $90,000 to $85,000 on Thursday night.
There may have also been some “buy the hype, sell the news” sentiments around the crypto summit on Friday.
An important question arises! The dollar is foundational to international finance. Bitcoin was designed to replace the dollar, not to back it. This is one reason economists are wary of the bitcoin reserve — the last thing anyone wants is to weaken trust in the U.S. dollar.
Essentially, it is just computer code. Unlike tangible currencies, bitcoin resides in a digital wallet secured by a lengthy password that cannot be forgotten, unless you wish to join the ranks of early users with millions in crypto they can no longer access. (This situation highlights one of the major critiques of the product — there is no customer support or authority to which you can appeal if you make a human error.)
Despite its name, cryptocurrency is not widely accepted for everyday purchases. (Unless you’re on the dark web — I won’t provide guidance on that — looking for illicit goods.)
The most persuasive argument for utilizing bitcoin, provided you are comfortable with its price fluctuations, is its function as a store of value — akin to “digital gold.” This holds particular appeal for individuals in nations with unstable currencies. Advocates of the digital gold theory note that despite daily or weekly volatility, bitcoin’s value has surged over 1,000% in the past five years.
Bitcoin may be the most renowned cryptocurrency, but there are thousands of alternatives available.
Investing in crypto (including bitcoin) is exceptionally risky. The field has a troubling past filled with prominent scams. Therefore, as with any investment, caution is advised. Conduct thorough research — and I recommend reading much more than just this simplistic article.
