TL;DR: Price wise, Bitcoin and other Cryptocurrencies will probably drop in value in the near future because centralization is the anti-thesis of Cryptocurrency. In the long run? I’m not certain of anything. Logic wise, Bitcoin is too volatile to work as a reserve. Gold works as a reserve because it’s reliable and is accepted everywhere. As popular as bitcoin is, turning bitcoin into cash will take time, making it an unreliable asset value-wise and timing-wise.
The official fact sheet can be found here.
Small Introduction to Cryptocurrencies
Crypto is a peer-to-peer transactional system. This is beneficial because Crypto is essentially immune to corruption (Though, it’s certainly not immune to market manipulation). However, most of its value currently lies in the fact that it’s essentially anonymous. Sure, anyone can see every transaction in the system, but no one knows who is the sender or the receiver of a transaction (A more professional introduction can be found here).
Part I: Strategic Bitcoin Reserve & U.S. Digital Asset Stockpile
The executive order that establishes both the Strategic Bitcoin Reserve (SBR) & the U.S. Digital Asset Stockpile (USDAS) will initially only be comprised of seized assets from forfeiture proceedings. These are two different entities, where the former only consists of Bitcoin and the latter consists of any digital assets. Note that the latter may consist of ANY digital assets, which would include photos, documents, other cryptocurrencies, and many more.
The executive order outlines that for SDR, there’s an opening to obtain more Bitcoin, though no Bitcoin may be sold from the SDR. However, for USDAS, the only way it can be procure its stockpile is through forfeiture proceedings. Interestingly, it is mentioned that digital assets inside USDAS are allowed to be sold (Note: as USDAS can hold ANY digital assets, this alarms me, but that analysis would require a legal expert, which I’m not).
Part II: Crypto Management Gap
The executive order mentions that, although dispersed, the US federal agencies hold a significant amount of Bitcoins (Enough to make a Bitcoin Reserve). The order will centralize these assets, allowing for monitoring and tracking. The order mentions that the mismanagement of Bitcoin has cost U.S. taxpayers $17 Billion, potentially referring to this (Not technically “costing” U.S. taxpayers anything, so just a bit misleading).
Part III: Bitcoin Is Valuable, But Isn't Dependable.
If you are a Crypto-trader, you would have seen the price becoming extremely volatile the day this executive order was released. The main reason for this seems to be sentiment. I assume that this is due to the fact that the promise of Cryptocurrencies is of decentralization. Having a government looking to hoard, monitor, and track such currencies increases mistrust from holders. However, I’m not analyzing its price fluctuation.
The executive order classifies Bitcoin as “digital gold”. However, this is an oversimplification:
- Gold is deeply embedded in the global financial system, while Bitcoin still struggles with stability.
- Gold has real world usage in industries such as electronics, while Bitcoin has no intrinsic value. (This intrinsic value is why gold is resistant to inflation btw)
- Gold is well-established, many are looking to buy gold, making liquidation easy. Meanwhile, Bitcoin has a much smaller market and is not universally accepted.
- Bitcoin is highly volatile and is influenced by too many factors such as regulations and sentiments.
- Bitcoin is a speculative asset (This means that it can just crash, like many other cryptocurrencies such as Trumpcoin)
Regardless, the simple fact is that Bitcoin holds no intrinsic value. Its value lies in how important decentralized transactions are to Bitcoin holders. However, if a central government holds significant amounts of Bitcoin, it would be just another government-backed asset (i.e, cash), losing its original purpose, which would inevitably lessen its value.
Part IV: The Potential
It wouldn’t be fair to not talk about its potential though. If the goal of this order is to maximize the profit the US can obtain from selling Bitcoin, then I think it’s probably a good idea. The transaction of Bitcoin should be handled by adept people who can maximize the profit for the country. However, if the goal stays the same, wanting to turn the US into a “Crypto Capital”, then I truly believe it will not end well for the US.
Part V: Personal Opinion
This executive order creates a paradox. Bitcoin and other cryptocurrencies are really about their decentralized nature (I argue that their non-corruptability nature is the appeal of this technology, but that doesn’t play any role in this discussion). However, as the US continues to hoard Bitcoin, it just makes it into another government-backed asset. Granted, the US may actually become the “Crypto Capital” of the world, but if that ever happens, Crypto will devalue, dramatically. This is because if the government gets too involved, Bitcoin’s core appeal weakens, which could make it a bad reserve.