Bitcoin reserve bill could be a ‘disaster in the making’

As Senator Lummis pushes Bitcoin to stabilize the US dollar, Moe Vela warns of risks. Read more.

At the Bitcoin 2024 conference held in Nashville on July 27, US Senator Cynthia Lummis proposed that the US government consider Bitcoin (BTC) as a strategic reserve asset in order to stabilize the value of the dollar and combat inflation.

Following his initial announcement, on July 31, Senator Lummis formally introduced the Bitcoin Strategic Reserve bill. The bill aims to order the U.S. government to establish a special reserve fund for Bitcoin and ensure that it is held securely across multiple geographic locations.

The plan involves the government buying Bitcoin for five years and holding onto the assets for at least 20 years, with the sole purpose of reducing the national debt, which exceeded $35 trillion as of August 1. Lummis suggests that this reserve could help cut the US national debt in half by 2045.

At the same conference, Donald Trump and independent presidential candidate Robert F. Kennedy Jr. also supported the idea of ​​creating a Bitcoin reserve in the United States.

While Trump promised that the government would not sell Bitcoin assets, Kennedy advocated a more aggressive approach, suggesting purchasing 500 Bitcoins per day until a reserve of 4 million Bitcoins was created.

Despite the political support, Lummis acknowledged that his legislation is unlikely to pass before the 2024 elections, but the growing political interest in Bitcoin represents a departure from the government’s previous stance.

Let’s take a deeper look at this bill, its potential impacts, and the broader context of Bitcoin’s role in the U.S. economy.

Deciphering the invoice

The “BITKON Act of 2024,” also known as the “Advancing Innovation, Technology, and Competitiveness through Nationwide Optimized Investment Act of 2024,” outlines a detailed plan to integrate Bitcoin into the U.S. financial system.

A key component of the bill, the Bitcoin Purchase Program, requires the purchase of up to 200,000 Bitcoins per year for five years, with a total purchase of 1,000,000 Bitcoins.

Once acquired, these Bitcoins will be held in the Strategic Bitcoin Reserve for at least 20 years to ensure stability and security amid market volatility. During this time, the Bitcoins will only be used to retire federal debt instruments.

The bill states that the Treasury Department, in consultation with the Departments of Defense and Homeland Security, would implement enhanced physical and digital security measures to protect the reserve.

To maintain accountability, the “BITCOIN Act 2024” requires regular monitoring and auditing, as well as a three-month Proof of Reserve system. This system will include public cryptographic attestations and independent third-party audits to verify assets.

The bill also addresses the management of digital assets obtained from Bitcoin forks and airdrops, stating that all new assets obtained through these mechanisms must be held in the Strategic Bitcoin Reserve for at least five years to ensure proper accounting and storage.

Additionally, it allows for voluntary government participation. Governments can choose to store their Bitcoin assets in segregated accounts within the Strategic Bitcoin Reserve, retaining full control and legal ownership over their assets while benefiting from federal security and governance protocols.

The bill proposes using existing funds within the Federal Reserve System to manage the costs of establishing and maintaining the Strategic Bitcoin Reserve.

These funds also typically include excess earnings that are given to the Treasury. They also consider revaluation of the value of gold certificates held by the Federal Reserve to help fund the reserve.

What do the experts think?

To gain a deeper understanding of the potential impact of Senator Lummis’ Bitcoin Strategic Reserve bill, crypto.news spoke exclusively with American lawyer and political consultant Moe Vela.

Vela became the first Hispanic to hold two senior executive positions in the White House: first as Treasurer and Senior Advisor for Latino Affairs in the office of Vice President Al Gore in the Clinton administration, and then as Director of Administration for Vice President Joe Biden in the Obama administration.

Vela has been outspoken in his criticism of Lummis’ proposal, describing it as “a disaster in the making.” He argues that investing taxpayer money in Bitcoin, a cryptocurrency that is “literally backed by weather and whim,” would be one of the most irresponsible government actions he has encountered in his public service career. Vela states:

This shows that the Senator and other Bitcoin enthusiasts do not fully understand that Bitcoin is very risky, has a decreasing market share, has no organizational infrastructure, and its anonymity literally means that our country is suggesting that Kim Jong Un, Vladimir Putin, or other malicious characters or organizations should invest in it.

When asked whether the Republican agenda of supporting cryptocurrency is a legitimate stance or a move to destabilize Democrats, Vela is skeptical. He suggests that the GOP’s advocacy of cryptocurrency appears disingenuous and more like political sycophancy:

The GOP’s stance on crypto might come across as more genuine and real if it weren’t so blatantly pandering to a vital constituency. When you’re proposing to invest taxpayer money in asset-free crypto and calling for little to no regulation after all the crypto people in jail, it’s hard to take them seriously and easy to see them for what they really are: political bluff.

Vela’s skepticism extends to the potential economic impacts of adding Bitcoin as a reserve asset. He argues that the cons far outweigh any potential pros, stating bluntly:

Frankly, I can’t think of any upside to adding BTC as a reserve asset. It would be irresponsible and stupid to do so.

Vela argues that the focus should instead be on cryptocurrencies that are backed by tangible assets and regulated by institutions like the SEC:

As the crypto community, we must encourage our government to focus on cryptocurrencies that are backed by tangible assets, report to the SEC, and strive daily to adhere to the few parameters and policies that currently exist.

The road ahead

The U.S. national debt is truly spiraling out of control. If left unchecked, it could lead to serious economic consequences, including higher interest rates, reduced public investment, and the potential loss of investor confidence.

The Congressional Budget Office predicts that unless significant policy changes are made, the debt could reach 166% of GDP by 2054, further exacerbating U.S. economic woes.

With an impressive CAGR of 42.3% over the past five years, Bitcoin offers a unique opportunity to reduce rising debt. However, it is not without its risks. Bitcoin’s volatility and the nascent stage of its market infrastructure are important factors to consider.

Despite criticism from figures like Moe Vela, not everyone shares his views. Riot Platforms Public Policy Director Sam Lyman sees Lummis’ efforts as important to the Bitcoin community and believes his proposal could pave the way for innovative financial strategies.

Senator Lummis is baiting members of Congress with orange pills, one by one.

And he certainly played a critical role in helping President Trump see the benefits of Bitcoin strategic holdings.

The Senate’s “Crypto Queen” is doing her best on behalf of the Bitcoin community. https://t.co/d8NgtIw4jV

— Sam Lyman (@SamLyman33) July 30, 2024

However, the success of such a proposal depends on several factors, including the implementation of strong security measures, regulatory clarity, and the ability to manage Bitcoin’s inherent volatility.

As the debate continues, it is clear that Senator Lummis’ proposal has sparked a debate about the future of digital assets in national finance. It remains to be seen whether this innovative approach will be a solution to the national debt crisis or a risky gamble.