The U.S. Government May Begin Hoarding Bitcoin, But How and Why?

A bill has been proposed that would have the US government stockpile a chunk of Bitcoin as a strategic reserve, starting with the Bitcoins the government already holds.

Many people have questions: What is the legality of holding confiscated bitcoin? How will holding bitcoin reduce the deficit? Why does the US government need a bitcoin reserve?

President Donald Trump’s appearance at the Bitcoin Conference has come and gone, and in case you missed it, what took place was a combination of a campaign rally and crypto speech. (You can read a partial transcript of the speech here.)

CoinDesk reporters who were at the conference and the speech posted their thoughts: Here are Brad Keoun’s photos of the entire conference, and here’s a quick story from the CoinDesk team after Trump’s speech.

As for me, I wasn’t there but followed the weekend’s events. For me (and many others), the main theme of this year’s bitcoin conference was politics. This is quite different from 2022, where I took the theme as open source technology.

The leading “political” topic that everyone is talking about is that the U.S. government may soon begin creating a strategic bitcoin reserve. At the conference, Senator Cynthia Lummis (R-Wyo.) announced that she is working on a bill that would set aside the country’s current holdings of over 200,000 bitcoins and add to it until the U.S. reaches one million bitcoins. As for those billions of dollars in bitcoin, the government “will be required to hold the bitcoin for 20 years, during which time the only thing it can be used to pay for our country’s national debt.”

And according to his speech on Saturday, Trump is on board! He said on stage: “And so, today, as the final part of my plan, I am announcing that if elected, the policy of my administration will be to … hold 100% of all bitcoin that the United States government currently holds or acquires in the future … This will serve, in effect, as the core of the strategic national bitcoin stockpile.”

“Right now, the majority of Bitcoin is [government] It was obtained by law enforcement action. You know that. They took it from you. Let’s take that man’s life. Let’s take his family, his home, his bitcoin. We’ll convert it into bitcoin. It was taken from you, because that’s where we’re going now. That’s where this country is headed – fascist regime. And that’s why I’m going to take steps to turn this tremendous wealth into a permanent national asset for the benefit of all Americans…”

The story continues

Well, that’s definitely something. Naturally, we all have questions. Like: “How?”, “What?” and “Why?”

These questions will be answered definitively in time (I hope), but for now I have three questions and/or thoughts.

How? It would tap into the gold at Ft. Knox, which is currently officially valued at about 1/60th of its true market value, which is currently worth about $353 billion. Step one is to have the Treasury revalue that gold to its true market value.

— George Selgin (@GeorgeSelgin) July 29, 2024

First, I have a question about the bitcoin that the US government holds. They can’t just take the bitcoins that they seize and keep them for themselves through civil forfeiture, can they? Especially since we know for sure that about 95,000 of those bitcoins belong to people who had them stolen by criminals. Of course, the US government has custody of 200,000 bitcoins, but is that really the US government’s bitcoin (well, yes, since bitcoin is a bearer asset, it’s sort of the US government’s bitcoin, so there’s a lesson in self-custody there)? Is Senator Lummis going to go before the House and say, “Hey, remember all those stolen bitcoins that we stole back when we caught the bad guys? They’re ours now. We’re going to keep them.” I can’t imagine that would go over well. So we have a provenance problem right from the start.

Second, if this bill becomes policy, it would mean the US government is making a long-term investment in bitcoin, which is definitely… weird. Complicating matters a bit during his speech, Trump said: “The federal government owns almost 210,000 bitcoins, or 1% of the total supply that will ever exist. But our government has been violating the cardinal rule that every bitcoiner knows by heart for too long: Never sell your bitcoin.”

Obviously a line from a speech is not the same as a law that has been enacted, so maybe the US government will sell some of its bitcoin stockpile. We’ll see. And I don’t mean to be overly negative, but Lummis’ plan says that the US government can’t sell its bitcoin holdings for 20 years except to pay off the national debt. If you think the potential sale of returned Mt. Gox coins is bad for the price of bitcoin, then imagine a million government bitcoins (that’s over $65 billion) that could be sold all at once to pay off the national deficit. Or slowly over the course of a year. Bloodbath.

Senator Cynthia Lummis with a copy of the Bitcoin reserve bill (Danny Nelson/CoinDesk)

Third, and perhaps most importantly: Why? Why does the United States need a bitcoin reserve? When I think of the “US government reserve,” I think of the Strategic Petroleum Reserve (SPR), an emergency stockpile of oil held by the Department of Energy (DOE) and released for any reason when oil becomes expensive or scarce. And there’s a good reason why the DOE keeps the SPR: If all the oil in the world disappeared right now, the whole world would fall apart. Now think about it, if bitcoin disappeared, the whole world would fall apart.

So yeah, I would be out of a job and probably lose a lot of money, but the whole world? And I love Bitcoin, I love it, but is it necessary? What’s the point?

To be fair, the US government has a large gold reserve, equivalent to about 20% of all gold in the world, if presidential candidate Robert F. Kennedy Jr. is to be believed, as President Trump called for a reserve of four million bitcoins (four times the Lummis bill!) in his bitcoin conference speech the day before, to equalize bitcoin’s massive supply share with gold. And since bitcoin is supposed to be digital gold, what’s the difference?

The difference is that gold has been money longer than bitcoin (and even the dollar), and the dollar was once backed by gold, so the US government must own gold. And it still owns a lot of it.

Anyway, I hope for more clarity because I don’t fully believe it yet and I look forward to having our unanswered questions answered.

In the meantime, I will quote Trump’s closing words from his speech at the 2024 Bitcoin Conference: “Have fun with your Bitcoin, your cryptocurrency, and everything else you play with.”

We will do it, President Trump. We will do it.

Note: The opinions expressed in this column are those of the author and do not reflect the opinions of CoinDesk, Inc. or its owners and affiliates.