The US Government Bitcoin Reserve: A Bad Idea for Crypto Holders
According to several news articles, President Donald Trump is exploring the idea of forming a federal reserve solely of Bitcoin. While this might seem like a good idea on the surface, economists warn that this could be one of the worst things to happen to Bitcoin.
If you are confused, don’t worry; we are going to break it down for you. Keep reading to learn the reasons a Bitcoin federal reserve is bad for cryptocurrency.
1. Cryptocurrency is Already Volatile
Anyone who has been investing in cryptocurrency for a while knows how highly volatile it is. Thousand-dollar price swings are the norm in cryptocurrency, meaning it isn’t for the faint of heart. And this volatility won’t mesh well with the current volatility of the US government—as it too is subject to frequent and massive changes.
Bitcoin is run solely on the laws of supply and demand, meaning when there are more buyers, the price climbs. When there are more sellers, the price declines. It’s as simple as that. Because of this, Bitcoin is very susceptible to fluctuating with large sales, something which the US Government would be doing to fund (or liquidate) their Federal Reserve.
Here’s an example: Say that Trump locks 200 BTC away on a federal reserve (currently worth about $20,000,000), but after his four-year term is up (he’s already served the maximum of two terms), someone else will be elected. This individual may not see the value of holding BTC and might sell it immediately, even if it is sold at a loss. This massive flood of BTC in the market could be sudden and could cause the price to tank, adding unneeded instability to an already unstable market.
So, while many individuals argue that a BTC reserve would be good for crypto holders now, remember that it could also be really bad later. Whatever the US government purchases could always be dumped later and cause the market to tank with a single massive sale.
Not to mention that a cryptocurrency reserve would be challenging to report on, and the dangers of it suddenly going to zero could cause issues for a government on an international scale (though we don’t expect this to happen, there is a non-zero chance that it does).
2. The Value of Crypto Can’t be Government-Controlled
Now, we aren’t calling the US government the faint at heart, but the government wouldn’t be able to control the value of their cryptocurrency reserve—something that will make it very hard for them to maintain said reserve.
Currently, the fiat Federal Reserve is controlled by US policies. It’s one of the reasons fiat currency is so unreliable—and a huge reason individuals prefer to have their wealth in something like Bitcoin—because the government can print money on a whim to maintain a specified value of their vaults. Bitcoin is a worldwide currency that is controlled solely by the laws of supply and demand (see the volatility section above), and we just don’t think that’s a good thing for a national ledger.
The average US citizen already doesn’t trust the government, so how do you think they are going to feel when the value of the reserves fluctuates on a daily basis? What if there is a sudden massive price swing putting the federal government in the negative? You see the issue.
3. The US Government is in Massive Debt
The United States already has debt issues in the trillions of dollars. While it might seem fun for someone like Trump to discuss a BTC federal reserve, the US debt will only grow if it is not addressed.
This brings us to our next issue. While Trump might think a BTC reserve is a good idea, chances are other officials will not. We suspect it would be a short-term (less than 4 years) investment at most and would need to be liquified at some point to cover mounting debts.
Also, the US government would likely go further into debt to purchase the Bitcoins for the reserve—which it is never a good idea to buy crypto on loan.
4. Government Interference in Bitcoin is Bad
We aren’t sure when you joined the Bitcoin community, but remember that the whole purpose of Bitcoin was to have a currency for the people, by the people. Basically, it was invented to have a currency that couldn’t be controlled by the government.
Which, if this BTC Federal Reserve gets enough support, Bitcoin itself could come under government control. Sure, they won’t be able to actually make changes to the blockchain, but if any one entity holds a large enough position, they would have just as much control over the digital asset as if they were the miners themselves.
Remember, Bitcoin mining will end at some point, as there is a ceiling to keep the currency deflationary. This means that at some point, if the US government is regularly buying Bitcoin, they could hold the lion’s share and thus have more influence over the currency than was intended.
5. The Community Won’t Be Happy
The last reason is less important than the others, but it’s important to recognize that Bitcoin was originally a movement against the government—especially the US government. The people wanted to control their own currency—something that the government couldn’t touch.
A US Bitcoin Federal Reserve would mark the end of the days of Bitcoin being a freedom currency. While we don’t think involved individuals will immediately liquidate their holdings, we do think that attention would possibly shift somewhere else, like Ethereum or Solana.
Of course, lots of people became involved in cryptocurrency because it is popular, but we can’t see the die-hard original investors sticking around, especially if they suspect that the US government will liquidate its holdings at some point and cause a steep and sudden decline.
Regardless of your reasons for wanting the US government to have a Bitcoin reserve, we hope that this article has shown you that it isn’t a good idea for Bitcoin, nor for the financial solvency of the United States, to consider such a reserve at this time.
