Bitcoin can be a Strategic Reserve Asset

By Zain Jaffer

In late July 2024, Republican presidential candidate Donald Trump addressed the Bitcoin 2024 conference in Nashville, Tennessee. During the conference, Trump announced that he intends to make the U.S. “the crypto capital of the planet” and maintain the current amount of Bitcoin it holds. While Trump did not specifically mention an intent to make Bitcoin a “strategic reserve asset,” the other conference speakers like Presidential hopeful Robert F. Kennedy Jr. and Republican Senator Cynthia Lummis did.

RFK Jr. promised an Executive Order to order the US Justice Department and US Marshals to transfer the confiscated 204,000 Bitcoin to the Federal Reserve to become a “strategic asset” and order the Treasury to purchase 500 Bitcoin daily until a stockpile of four million BTC is reached. Meanwhile, Senator Lummis said she plans to introduce legislation that would order the U.S. government to collect 1 million bitcoins over a five-year period, which would represent five percent of the world’s supply. “And that will be held for a minimum of 20 years and can be used for one purpose: Reduce our debt,” Lummis stated. An Act of Congress is needed to establish a Bitcoin strategic reserve.

The Oxford Reference defines an asset as: 1) Any item owned or right possessed by a firm or individual which has an economic, commercial, or exchangeable value; and 2) The entries recorded on the left-hand side of a balance sheet (cf. liabilities). Note that an asset can be intangible, aside from our preconceived notions of those being tangible like real estate, vehicles, airplanes, factories, materials, and the like. 

In the case of the second Oxford definition, allowing Bitcoin on balance sheets has been codified for digital assets by the US Financial Accounting Standards Board (FASB) in a December 2023 ruling that states that digital assets (like Bitcoin) can be reflected as assets using fair value accounting in a balance sheet.

For those who have qualms about the lack of physicality or tangibleness of Bitcoin and crypto in general, it is important to remember that patents, trade secrets, and the like also lack material physical properties. Songs and movies were loaded into physical media like tape, CDs, and DVDs, but these days we just stream these as bits over the Internet. 

Physicality is not really part of the definition of an asset, and the main function that defines it is really the cash or function you can get out of it when needed. You might be able to hold something in your hand, feel it, smell it, and see it, but if no one wants to buy it when you need the money, then it does not function as an asset. It is simply an object you own.

Assuming that the United States will indeed adopt Bitcoin as a Strategic Reserve Asset, what exactly is the value of doing so? Just like the US physical gold reserves at Fort Knox, or the Strategic Petroleum Reserve (SPR) that is used to stabilize the price of oil and prevent entities like the Organization for Petroleum Exporting Countries (OPEC), these Strategic Reserve Assets are used to serve America’s interests if called for by the situation.

The problem right now is that America’s debt has ballooned to almost (as of writing) $35T. Right now the national balance sheet has skewed heavily to the liabilities side. In particular, Congressional spending on foreign wars in Afghanistan, Ukraine, and other places, defense, the large government bureaucracy, social security, and Medicare, as well as other expenditures act like a large leak in a small water pipe. So the liabilities column of the balance sheet keeps growing relative to assets and revenues. 

What is needed is an asset that can keep pace and gain, not lose value from inflation over time. That asset can be Bitcoin.

Unlike purchasing foreign bonds or other assets, Bitcoin is uncorrelated to central bank movements and other factors. Stocks and bonds may be down, but Bitcoin (and other crypto) may be up, and vice versa. So, Bitcoin could improve how a balance sheet looks vis its liabilities column.

More importantly, the US dollar has been losing value over the years from inflation, particularly during the overprinting of money from the pandemic CARES Act where a lot of dollars were released to the American public. Globally the same thing happened during the pandemic. So now, the US Fed is trying to arrest inflation with higher interest rates. But taking away the trillions circulating in the US money supply (M2) is not that easy, even with expensive debt through higher interest rates. 

Bitcoin on the other hand is a non-inflationary asset. There are only 21 million Bitcoins. Period. Full stop. No more than that will be created. Supply is fixed, but demand is growing. Go figure out what happens with your Economics 101 price curve equation. The price will shoot up — just like when Taylor Swift tickets are in short limited supply.

While we probably will not see a significant US government adoption of Bitcoin, even a token adoption to please millions of American crypto holders during the November 2024 election season and beyond will still have the effect of legitimizing it, and convincing more companies and sovereign countries to follow the leader and put Bitcoin on their balance sheets. 

Thus even if America just puts a tiny amount of Bitcoin as a Strategic Reserve Asset, it is the token message that it sends that will take care of pushing it into the mainstream of global finance.

Author Bio
 

Zain Jaffer is an accomplished entrepreneur and investor. He is involved in investments across real estate and VC as CEO of Zain Ventures and Partner at Blue Field Capital. He also founded the Zain Jaffer Foundation to amplify underrepresented social causes and contribute to the development of disadvantaged communities.