Bitcoin As The World's Reserve Asset
There is a lot of discussion, of late, about the possibility of Bitcoin becoming the world's strategic reserve asset. It is a topic that started on the fringe but is now getting some mainstream discussion.
The United States Presidential election has this involved.
Donald Trump stated that he is favor of the US having Bitcoin having part of its strategic reserve. Robert F. Kennedy Jr opined that he would require the US to buy $612 billion in BTC, matching its reserve in gold. Then we have Senator Cynthia Lummis introducing a bill that, if passed, would make this law.
So how realistic is this?
Let us dig in and see.
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Bitcoin As The World's Reserve Asset
The first question is could Bitcoin fill this role?
I think the answer lies in the fact this is a topic that is gaining some traction. Bitcoin most certainly could fill these needs. Here is where the idea of "digital gold" does take hold.
For years I railed against the idea of Bitcoin as a medium of exchange. It simply did not work. As a reserve, however, that is a different story.
Those who object or question Bitcoin will present some lack of fundamental or whatever. Do not be swayed by this. When it comes to what we are focusing upon here, it all comes down to confidence.
Bitcoin could become the world's strategic reserve if people have confidence in it. There is really nothing more to the equation. In fact, if we look closely at gold, the role it plays is due to that. Fans of this precious metal will give you all kinds of characteristics as to why this is the case.
Guess what? If confidence in gold waned, those attributes mean nothing.
Ironically, it might be the emergence of Bitcoin that causes gold to lose it status. Of course, we are a long way from this becoming a reality.
Business Lead The Way
Over the past year, we saw a lot of progress relating to Bitcoin, at least within the TradFi world. This has opened up the doors to something much bigger.
The biggest move was the emergence of Bitcoin ETTs (spot). This has launched a flurry of buying activity of these funds. We see Blackrock topping $15 billion in their fund alone.
Why is this important?
This brings Bitcoin to a wider range of investors. While most are still not cryptocurrency investors in the sense of buying a token and dealing with it in a wallet, more are gaining exposure. ETFs fulfill this role.
It also allows entities such as pension funds to enter the market. We have an article that shows how Jersey City (NJ) is looking to invest part of its pension fund in Bitcoin ETF. We could see this same behavior from other municipalities. It is also likely businesses are doing the same.
As this happens, the acceptance of BTC grows. We are far removed from the time that governments are going to ban crypto. Instead, they will control it.
Again, we are hit with the irony that something which was designed as "electronic cash" might end up as a foundation for governments.
Fortunately, over the last decade, a lot more innovation came out of the cryptocurrency and blockchain realm that is offering up potential solutions to a number of problems.
Bitcoin On Balance sheets
It is reasonable to think, based upon its growing track record, that Bitcoin will end up on the balance sheets of many entities around the world.
There are a number of advantages to this asset over gold, something spelled out in many articles around the Internet. In a digital world, a reserve of yellow pieces of metal does not make sense. On this front, Bitcoin better fills the need.
Last year, the United States Internal Revenue Service changed the rules regarding Bitcoin on the balance sheets of companies. This opened up the potential for corporations to add BTC to its balance sheet as part of the treasury.
Prior to that, digital assets had to be marked at the lowest price point of the quarter. Hence, if the price dropped, the company took an impairment loss. It could not raise the value on the balance sheet if the opposite happened.
By changing the regulatory environment to one of fair value, this was removed. The asset can now be realized according to the market price movement, simply taking a snapshot in time.
It is a move that the likes of Michael Saylor applauded. This did open up the potential for more to acquire and hold BTC in their treasury.
As we can see, municipalities are looking to gain exposure.
Hence, the idea of governments hold it as part of their strategic reserve is possible.
We must, however, keep in mind that we often see a lot of "talk" about particular ideas that ultimately go nowhere. This also could be an example of this.
Time will tell how this all unfolds.
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Bitcoin as a reserve asset feels like a big shift. It could really change how we see money. And I'm all for it brother
I believe that Bitcoin along with some other big cryptocurrencies like Ethereum will be on big players balance sheets, either investors or institutions. They've proved their resilience and technological innovation that they bring, thus they've gained their place as financial instruments and more.
It will be interesting to see what happens with Ethereum.
As far as I know, I was the first to discuss this idea. Governments and corporations could become the largest holders of Bitcoin. As we approach 98% all Bitcoin having been mined, and consolidation of mining BTC into two or three major companies, the price of BTC could stabilize giving it greater potential to use as an alternative cash system. Companies that hold large BTC reserves would have greater incentive to receive BTC as payments, which could drive Bitcoin's value higher as more people adopt it for payments. This would further incentivize large corporations to hold BTC on their balance sheets as a hedge against inflation.
Until someone is elected and actually puts things in motion I consider this all just talk for the sake of votes. But at least it's being discussed and not just thought of as a scam but as something legitimate.
I'm all for it and I hope it finds its way through the inevitable fights and pushback from those who still oppose such an idea.
Bitcoin has become an asset that big companies and corporations are going to monopolize. Government are going to custody Bitcoin just like they custody gold and oil
They custody oil? Seems like there is a lot more oil on the open market than governments have.
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We shall see what really develops, talk is cheap as we all know. It would be interesting to see governments using crypto as strategic reserves in addition to gold. The gold will always have value and they are betting the same for BTC which would be favorable to all us crypto lovers. It might mean the final acceptance of cryptocurrency instead of fighting tooth and nail like the SEC has been for years now.
I agree, time will tell!
Not necessarily. In fact, it seems counter-intuitive to believe this is the case if we are entering a world which is being consumed by the digital.
I think you brought up the main factor to BTC becoming a reserve asset; confidence. To regular people not familiar with crypto, BTC is just digital play money. Its value is what people decide it is. Unlike gold that has a lot of real world uses like technology, BTC doesn't. So for it to become a reserve, it needs to be used/recognized by different countries, companies, and governments.
Other metals actually have more real world uses so that doesnt substantiate gold's price. The fact is gold is no different: people have confidence in that. If that waned, the price would crater.
I think it is Gold's perfect balance of scarcity and use that makes its price go up. Sure there are metals that are better conductors and cheaper, but gold experiences the least corrosion, and can be made to be very thin. So for those looking for quality in electronics, pure gold, and gold plating is the way to go.
Some countries will certainly attempt to use it in that way. How widespread it becomes will have to be seen. I for one hope it gains widespread attraction. It certainly is more efficient than other hard commodities and is tightly linked with energy which is the real currency of life.
The link between energy, computer processing, and money (currency) is going to be interesting. There is something brewing that is going to change everything. To me, it is moving in a direction where they cannot be separated.