Written by: Liu Jiaolian
Overnight, BTC pulled back and pierced the 5-day moving average of 96.8k. After breaking through 96k, it rebounded and pulled up, and this morning it pulled back to the 5-day moving average of 97.4k. It seems to be a carefully designed hunting operation to explode the long leverage ambushed below 96k.
Today we are going to talk about the United States’ plan to establish a national strategic Bitcoin Reserve (SBR, Strategic Bitcoin Reserve).
In fact, the idea of strategic reserve of Bitcoin was first raised by Kennedy Jr. in his speech at the Bitcoin2024 conference in July this year. In the article (Bitcoin will surely enter the era of national reserve) on July 27, 2024, Jiaolian recorded that Kennedy Jr. said that if he was elected as the President of the United States, he would sign an executive order to let the U.S. Treasury purchase 550 BTC every day until the reserve of 4 million BTC was accumulated, thus establishing a dominant position that other countries could not usurp.
The next day, Trump attended the conference and expressed a similar viewpoint. Specific details can be found in the article by 教链 on 2024.7.28 (Trump: Bitcoin will surpass gold, the U.S. must retain 100% as national strategic reserves).
Later, Trump indeed got elected. Then, due to his supportive attitude towards the development of the cryptocurrency industry, the market began to price accordingly. The price of BTC soared. From about 70,000 dollars on election day, it shot up to nearly 100,000 dollars in just about 20 days.
Many people who do not understand started various discussions, saying that BTC was created by Americans to harvest others, and that the U.S. creating a BTC strategic reserve is a continuation of financial warfare, and so on. These bloggers really do not study properly. 教链 doubts whether they have completely read the open-source code of Bitcoin, whether they have seriously studied and understood the working principles of the Bitcoin system, or if they just rely on hearsay, combined with their imagination, to fabricate a bunch of seemingly plausible statements, using a tone of intimidation to stir up the emotions of their fans and secondary dissemination, thus harvesting a wave of traffic. After all, what BTC really is, they do not genuinely care—they do not hold any, but they do have an interest in using emotional language to paint a terrifying story, stimulating the audience's amygdala to perceive fear and threats, prompting them to share, thereby gaining traffic benefits.
As long as they understand a bit about computer technology, they know that Bitcoin's code is open-source. Anyone can download and review every line of code. Satoshi Nakamoto cannot hide any backdoor. The eyes of the public are sharp. Anyone can make any modifications to the code. The difficult part is that after you modify the code, why would others want to use it? If you cannot persuade thousands of computer nodes scattered around the world to use your code, then what you modified is meaningless. This is called public consensus.
The public consensus on Bitcoin is entirely based on voluntary principles.
Rousseau and Hobbes believed that something like a state is established by people voluntarily entering into a contract. This is not the case. From a materialist historical perspective, the state is an evolutionary product of violence imposed from above. Is there anyone who is born with a contract signed with the state? No. Every infant is passively or forcibly subjected to the established construction of the state. There is no individual will, no process of choice, and even no options.
Voluntarily accepting BTC is like a person being reborn. This time, it is a global human consensus that transcends state construction, a voluntarily established consensus.
No one is forced to step into the door of BTC. Nor can anyone force anyone else. I cannot force. You cannot force. The U.S. cannot force.
Even a powerful entity like the U.S. can hardly do so, modifying the code rules to exploit other BTC holders, for example, granting itself the power to overissue BTC. First, it must have the ability to force thousands of nodes worldwide to accept its modified code. Moreover, it must be able to ensure that hundreds of millions of holders worldwide accept its tampered BTC.
Therefore, even the U.S. government must adhere to the constraint of the total BTC supply of 21 million coins and cannot overissue. If it wants to establish a national strategic reserve, it must purchase the BTC it wants to reserve from the market or from others at a fair and reasonable price.
If the U.S. government unilaterally alters the code and overissues BTC, then all the majority of people in the world who oppose this overissue can unite to run a non-overissued version of Bitcoin, refusing to operate and recognize the tampered overissued BTC. The U.S. government would then be helpless.
Some say that the U.S. creating a BTC national strategic reserve to pay off the national debt sounds like a fantasy, with too big of an imagination. They may not have understood history. Even more 'unreliable' ideas than this have been proposed.
During the U.S. debt ceiling crisis in 2011, someone suggested that why not have the U.S. Treasury mint a platinum coin with a face value of 1 trillion dollars to pay off a portion of the high national debt, thereby creating new borrowing space to continue spending?
Well, don't say, this is indeed a 'genius' idea!
Legally, according to Section 5112 of Title 31 of the U.S. Code from 1997, the U.S. Treasury has the authority to mint platinum coins, and there is no limit on their face value. This law was originally designed for a commemorative coin program but did not limit the maximum face value of platinum coins. This 'loophole' in the law makes the above idea a theoretical possibility to bypass the debt ceiling.
From a financial perspective, so-called assets, debts, and values are merely numbers on the Federal Reserve's balance sheet. Financially, it is only necessary to maintain that total assets equal total liabilities. As for the value of total assets, that is completely determined by human factors.
For example, 教链 once analyzed the Federal Reserve's balance sheet in the article dated 2023.12.10 (The 'Truth' of the Federal Reserve), regarding the gold assets in it. 教链 conducted a detailed calculation in the article dated 2023.11.14 (How Much Gold Does the U.S. Actually Hold?). Through this calculation, we found that the Federal Reserve's on-balance-sheet gold reserves amount to 261 million troy ounces, or 8133 tons, but the Federal Reserve does not calculate the value of this gold at market prices, instead, it uses the value recorded in 31 USC § 5116-5117, which is 42.2222 per troy ounce for bookkeeping.
If these gold reserves are calculated at the current gold price of about 2,700 dollars, the total value of this gold will reach about 700 billion dollars.
Dear readers may wonder why the Federal Reserve would artificially suppress the value of gold through accounting methods? This could be a long and far-reaching discussion. A review of related articles written in the past will likely lead readers to their own conclusions.
The example given by 教链 regarding the artificial valuation of gold on the Federal Reserve's balance sheet is merely to illustrate that recording a platinum coin with a face value of 1 trillion dollars on the Federal Reserve's balance sheet is entirely capable of being accounted for as an increase of 1 trillion dollars in assets.
This can eliminate the 1 trillion dollar value of the U.S. Treasury-issued national debt, which is also located on the asset side of the balance sheet.
Currently, the scale of U.S. national debt has just exceeded 36 trillion dollars. With just a little effort, creating 36 platinum coins with a face value of 1 trillion each can completely eliminate all the national debt!
Legal (U.S. Code). Compliance (Accounting Standards).
But is it reasonable? Clearly it is not reasonable.
Accounting currency, like the current dollar, derives its value not from the paper or the number itself, but entirely from what assets are represented in the Federal Reserve's balance sheet behind it, and whether these assets can support the value of the currency.
From the establishment of the Bretton Woods system until the Nixon shock in 1971, the whole world recognized the dollar, which was anchored by the gold behind it.
Since 1971 to the present, the whole world recognizes the dollar, which is backed by the U.S. debt. And recognizing U.S. debt essentially acknowledges the strength of the U.S. as a nation.
If 36 trillion dollars of U.S. debt were to be completely replaced by 36 platinum coins with a face value of 1 trillion dollars each, would the whole world automatically recognize the value of these 36 coins? If the world cannot recognize the value of these 36 coins, then the value of the dollar will collapse, and the dollar will become worthless.
So clearly, the idea of artificially assigning a face value to platinum coins is not feasible.
But what if the platinum coins are replaced with BTC, which has global consensus, is algorithmically produced, and is spontaneously priced by the market? This suddenly makes this seemingly fantastical idea appear somewhat actionable.
Let's do a thought experiment.
Assuming the U.S. Treasury first borrows some debt to redeem gold that is undervalued by 50 times. Because it is undervalued by 50 times, it wouldn't cost much, approximately 14 billion dollars. Then it could be exchanged for BTC at a market price 50 times higher. Assuming OTC bulk trading does not affect market prices, BTC is calculated at 100,000 dollars. Therefore, this gold worth 700 billion dollars can be exchanged for about 7 million BTC.
Due to the ongoing accumulation of BTC and the rising marginal price, the price of these 7 million BTC is also increasing. When BTC grows by 50 times, from 100,000 dollars to 5 million dollars, the market value of the 7 million BTC the Treasury has swapped back will grow to 35 trillion. This is almost equal to the current scale of U.S. debt.
By placing 7 million BTC, with a market value of 35 trillion, on the Federal Reserve's balance sheet, it could correspondingly eliminate 35 trillion dollars of U.S. debt while keeping the balance sheet balanced.
Since the value of BTC as an asset is globally recognized and its price is determined by the market, the dollars corresponding to these BTC assets on the liability side are also supported by global consensus.
Asset prices are determined by marginal pricing. For example, if there are 10,000 houses in your community, and usually only 1-2 houses are sold, if their transaction price is 10 million each, then the total market value of all houses in the community is 10,000 multiplied by 10 million, which equals 1 billion. This does not mean that there is actually 1 billion dollars available to buy all the houses, but only that the occasional 1-2 houses are priced. This is called marginal pricing.
As long as the Federal Reserve holds these BTC without moving them, keeping the circulating BTC in a relatively scarce state, the marginal transaction price of BTC is likely to be maintained at a relatively high level. As long as this marginal price can be maintained, the total market value of the BTC assets on the Federal Reserve's balance sheet can be calculated by multiplying the quantity held by the marginal price.
This is the hypothetical model of replacing gold reserves with BTC, completing the shift of the dollar from U.S. Treasuries to BTC.
