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 similar views. For details, please review the following Jiaolian 2024.7.28 article (Trump: Bitcoin will surpass gold, the United States must retain 100% as a national strategic reserve).
Later, Trump was elected. Because of his support for the development of the crypto industry, the market began to price it in. The price of BTC continued to rise. From around $70,000 on election day, it soared to nearly $100,000 in just 20 days.
Many people who don’t understand started to talk about it, saying that BTC was created by Americans to reap others’ wealth, and that the United States’ strategic reserve of BTC is a continuation of financial warfare, and so on. These bloggers really don’t study hard. Jiaolian doubts whether they have read the open source code of Bitcoin in full, whether they have seriously studied and understood the working principle of the Bitcoin system, or whether they just rely on hearsay and imagination to make up a bunch of specious rhetoric, and use intimidating tones to stimulate fans’ emotions and secondary dissemination, so as to harvest a wave of traffic. After all, they don’t really care about what BTC is - they don’t hold any positions, but they use emotional language to describe a horrifying horror story, stimulate the audience’s amygdala to perceive fear and threat and actively forward it, so that they are interested in gaining traffic benefits!
As long as they know a little bit about computer technology, they will know that the Bitcoin code is open source. Anyone can download and review every line of code. It is impossible for Satoshi Nakamoto to hide any backdoor. The eyes of the masses are sharp. Anyone can make any changes to the code. The difficulty lies in that why should others use the code you have modified? If you cannot convince thousands of computer nodes scattered around the world to use your code, your changes are meaningless. This is called public consensus.
Bitcoin's public consensus is based entirely on the principle of voluntariness.
Rousseau and Hobbes believed that something like the state was established by people voluntarily signing a contract. In fact, it is not. From the perspective of historical materialism, the state is the evolutionary product of violent top-down rule. Is there anyone who signs a contract with the state when they are born? No. Every baby is passively or forced to accept the established state construction. There is no personal will, no selection process, and even no options.
Voluntarily accepting BTC is like a person being reborn again. This time, it is an internationalist global human consensus that transcends national construction and is a consensus established voluntarily.
No one is forced into Bitcoin. No one can force anyone. I can’t force. You can’t force. America can’t force.
Even a powerful country like the United States can hardly change the code rules to plunder other BTC holders. For example, it can give itself the power to over-issue BTC. Then, it must first be able to force thousands of nodes around the world to accept the new code it has modified. Not only that, it must also be able to make hundreds of millions of holders around the world accept the new BTC it has tampered with.
Therefore, even the US government must abide by the constraint that the total amount of BTC is 21 million and cannot be over-issued. If it wants to establish a national strategic reserve, it can only honestly purchase the BTC it wants to reserve from the market or from others at a fair and reasonable price.
If the US government unilaterally tampers with the code and over-issues BTC, then the majority of people around the world who oppose this over-issuance can unite and run a Satoshi version of BTC that has not been over-issued, refusing to run or acknowledge the tampered over-issued BTC, and the US government will be helpless.
Some people also say that the US's use of BTC as a national strategic reserve to repay US debt sounds like a fantasy and is too far-fetched. They may not have learned about history. Even more far-fetched and "less reliable" ideas have been proposed before.
During the US debt ceiling crisis in 2011, someone suggested that the US Treasury Department print a platinum coin with a face value of $1 trillion and use this coin to repay part of the high US debt. Wouldn't this create new debt space and allow continued borrowing for spending?
Well, you know what, this is really a "genius" idea!
Legally, the U.S. Treasury Department has the authority to mint platinum coins of any denomination, pursuant to Title 31 of the United States Code, Section 5112 of 1997. This law was originally designed for commemorative coin programs, but it does not limit the maximum denomination of platinum coins. This legal "loophole" makes the above idea a theoretical possibility to circumvent the debt ceiling.
Financially speaking, assets, liabilities, and values are nothing more than numbers on the Federal Reserve's balance sheet. In financial terms, it is sufficient to keep total assets equal to total liabilities. As for the value of total assets, that is entirely determined by humans.
For example, the teaching chain once disassembled the Federal Reserve's balance sheet in the article on December 10, 2023 (The "truth" of the Federal Reserve). Regarding the gold in the asset item, the teaching chain made a detailed calculation in the article on November 14, 2023 (How much gold does the United States hold?). After calculation, we found that the Federal Reserve's gold reserves are 261 million troy ounces, or 8,133 tons, but the Federal Reserve does not calculate the value of this gold according to the market price, but uses the value recorded in 31 USC § 5116-5117, that is, 42.2222 per troy ounce for bookkeeping.
If these gold are calculated based on the current gold price of about US$2,700, the total value of these gold will be as high as about US$700 billion.
Dear readers, you may wonder why the Federal Reserve uses accounting techniques to artificially lower the value of gold. This is too long and too far-reaching to explain. Looking back at the relevant articles written by Jiaolian, I believe that all readers can come up with their own answers.
The example of the artificial valuation of gold in the Federal Reserve's balance sheet is used by the teaching chain only to illustrate that by recording a platinum coin with a face value of $1 trillion on the Federal Reserve's balance sheet, it is fully capable of adding an asset worth $1 trillion to the accounting books.
This would eliminate $1 trillion worth of Treasury bonds issued by the U.S. Treasury, which were also on the asset side of the balance sheet.
The U.S. national debt is now just over $36 trillion. With just a little effort, 36 platinum coins with a face value of $1 trillion can be minted to completely offset the entire U.S. debt!
Legal ((U.S. Code)). Compliant (accounting standards).
But is it reasonable? Obviously not.
The value of bookkeeping currency, such as the current US dollar, does not lie in the piece of paper or the number, but depends entirely on the assets corresponding to it in the balance sheet of the Federal Reserve behind it and whether these assets can support the value of the currency.
From the establishment of the Bretton Woods system to before the Nixon shock in 1971, the whole world recognized the US dollar and the gold that anchored the dollar.
Since 1971, the whole world has recognized the U.S. dollar and the U.S. debt behind it. Recognizing U.S. debt is essentially recognizing the national strength of the United States.
If all the 36 trillion U.S. debts were replaced with 36 platinum coins with a face value of 1 trillion, would the whole world automatically recognize the value of these 36 coins? If the whole world cannot recognize the value of these 36 coins, then the value of the U.S. dollar will collapse and the U.S. dollar will become waste paper.
So it is clear that the idea of platinum coins with artificially assigned face values is not feasible.
But what if the platinum coin is changed to BTC, which has global consensus, is generated by algorithms and priced spontaneously by the market? Suddenly, this seemingly unrealistic idea becomes somewhat feasible.
Let's do a thought experiment.
Suppose the U.S. Treasury borrows some debt to redeem the gold that is undervalued by 50 times. Because it is undervalued by 50 times, it doesn’t cost much, only about 14 billion US dollars. Then it is exchanged for BTC at 50 times the market price in the market. Assuming that OTC block transactions do not affect the market price, BTC is calculated at 100,000 US dollars. Then this gold with a market value of 700 billion US dollars can be exchanged for about 7 million BTC.
As BTC continues to be hoarded, the marginal price is increasing, and the price of these 7 million BTC is also increasing. When BTC increases 50 times, from 100,000 US dollars to 5 million US dollars, the market value of the 7 million BTC exchanged by the Treasury Department will increase to 35 trillion. This is almost equal to the current size of US debt.
By putting 7 million BTC with a market value of 35 trillion into the Federal Reserve's balance sheet, 35 trillion US dollars of US debt can be eliminated, and the balance sheet will still remain balanced.
Since the value of BTC as an asset is recognized globally and its price is determined by the market, the US 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 only 1-2 of them are sold at ordinary times, and their transaction price is 10 million yuan per house, then the total market value of all the houses in the community as assets is 10,000 times 10 million, which equals 100 billion yuan. This does not mean that 100 billion yuan of money really buys all the houses, but only the 1-2 houses that are occasionally sold are priced. This is called marginal pricing.
As long as the Fed holds these BTC and keeps the BTC in circulation in the market relatively scarce, 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 BTC assets in the Fed's balance sheet can be calculated by multiplying the hoarded quantity by the marginal price.
This is the hypothetical model of replacing gold reserves with BTC and completing the shift of the dollar's anchor from US Treasury bonds to BTC.
