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. Specifics can be reviewed in the author's article from July 28, 2024 (Trump: Bitcoin Will Surpass Gold, the US Must Retain 100% as a National Strategic Reserve).
Later, Trump was indeed elected. Then, due to his supportive stance on the development of the cryptocurrency industry, the market began to price accordingly. The price of BTC soared. From around 70,000 dollars on election day, it climbed to nearly 100,000 dollars in just about 20 days.
Many who do not understand begin to speculate, saying that BTC was created by Americans to exploit others, and that the US using BTC as a strategic reserve is a continuation of financial warfare, etc. These bloggers really need to study better. The author doubts whether they have thoroughly read the open-source code of Bitcoin or seriously learned and understood how the Bitcoin system works, or if they just rely on hearsay and imagination to fabricate a bunch of seemingly plausible statements, using a tone of horror to incite their followers' emotions and amplify sharing, thus harvesting a wave of traffic. After all, what BTC really is, they are not genuinely concerned about—they don't hold any themselves, but they do have an interest in depicting a terrifying story to stimulate fear and perceived threats in their audience, encouraging them to share it, thus gaining traffic revenue.
Anyone with a slight understanding of computer technology knows that Bitcoin's code is open source. Anyone can download and review every line of code. Satoshi Nakamoto could not possibly hide any backdoors. The eyes of the public are sharp. Anyone can also make any modifications to the code. The difficult part is that once you modify the code, why would others want to use it? If you cannot persuade thousands of computer nodes around the world to use your code, your modifications are meaningless. This is called public consensus.
The public consensus on Bitcoin is entirely based on voluntary principles.
Rousseau and Hobbes believed that things like the state are established by voluntary agreements among people. However, this is not the case. From a materialist historical perspective, the state is an evolutionary product of violence imposed from the top down. Did anyone sign a contract with the state at birth? No. Every infant passively accepts the established state structure. There is no individual will, no choice process, and even no options.
Voluntarily accepting BTC is akin to a person being reborn. This time, it transcends national constructs, representing an internationalist global human consensus, a consensus built on voluntary acceptance.
No one is forced to step through the door of BTC. Nor can anyone force anyone else. I cannot force you. You cannot force me. The United States cannot force anyone either.
Even for a powerful nation like the United States, it is nearly impossible to simply change the rules of the code to seize other BTC holders' assets. For example, granting itself the power to print more BTC would first require the ability to compel thousands of nodes worldwide to accept its modified code. Furthermore, it would need the power to make millions of holders around the world accept the modified BTC.
Therefore, even the US government must adhere to the constraint of not exceeding the total BTC supply of 21 million. If it wants to establish a national strategic reserve, it can only honestly purchase the BTC it wants to reserve from the market at a fair and reasonable price.
If the US government unilaterally alters the code and prints more BTC, then the vast majority of people around the world who oppose this inflation can unite to run a version of BTC without inflation created by Satoshi Nakamoto, refusing to run and recognize the tampered inflated BTC, leaving the US government with no recourse.
Some people say that the idea of the US using BTC as a national strategic reserve to repay its debt sounds like a fantasy, too far-fetched. They may not be aware of history. Even more outlandish and 'unreliable' ideas have been proposed before.
During the debt ceiling crisis in the US in 2011, some proposed that the US Treasury print a platinum coin with a face value of 1 trillion dollars to pay off a portion of the high US debt, thereby creating new borrowing space to continue financing expenditures.
Well, to be fair, that’s a really 'genius' idea!
Legally, according to Section 5112 of Title 31 of the United States Code from 1997, the US Treasury has the authority to mint platinum coins without a limit on denomination. This law was originally designed for a commemorative coin program but does not restrict the maximum face value of platinum coins. This 'loophole' makes the above idea a theoretical possibility to bypass the debt ceiling.
Financially speaking, so-called assets, liabilities, and value are just numbers on the Federal Reserve's balance sheet. Financially, it only needs to maintain total assets equal to total liabilities. As for the value of total assets, that is entirely determined artificially.
For example, the author previously analyzed the Federal Reserve's balance sheet in an article on December 10, 2023 (The 'Truth' of the Federal Reserve), focusing on the gold assets. The author also did detailed calculations in an article on November 14, 2023 (How Much Gold Does the US Actually Hold?). The calculations revealed that the Federal Reserve's on-balance sheet gold reserves amount to 261 million troy ounces, or 8133 tons. However, the Federal Reserve does not value this gold at market prices but instead uses the values recorded in 31 USC § 5116-5117, which is 42.2222 dollars per troy ounce.
If these gold reserves are calculated at the current gold price of approximately 2700 dollars, the total value of this gold would reach around 700 billion dollars.
Dear readers may wonder why the Federal Reserve would artificially suppress the value of gold through accounting techniques. Discussing this in detail would be too lengthy and far-reaching; reviewing related articles written by the author will surely lead readers to their own conclusions.
The example of artificially pricing gold in 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 could indeed account for it as an asset worth 1 trillion dollars.
This could eliminate the 1 trillion dollar value of US Treasury bonds, which is also located on the asset side of the balance sheet.
Currently, the scale of US Treasury debt has just exceeded 36 trillion dollars. With a little effort, by minting 36 platinum coins, each with a face value of 1 trillion dollars, all the US debt could be completely offset!
Legal (Title 31 of the United States Code). Compliant (accounting standards).
But is it reasonable? Clearly not.
Accounting currency, such as the current US dollar, derives its value not from the paper or the numbers themselves but entirely from the assets on the Federal Reserve's balance sheet that correspond to 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 world recognized the dollar, which was anchored to gold.
Since 1971, the world recognizes the dollar, which is backed by US debt. Recognizing US debt essentially acknowledges the strength of the United States as a nation.
If all 36 trillion dollars of US debt were replaced with 36 platinum coins, each with a face value of 1 trillion dollars, would the entire 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 would collapse, and the dollar would turn into worthless paper.
So clearly, the idea of artificially assigning a face value to platinum coins is not feasible.
But what if the platinum coin is replaced with BTC, which has global consensus, is algorithmically generated, and is spontaneously priced by the market? Suddenly, this seemingly fantastical idea becomes somewhat operational.
Let's conduct a thought experiment.
Suppose the US Treasury first borrows some debt to redeem gold that is undervalued by 50 times. Since it is undervalued by 50 times, it won't cost much, around 14 billion dollars. Then, it can be immediately swapped in the market for BTC at a market price 50 times higher. Assuming that over-the-counter bulk trading does not affect market prices, BTC is calculated at 100,000 dollars. Therefore, this 700 billion dollars worth of gold could potentially be exchanged for 7 million BTC.
Due to the continuous accumulation of BTC, its marginal price is increasing, and the price of these 7 million BTC is also rising. When BTC grows by 50 times, from 100,000 dollars to 5 million dollars, the market value of the 7 million BTC that the Treasury exchanges back grows to 35 trillion. This is almost equal to the current size of US debt.
By placing 7 million BTC valued at 35 trillion in the Federal Reserve's balance sheet, it could correspondingly eliminate 35 trillion dollars of US debt while keeping the balance sheet balanced.
Since the value of BTC as an asset is globally recognized and its price is set by the market, the corresponding dollars for these BTC assets on the liability side are also supported by global consensus.
Asset prices are determined by marginal pricing. For instance, if there are 10,000 houses in your neighborhood and only 1-2 houses are sold at a price of 10 million each, the total market value of all houses in the neighborhood would be 10,000 multiplied by 10 million, equaling 1 trillion. This does not mean there is actually 1 trillion available to buy all the houses, but rather that the price is set by the occasional transactions of those 1-2 houses. This is called marginal pricing.
As long as the Federal Reserve hoards these BTC and keeps the circulating BTC in a relatively scarce state, the price of marginally traded BTC could likely be maintained at a relatively high level. As long as this marginal price can be sustained, the total market value of the BTC asset on the Federal Reserve's balance sheet can be calculated by multiplying the amount hoarded by the marginal price.
This is about converting gold reserves into BTC, completing the hypothetical model of transitioning the US dollar from US Treasury bonds to BTC.
