Proposals for a U.S. Bitcoin Reserve
Figures like Michael Saylor of MicroStrategy and Kathy Wood of ARK Invest have advocated for the creation of a strategic Bitcoin reserve for the United States. Senator Cynthia Lummis even introduced the “Bitcoin Act of 2024” to initiate the process, arguing that such a step could reduce national debt and strengthen the U.S. dollar. Former President Donald Trump also highlighted the idea during a Bitcoin conference in Nashville in 2024, bringing the concept back into the spotlight.
Economic Factors and Inflation Concerns
President Joe Biden’s economic policies during the COVID-19 pandemic intensified discussions on this topic. Biden’s stimulus measures included distributing $2.2 trillion in 2020 and another $1.9 trillion in 2021, which experts believe contributed to inflation. By November 2024, consumer prices were 21% higher than four years earlier, with many attributing this rise to these measures.
Rising inflation and the U.S. freeze on Russian assets in 2022 further fueled interest in Bitcoin as a means to protect savings from government interference. The idea of holding national reserves in digital currency has thus become more appealing.
Bitcoin as a Shield Against Geopolitical Influence
Bitcoin, a decentralized digital currency, operates outside government control and demonstrates resilience to geopolitical instability. For instance, after U.S. sanctions on Russia in 2022, Bitcoin’s price surged by 8% in a single day. This resistance to external influences could help protect reserves during economically uncertain times.
Volatility and Bitcoin’s Limitations
Despite its advantages, Bitcoin is notorious for its high volatility. In 2021, its value dropped from $65,000 to less than half in just two months. Holding reserves in Bitcoin could introduce economic instability rather than mitigate it.
Bitcoin also lacks the practical utility that gives gold its value. Gold serves as a store of value not only due to its stability but also because of its extensive use in jewelry and industry. According to economist Nouriel Roubini, “Bitcoin generates no income, has no practical use, and is not scalable as a payment method.”
Bitcoin as a Store of Value
To qualify as a store of value, an asset must maintain stable purchasing power over time. Bitcoin, however, exhibits significant volatility and is heavily influenced by market sentiment. Data shows that Bitcoin behaves more like a risk asset than a safe haven like gold.
For instance, during the stock market selloff in August 2024, Bitcoin dropped 17%, while gold remained stable. This indicates that institutional investors do not view Bitcoin as a reliable safe haven akin to gold.
Conclusion: Risk vs. Opportunity
Bitcoin’s volatility and sensitivity to market sentiment make it unsuitable for large-scale national reserves. However, central banks might consider holding a small portion of their reserves in digital currency.
For those interested in trading cryptocurrencies, CFDs (Contracts for Difference) offer an option to trade Bitcoin and other tokens without direct ownership. Platforms like iFOREX Europe, with decades of experience since the 1990s, provide an avenue for such trading opportunities.
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