The necessity of establishing a national reserve of Bitcoin

By Sam Lyman, Riot Platforms’ Director of Public Policy, he was previously Chief Speechwriter for Senator Orrin G. Hatch, R-Calif., and Speechwriter for the President and CEO of the U.S. Chamber of Commerce. This article first appeared in Fortune

In July, President-elect Donald Trump vowed to establish a “national bitcoin reserve.” Republican Senator Cynthia Loomis introduced a bill to use existing government funds to buy 1 million bitcoins. Democratic Rep. Ro Khanna supported using the U.S.’s vast collection of seized bitcoins as a strategic reserve asset.

Bipartisan support for a strategic reserve is growing as policymakers recognize that bitcoin—like all new technologies before it—can serve the national interest. A strategic reserve of bitcoins would not only significantly reduce our national debt; it would also strengthen the dollar and bolster our economic leverage over China and Russia.

First consider the critical role bitcoin could play in controlling the deficit without raising taxes. The price of bitcoin could be volatile in the short term. But in the long run, its price will always go in one direction: up.

After spotting this trend, MicroStrategy CEO Michael Saylor made a bold decision to accumulate Bitcoin as the company's main financial reserve asset starting in 2020. Saylor's investment saved the stagnant company from financial distress and increased its market value from $1.3 billion to $94.78 billion in just four years.

Saylor made a simple bet: As more institutions and countries recognize the use of Bitcoin as a long-term savings tool, the price of Bitcoin will continue to rise. Now, policymakers are doing the same thing. Therefore, the momentum of Bitcoin strategic reserves is strong.

According to MicroStrategy's price model, Senator Loomis's proposed Bitcoin reserve could cut the national debt in half over the next 20 years. Even better, it would not impose any burden on taxpayers.

Loomis' bill simply converts a small portion of the U.S. government's gold reserves and other assets to purchase 1 million Bitcoins, about 5% of the global supply. This would put the U.S.’s ownership in digital gold on par with its ownership in physical gold. It would make the U.S. the undisputed leader of the world’s fastest-growing money network.

But the benefits of accepting Bitcoin extend far beyond reducing national debt; policymakers could also use cryptocurrencies to balance economic competition between China and Russia.

In recent months, the BRICS countries have accelerated plans to launch national currencies as part of a process of de-dollarization. Leading the charge are China and Russia, which are dumping hundreds of thousands of U.S. Treasury bonds in exchange for gold. In effect, these countries are using their gold reserves to reduce their reliance on the dollar system. And, by their actions, they are encouraging other countries to follow suit.

But what would happen if the U.S. put the brakes on weaponizing gold? Bitcoin is an example.

As Federal Reserve Chairman Jay Powell noted this week, Bitcoin is not a competitor to the dollar—“it’s a competitor to gold.”As a store of value, Bitcoin shares many of the same properties as gold. Like gold, Bitcoin is durable, scarce, and difficult to mine. But unlike gold, it is easily verifiable, infinitely divisible, and can be sent anywhere in the world at the speed of light. These remarkable properties have driven Bitcoin’s price up over the past decade.

The United States has much to gain by taking the lead. As with any new technology, early adopters gain the most. As the first G20 country to accept Bitcoin as a reserve asset, others almost have to follow suit. Just as the launch of the BlackRock Bitcoin ETF marked Bitcoin’s debut on Wall Street, the creation of a U.S. strategic Bitcoin reserve will mark Bitcoin’s debut on the global stage.

The game-theoretic dynamic of state adoption of Bitcoin will spark a digital gold rush, slowing or even reversing the rush for physical gold. U.S. policymakers could use Bitcoin as an economic counterweight to BRICS attempts to move away from the dollar and toward precious metals. Which country’s balance sheet would benefit the most in this scenario? The United States.

A stronger, more diversified balance sheet would strengthen the U.S. economy, which in turn would strengthen confidence in the dollar. But policymakers could further boost confidence in the dollar by combining a strategic Bitcoin reserve with a robust U.S. dollar stablecoin strategy. A dollar stablecoin is a digital asset that is backed 1:1 by U.S. dollar reserves, and policymakers can promote its use overseas.

This bitcoin-stablecoin barbell strategy would dispel any perception that the U.S. decision to hold bitcoin reflects a lack of confidence in the dollar. At the same time, it would increase demand for U.S. Treasuries, which back dollar-backed stablecoins. Consider that stablecoin providers currently hold about $120 billion in U.S. Treasuries, making them the 18th largest holder of U.S. Treasuries in the world—ahead of countries like Germany and South Korea. Accumulating bitcoin at home while championing stablecoins abroad is the 1-2 punch our country needs to combat economic competition from the BRICS.

Currency is a technology. The future belongs to those nations that use new technologies to advance their national interests.The incoming Trump administration can do this now by embracing digital assets and building a strategic bitcoin reserve.