“The press takes him literally, but not seriously; his supporters take him seriously, but not literally.” So wrote Salena Zito, back in September 2016, of Donald Trump’s first presidential campaign. It was a neat way to sweep aside alarmist takes coming from people analysing his actual statements.
But when the once-and-future-President makes statements about the future it seems rash to rule out the possibility that he’s telling the truth.
In July this year, Trump promised the Bitcoin 2024 conference that he would create a “strategic national Bitcoin reserve”. And in August, he told Fox Business:
Who knows, maybe we’ll pay off our $35tn; hand them a little crypto check, right? Hand them a little Bitcoin, and wipe out our $35tn.
Furthermore, in September, he promised the Economic Club of New York to make America its own sovereign wealth fund, “to invest in great national endeavour to the benefit of all of the American people”, funded by “tariffs and other intelligent things”. Among a list of uses for this wealth fund, he said that it would “return a gigantic profit which will help pay down national debt”.
Could this all be part of the same plan? The biggest pump-’n’-dump scheme of all time? Let’s think this through.
Has Trump actually said anything about buying crypto? Not yet.
At the conference, he pledged only to never to sell the bitcoin already held (or that might one day come to be held) by the US government. And among the US government’s existing crypto holdings are c.1 per cent of total Bitcoin in circulation. According to Arkham, this stash has a market value of around $21bn:
Much of this was confiscated back in 2013 from Ross Ulbricht. Ulbricht (aka Dread Pirate Roberts) was the libertarian founder of the Silk Road – a dark-web Amazon.com that transacted exclusively in bitcoin, where users could buy apparel, books, and electronic equipment — but mostly drugs.
Crypto-watchers have for some time been tracking the possibility that the Department of Justice’s hoard gets dumped on the market, fearful about what this supply surge might do to the price of their shiny pixels. Coindesk reports that moving bitcoin out of the DoJ to the US Treasury would likely require an act of Congress. But if Trump can muster the executive authority to make such an inter-governmental departmental transfer happen – or at least block the DoJ from selling – he’s good for his pledge for a strategic bitcoin fund.
So, could just hodling the existing ‘strategic bitcoin reserve’ allow the government to pay off the national debt? It seems unlikely.
At pixel time, the US national debt stock stood at $36tn, while the number of bitcoins held stood at 208,109. To pay off such a debt with bitcoin, each token would need to be worth around $173mn Now, don’t get us wrong, we’re old enough to have witnessed a two-thousand-fold bitcoin rally before. But, if repeated, this would make bitcoin worth around 13.5 times the total market value of every bond and stock in the world. And that seems like a stretch:
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How about buying more bitcoin?
For this, Trump would need either Congress to sign-off purchases or to deploy some kind of executive action. Despite having had control of both the House and Senate in his first term, Trump favoured executive action wherever possible. So we’re going to assume that this will once again be his modus operandi.
The Exchange Stabilization Fund — a fund designed only to, erm, stabilise the exchange — has in practice been used as an executive action slush fund for decades. It was used to bail out the Mexican government in 1995, guarantee money-market funds during the global financial crisis, and was allocated half a trillion dollars to bail out corporate America during Covid. Presidents raiding the ESF still need to check with Congress, but very much in ‘seek forgiveness’ rather than ‘ask permission’ mode. Zack Shapiro, a crypto lawyer, reckons the law is malleable enough to allow for bitcoin purchases. And at the end of September, the ESF had assets of $215bn, though its net asset position is a somewhat skimpier $41bn. Would $41bn of price-insensitive government demand be enough to sky the price of Bitcoin? It’s hard to see it hurting.
But to pump serious money into crypto, Trump will need Congress. Wyoming’s Republican senator Cynthia Lummis has already introduced the sort of bill he would need. With a sense of humour to rival Elon Musk’s, she called it the “Boosting Innovation, Technology, and Competitiveness through Optimized Investment Nationwide Act of 2024”. We’ll let you figure out the acronym.
The bill would require that any bitcoin seized by the US Marshal Service be transferred to a Strategic Bitcoin Reserve. And it would compel the US Treasury to buy up to 200,000 bitcoin each year for five years.
How might these purchases be funded? Partly, by reducing the capital of the Federal Reserve Banks from $6.825bnto $2.4bn,and scooping up the $6bn of seignorage remittances from Federal reserve banks that are supposed to be paying down the Fed’s deferred asset. And partly by doing something funky with the US government’s gold holdings.
Section 9(c) of the bill would require that:
Not later than 180 days after the date of enactment of this Act, the Federal reserve banks shall tender all outstanding gold certificates in their custody to the Secretary. Not later than 90 days after the tender of the last such certificate, the Secretary shall issue new gold certificates to the Federal reserve banks that reflect the fair market value price of the gold held against such certificates by the Treasury, as of the date specified by the Secretary on each new gold certificate. Upon issue by the Secretary, each Federal reserve bank that receives a new gold certificate shall remit the difference in cash value between the old and new gold certificates to the Secretary for deposit in the general fund within 90 days.
Today, the US government’s gold is valued at a book cost of $42.22 a fine troy ounce – making it worth $11bn. At current market prices it would be worth over $650bn. So – if we’ve understood correctly – Federal Reserve banks would be required to remit around $640bn to the US Treasury. And the Treasury could use these funds to buy Bitcoin.
This is clearly mad.
If a price-insensitive buyer came waddling slowly down the road waving an open cheque book measured in the hundreds of billions, we imagine crypto price fireworks will be otherworldly. The mind further boggles at the macroeconomic and financial implications that such a move would unleash.
It’s easy to see the lure of bitcoin. It has technological beauty, even if it’s an environmental disaster. But unlike most assets, it has no cash flows, no direct physical property rights, and limited utility. It is a claim on nothing more than confidence. No matter. Financial value — to state the obvious — is plutocratically determined. A pledge from the very government from which the US dollar derives its value* to pump up bitcoin valuations with freshly minted dollars is something that we should take seriously.
Should we take this literally? While we will undoubtedly be accused of peddling FUD, we find it hard to do so.
But punters on Polymarket reckon that there’s an about on-in-three chance that Trump sets up a Strategic Bitcoin Reserve by the end of April 2025. Admittedly, they may find another way to go about it. But it’s hardly a tail risk.
* We’re leaning here on the chartalist view of money which reckons that money derives its value in large part from the requirement to pay taxes in the units of currency specified. Failure to do so leads the state to deploy its monopoly-of-violence to deprive you of your liberty, creating a strong incentive to accumulate enough currency to satisfy your debt.
