The ambitious proposal to build a national Bitcoin reserve suffered a significant blow this week, as the world’s largest cryptocurrency experienced a sharp decline due to growing macroeconomic uncertainties.
Bitcoin’s volatility is well-documented, yet the recent plunge has intensified scrutiny, coming shortly after former President Donald Trump endorsed the creation of a “strategic national Bitcoin stockpile.” During a Bitcoin conference in July, Trump pledged to retain the Bitcoin that the U.S. government currently holds, which typically originates from law enforcement seizures. In a subsequent Fox Business interview, Trump hinted that cryptocurrency might offer a solution to the national debt crisis.
In parallel, Senator Cynthia Lummis (R., Wyo.) has introduced legislation proposing that the U.S. government purchase one million Bitcoin to “secure the dollar’s position as the world’s reserve currency.” In a statement to Barron’s, Lummis remarked, “Short-term volatility is common with any store of value, including gold or oil …. The fundamental benefits that a Bitcoin reserve could bring to our country remain strong.”
However, the prospect of a national Bitcoin reserve has raised skepticism. Since Trump’s address at the Bitcoin conference, the cryptocurrency has dropped by 18%, despite being up 27% this year. Traditional reserves like gold and oil, while also subject to price fluctuations, possess tangible value and practical applications, which Bitcoin currently lacks. Notably, gold’s price has remained relatively stable since Trump’s speech on Bitcoin.
Owen Tedford, an analyst at Beacon Policy Advisors, noted, “It certainly bolsters the arguments of the critics that this is a highly volatile asset that we shouldn’t be considering as a reserve.”
The debate surrounding Bitcoin’s role in national reserves is likely to continue, especially as its value remains unpredictable. While proponents like Trump and Lummis argue for its potential to strengthen the U.S. dollar’s dominance, the recent market movements underscore the inherent risks of relying on such a volatile asset. As the conversation evolves, the viability of Bitcoin as a strategic reserve will remain a contentious issue, with both advocates and critics closely monitoring its trajectory.
Bitcoin’s national reserve plan hits a roadblock as the cryptocurrency plummets, raising concerns over its viability as a strategic asset.
