💡Will the US Establish a Bitcoin Reserve?

Issue 145

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Today’s Bullets:

• The Bitcoin Act

• US Debt & Gold

• Bitcoin Act Hurdles

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Inspirational Tweet:

A Bitcoin Reserve. The BITCOIN Act.

Ever since Trump won the election, it seems like we are hearing nothing but Bitcoin, Bitcoin, Bitcoin…recently.

And then the price of Bitcoin just crested $100K this last week. 🤯

Tons of attention and momentum, it seems.

But what exactly is all this talk about Reserves and Acts and did someone suggest ‘the US sell its gold to buy Bitcoin’?

There’s plenty to sort out here and lots to cover. But have no fear, we will do it nice and easy as always.

So, pour yourself a big mug of coffee, and settle into a warm and comfortable seat to unpack the BITCOIN Act with The Informationist.

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🤓 The BITCOIN Act

If you’ve been in the Bitcoin space the last few years, you have likely heard the name Cynthia Lummis (pronounced like ‘hummus’). Because Senator Lummis has been a huge and outspoken Bitcoin advocate for a while now.

How much of an advocate?

Well, Senator Lummis introduced the BITCOIN Act of 2024 in the US Senate on July 31, 2024.

But as of now, the bill does not have any co-sponsors.

This is important, as is the legislative process that the Act will have to navigate for passage. But we will get back to that in a moment.

First let’s take a peek at what the Act seeks to accomplish.

The full name of the BITCOIN Act is the Boosting Innovation, Technology, and Competitiveness through Optimized Investment Nationwide (BITCOIN) Act of 2024.

There are a number of key provisions that the Act proposes.

First and foremost is the mandate that the US Treasury is to purchase 1 million Bitcoin over a five-year period.

That’s right, 200K Bitcoin per year.

And so, at the end of that period, the US Treasury would own and control approximately 5% of the total Bitcoin supply.

The Treasury would be mandated to hold (read: hodl for all you knowledgable investors out there) the Bitcoin for at least 20 years.

The exception to this holding period is if the reserve is used to retire outstanding federal debt, signaling Bitcoin's potential role as a debt-management tool.

The Treasury would also be mandated to establish a decentralized network of secure facilities across the United States to store the Bitcoin.

The Act also provides the option for states to participate and add their holdings to the US reserve in segregated accounts for them to manage separately.

In order to pay for all this, the Act proposes funding the Bitcoin purchases by reducing surplus U.S. dollars held by Federal Reserve banks.

In other words, a portion of the Fed's net earnings would be allocated to the program, to the tune of $6B per year.

This is all summarized in this nice little graphic by Julian Fahrer (X: @Julian__Fahrer):

OK, all this sounds fascinating and as critics say, great for Bitcoiners who already own their stack and the Act would help drive up the value of their bags, making them rich.

But how exactly does a Bitcoin Reserve help the US Treasury?

What can Bitcoin as a reserve asset do to help all this debt?

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😱 The US Debt & Gold

For those who have been reading The Informationist and anyone following me on Twitter/X, you are well aware of what I think of the US debt situation.

In short, the US is in a debt spiral, and unless we do something drastic, we will continue down this spiral until the inevitable collapse of the US Treasury and US dollar.

If you think this is hyperbole, I only need to remind you of this simple chart of estimated US debt to GDP that was published by the US Treasury early last year.

That is their title, by the way, not mine.

So, bottom line it is a ‘when’ question, not an ‘if’ question anymore.

Unless we change course drastically.

But what could that drastic change be? And could adding Bitcoin to the US Treasury reserves really be the answer? And what about gold?

Let’s walk through it, shall we?

Because Bitcoin is scarce, with a total supply capped at 21 million coins, this truly sets it apart from constantly debasing fiat—currency that governments can print at will.

With increasing, broad-based adoption, Bitcoin price has appreciated in every four-year period since its inception, and it is emerging as the pristine digital asset of the world.

Because the US already has the global reserve currency in the USD, if it added Bitcoin to the balance sheet, it could then also significantly benefit from this emerging reserve asset as well.

There are plenty of estimates floating around about what would happen to the price of Bitcoin once the US Treasury adds it to the balance sheet, but some quick math.

Assuming Bitcoin continues its trajectory higher (I strongly believe it will, BTW), and reaches $1M per coin by 2032, then the US buying 1 million coins would be with $1 trillion.

Not bad.

But that’s an extremely conservative estimate.

The reality is that if the US starts adding Bitcoin to its balance sheet, the price will explode much higher as institutional investors and retail flock to own some, and of course, other nation states rush to follow suit.

How much higher is anyone’s guess.

OK. So, what was that about selling gold?

Michael Saylor has recently suggested a ‘twist’ on the BITCOIN Act whereby the US also sells its gold reserves and buys even more Bitcoin with the proceeds.

You may now be thinking, How much Bitcoin would that get the US, and what is the point?

Well, Saylor believes the US could purchase as much as 20% of the total Bitcoin supply this way, thereby cementing its place as the largest holder of Bitcoin and benefitting from all the other countries that would race in to buy as much as they could, as well.

Saylor makes the point that “the only current alternative to the UST is Bitcoin. And if the US sells its gold and buys 20% of the Bitcoin network then it dominates the reserve capital network and they can own the reserve currency and reserve capital (asset).”

The game theory, in essence, is when the US buys a massive reserve of Bitcoin and sells its gold, it demonetizes the gold, forcing China, Russia and the other BRICS countries to also sell their gold and buy Bitcoin themselves. The result is that the world’s money flows right into the US through this new asset, Bitcoin, and the US benefits on that.

And if Saylor is correct in his estimates of the growth of global assets and Bitcoin’s growing share of it, then the strategy would pay off massively for the US Treasury.

In essence, the Treasury’s 5 million Bitcoin would be worth over $65 trillion, possibly eliminating the US debt altogether, or at least offsetting most of it as an asset on the books.

I must admit, it is an interesting and bold strategy.

Do I think the US will sell its gold to buy Bitcoin?

In a word: No.

But it is a useful exercise to go through as an investor and to understand the situation the US Treasury currently finds itself.

But back to the BITCOIN Act itself.

Do I believe that will happen?

I do believe this will eventually happen, yes, but not without a struggle, IMO.

Let’s talk through some legislative reality, shall we?

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🫣 Bitcoin Act Hurdles

Put simply, the BITCOIN Act of 2024 will have to navigate a vicious gauntlet before it becomes a reality.

The legislative process requires the bill to undergo committee reviews, floor debates, and votes in both the Senate and the House of Representatives. It has to get through all of that before it even makes it to Trump’s desk, for him to sign into legislation.

If it does make it to his desk, Trump will sign it.

But first.

Senate and House Committee Reviews

Before reaching the Senate or House floor, the BITCOIN Act must be evaluated by the relevant committees.

Primary Committee: In the Senate, the bill is likely to be assigned to the Senate Banking, Housing, and Urban Affairs Committee, which oversees financial and monetary policies. In the House, it may fall under the jurisdiction of the House Financial Services Committee.

Outcome: The bill may be amended during this stage to address concerns or improve feasibility. If it gets the nod here, it is sent to the floor in each Senate and the House for debate.

Floor Debates and Votes

Senate Floor: The bill must secure a simple majority vote (51 out of 100) to pass. However, if the bill is controversial, it may face a filibuster, requiring a three-fifths majority (60 votes) to end debate and proceed to a final vote.

House Floor: The bill must also pass in the House with a simple majority vote (218 out of 435). Given the House’s larger size and more diverse representation, debates may focus heavily on public perception and political implications.

Reconciliation Process

If the Senate and House pass different versions of the BITCOIN Act, a conference committee—comprising members from both chambers—will work to reconcile the differences.

Negotiations: Key provisions such as funding mechanisms, holding periods, or the scale of the reserve may be modified to reach consensus.

Unified Proposal: The reconciled version must be approved by both the Senate and the House before advancing to the President.

Presidential Approval

Once both chambers approve the final version of the BITCOIN Act, it is sent to the President for signature.

The bill becomes law immediately upon the President’s signature.

Now you can imagine just how difficult it will be for the Act to make it all the way through this process and get to Trump’s desk.

Massive resistance is certain to come from the likes of loud Democratic voices like Elizabeth Warren and others.

There will be lobbyists repping Big Banks who will likely vehemently oppose the idea, pointing to market stability or US Treasury impact, among other things.

You know, good old fashioned self-absorbed and self-serving politics—the opposite of what these people have been sent to DC to achieve.

And yet we wonder how so many Senators and Congressman suddenly become worth tens to hundreds of millions of dollars after hitting DC and on a mere $174K salary. 🙄

I digress.

But let’s also factor in that there is so much nonsense and mis-information constantly spewed by mainstream media, there is no telling what kind of public fear could be sparked by them, too.

All that said, the recent election has ushered in a significant political shift, with the Republican Party securing control over the presidency and both chambers of Congress.

This consolidation of power is certain to influence the trajectory of the BITCOIN Act, especially considering the Republicans’ favorable stance toward cryptocurrency and Bitcoin.

With Republicans controlling both the legislative and executive branches, the BITCOIN Act is more likely to advance through Congress.

But the Act must still navigate the standard legislative process, including committee reviews and potential debates, where bipartisan support will be necessary for its enactment.

And so, while the new political landscape is favorable and enhances the chances for the Act’s passage, it will be nothing short of a grudge match at times.

What does the general public think of the chances of a Bitcoin Reserve in the first few months of Trump’s presidency?

Let’s check the betting odds.

After getting as high as a 40% chance, optimism has fallen back to a 29% chance.

Still. that’s pretty amazing, if you stop to think of the significance of the Act and what a monumental shift in traditional thinking it would require to pass.

As for me, I believe passage of the BITCOIN Act would be a tremendous step in the right direction for the US Treasury.

Even if it just enabled the Treasury to cut or offset half of its US debt in the next 20 years, that would be a monumental development in the right direction.

So significant, it would likely help pull the US Treasury out of its debt spiral.

And that, my friends, would be nothing short of a miracle.

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That’s it. I hope you feel a little bit smarter knowing about the BITCOIN Act and its implications as well as path to reality.

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Talk soon,

James✌️