Can Trump make bitcoin useful?
It’s clear that the backing of US officials has been good for the price of bitcoin.
Last year, the top US securities regulator approved the launch of regulated funds holding the cryptocurrency, paving the way for pension funds, endowments and other large money managers to plough money into the token. The Trump administration’s full-throated support of the crypto industry has encouraged them to do so.
“This was basically inconceivable as of two years ago,” says Yesha Yadav, associate dean at Vanderbilt University Law School, adding that before Trump’s return to Washington, the price of bitcoin “was driven by novelty, it was driven by excitement and this time round there is real institutional backing.”
Many believe the price can go higher still. Larry Fink, the billionaire founder of BlackRock, the world’s biggest asset manager, said recently that if more sovereign wealth funds considered holding bitcoin, it could reach $700,000.
Matt Hougan, chief investment officer at crypto asset manager Bitwise, says that “bitcoin has found a way to co-opt governments.” Trump’s backing has “removed the last existential threat to bitcoin,” he adds.
Now, some lawmakers are pushing the administration to go even further. Cynthia Lummis, the US senator for Wyoming, is spearheading the creation of a strategic bitcoin reserve.
A strategic reserve
A reserve asset is typically a critical resource that can be used in times of crisis. The US currently has an emergency petroleum reserve which it can use to protect against oil supply shocks, for example, while many countries have gold reserves.
Lummis says the token’s rising value could be used to cut US debt. In July, she introduced a bill seeking to get the US to buy 200,000 bitcoins from the market annually for five years until the stockpile reaches 1mn tokens.
Because crypto is largely anonymous, tracing who Washington buys bitcoin from will be extremely difficult — criminals and hostile governments could be enriched from these purchases.
Danielle Brian, executive director at the Project On Government Oversight, a nonprofit watchdog, says the US government’s interest in crypto raises significant “national security implications [because] of the kinds of investors that are participating in crypto in the first place”.
“It’s a very strange idea,” says Hilary Allen, professor at the American University Washington College of Law. “We need something that isn’t going to be inflated away, something hard and real in reserve. What’s ridiculous is that nothing could be less hard or real than bitcoin,” she adds.
The US government currently holds almost 200,000 bitcoins, tokens which it has seized through criminal investigations. It has previously sold chunks of its holdings in auctions — however many hope the government will now resist selling them off.
More bullish players, such as Lummis, hope the US will begin actively buying more, which could push bitcoin’s price higher. “Anything more than [not selling the current stockpile] will be a plus,” says Hougan.
Advocates say bitcoin would be an effective reserve asset as its supply is finite. Only 21mn coins will ever exist due to the algorithm written into bitcoin’s production code. They believe this scarcity adds value as holding coins now means they will be worth more in the future — and sets bitcoin apart from other cryptocurrencies.