The expectation that a rise in the value of Bitcoin will reduce U.S. debt relies on an unwavering belief in its perpetual growth, while the impact this would have on the global role of the dollar and U.S. Treasury bonds remains unclear
The U.S. administration’s measures aimed at creating “strategic reserves” of Bitcoin and other cryptocurrencies represent the partial fulfilment—if only symbolic — of a campaign promise regarding a “business-friendly” policy, and a form of legitimisation of Bitcoin, an area previously unexplored by governments and central banks, which have traditionally been hesitant to venture into this domain. In any case, this initiative is meant to solidify U.S. leadirship in crypto industry and digital finance.
The actual mechanism behind President Trump’s proposal remains insufficiently clear. For now, it refers to Bitcoins already in the possession of federal authorities, acquired mostly through court proceedings, and valued at around $17–18 billion at the time this policy was announced. Any further increase in this fund would, according to its proponents, need to be “budget neutral”, meaning that potential purchases on the market must not be financed through additional borrowing. There are, however, voices claiming that without active market purchases, the fund would be “nothing more than a fancy name for Bitcoins already held by the federal government”, while others believe that future appreciation in Bitcoin’s value could serve as a source of funds to reduce U.S. national debt. This is where the core— though not the only—problem with this idea begins.
Without clear and transparent rules, the risk of arbitrary selection of specific cryptocurrencies is substantial and could lead to distortions in market mechanisms and a decline in public trust
Unlike other strategic reserves—in FX reserves, energy, food, or critical raw materials—intended to ensure stability and security during times of crisis, cryptocurrency advocates are not seeking price stability. Rather, they are hoping that the involvement of the state and its sovereign funds will provide the legitimacy cryptocurrencies require, thereby attracting additional investors from around the world—not only private but institutional ones as well. This would lead to a significant increase in Bitcoin’s value and major profits for those who already hold large positions.
What the creation of “strategic reserves” in Bitcoin would mean for the position of the dollar as the world’s reserve currency, and for the global role of U.S. Treasury bonds as the bedrock of American supremacy, is unclear. The argument that Bitcoin could serve as a reliable hedge against inflation is somewhat questionable, as it remains a highly volatile asset. Furthermore, the notion that the potential rise in the value of Bitcoin could be harnessed to reduce U.S. debt reflects a blind faith in its ever-growing price. And if further expansion of the fund were to be financed with budgetary resources, it could exacerbate the already precarious fiscal outlook of the United States in the eyes of credit rating agencies and international investors, leading to increased borrowing costs.
This brings us to a kind of “squaring of the circle”: originally conceived as a refuge from currency debasement and a symbol of distrust in fiat currencies and the monetary and fiscal policies of sovereign states, Bitcoin and its value would, under this model, become directly dependent on the state and its market interventions—an irony not to be overlooked.
*The views expressed are personal and do not represent the official position of the National Bank of Serbia.