With the election of President Trump and his undertaking to the Bitcoin community that he will establish a Strategic “stockpile” of Bitcoin at the recent Bitcoin Conference in Nashville, it is increasingly likely the United States will start holding Bitcoin as a strategic asset. One of its main strategic rivals, Russia, has also made comments indicating a potential stockpiling of Bitcoin. In this article we discuss the actual mechanisms for how the USA may fund and hold Bitcoin, and how this might compare with an Australian stockpiling of Bitcoin. Australia does hold an amount of gold as reserves (although it is held in London). Advocates for Bitcoin in Australia such as the Australian Bitcoin Industry Body, of which one of our founding partners is general counsel, have long argued Australia should hold Bitcoin in reserves as well as gold via a HODL ACT. Several other countries have adopted Bitcoin such as El Salvador making Bitcoin legal tender and the Kingdom of Bhutan which mines Bitcoin.
This nation state adoption is one of the primary drivers of Bitcoin adoption as countries recognise the strategic imperative of holding Bitcoin and to secure their wealth in an increasingly digital modern economy.
United States of America
“Where the United States goes so too does Australia go.”
Firstly, regarding the United States, in July 2024, U.S. Senator Cynthia Lummis (R-WY) introduced the Boosting Innovation, Technology, and Competitiveness through Optimized Investment Nationwide (BITCOIN) Act. This legislation proposes the establishment of a Strategic Bitcoin Reserve aimed at enhancing the U.S. dollar's stability and addressing the national debt.
Key Provisions of the BITCOIN Act:
Acquisition of Bitcoin: The Department of the Treasury is mandated to purchase one million bitcoins over a five-year period, holding them in trust for the United States.
Holding Period: The acquired bitcoins are to be held for a minimum of 20 years, with the exception that they may be utilised earlier solely for the purpose of retiring outstanding federal debt.
Establishment of the Strategic Bitcoin Reserve: The Treasury is directed to create a decentralised network of secure facilities across the nation for the storage of these assets, ensuring transparent management of the federal government's bitcoin holdings.
Consolidation of Existing Holdings: Any bitcoin currently under the control of federal agencies, including those held by the United States Marshal Service, are to be transferred to the Strategic Bitcoin Reserve.
Voluntary State Participation: States are permitted to store their bitcoin holdings within the reserve in segregated accounts, should they choose to participate.
Senator Lummis emphasised that this initiative aims to "supercharge the U.S. dollar" and secure America's position as a global leader in financial innovation.
The introduction of the BITCOIN Act has sparked discussions regarding its potential impact on the U.S. economy and the global financial system. Proponents argue that it could strengthen the dollar and provide a hedge against inflation, while critics question the practicality and long-term effects of such a reserve.
As of December 2024, the BITCOIN Act is under consideration in the Senate Committee on Banking, Housing, and Urban Affairs. Its progression through the legislative process will determine its potential enactment and implementation.
The BITCOIN Act, as proposed by Senator Cynthia Lummis, does not explicitly detail the funding mechanism for acquiring the substantial amount of Bitcoin (one million bitcoins) mentioned in its provisions. However, potential funding methods for such initiatives could include strategies like:
1. Marking Gold Certificates to Market Value
The U.S. Treasury holds gold certificates that reflect historical book values of gold reserves. These certificates could be marked to their current market value, unlocking significant unrealized value. The difference between the historical value and the current market value of gold could be recognized as a source of funding for the Bitcoin acquisition. This would require legislative or accounting changes, as the existing gold certificates are not easily monetizable under current frameworks.
2. Issuing Special Purpose Bonds
The Treasury could issue bonds specifically designated for funding the Bitcoin acquisition, backed by the assets in the Strategic Bitcoin Reserve. This approach would be transparent and could attract investors interested in Bitcoin. The issuance of bonds increases national debt, which may counteract the Act's goals of addressing the federal deficit. El Salvador had floated the idea of Bitcoin Volcano bonds previously.
3. Using Seized Cryptocurrencies
Bitcoins and other cryptocurrencies (non-Bitcoin could be converted to satoshis) seized in federal enforcement actions (e.g., by the U.S. Marshals) could be repurposed for the Strategic Bitcoin Reserve.
Advantage to this is that it minimizes the need for additional funding and directly utilizes existing government-controlled assets. However, the quantity of seized Bitcoin may be insufficient to meet the proposed target of one million bitcoins.
4. Reallocating Existing Treasury Reserves
Funds from other reserves or surplus budgets could be reallocated for this purpose. This would require significant bipartisan support and careful justification for diverting resources to Bitcoin.
5. Revenue from Taxation or Blockchain Activities
Taxes on cryptocurrency transactions or blockchain-based activities could fund the initiative. Revenue collected from crypto taxation could be directly funneled into the Strategic Bitcoin Reserve. Implementing new taxation measures could be politically sensitive and take time.
6. Selling or Leasing Federal Assets
The government could sell or lease underutilised federal assets (e.g., real estate, infrastructure, or other holdings) to generate funds. This approach may raise public concern over the sale of assets for Bitcoin acquisition.
Summary of Feasibility
Marking gold certificates to market value is a viable theoretical funding source but would require significant legal and fiscal adjustments. It is a strategy rooted in leveraging the unrealized value of existing reserves. However, practical implementation may lean towards issuing special-purpose bonds or reallocating federal funds due to fewer systemic changes needed.
The exact funding mechanism would likely need to be clarified through accompanying legislative measures or detailed Treasury policies if the BITCOIN Act progresses further in the legislative process.
Australia
“Digital Gold”
Implementing a policy similar to the U.S. BITCOIN Act in Australia would involve several considerations, particularly regarding funding mechanisms like marking gold certificates to current market value.
Australia's Gold Holdings:
As of October 2024, the RBA holds approximately eighty tonnes of gold. This is approximately 2% of Australia’s reserves. The RBA's gold holdings are valued at market prices, with fluctuations reflected in the bank's financial statements.
Marking Gold Certificates to Market Value:
The current practice is that the RBA records its gold assets at current market values, ensuring that the balance sheet reflects real-time valuations. Since the RBA already marks its gold holdings to market value, there is not an unrealized gain to leverage for funding a Bitcoin reserve.
Alternative Funding Mechanisms:
Given the above, Australia would need to explore other funding avenues:
Issuing Government Bonds:
The government could issue bonds to raise capital for purchasing Bitcoin. This approach would increase public debt and require careful assessment of fiscal impacts.
Reallocating Existing Reserves:
Redirecting portions of foreign exchange reserves or other assets towards Bitcoin acquisition. This could affect liquidity and the country's ability to respond to economic contingencies.
Utilising Seized Assets:
Deploying cryptocurrencies confiscated in criminal activities. The volume of such assets may be insufficient for substantial reserves but could act as an initial stockpile.
Regulatory Environment:
Australia is in the process of developing a comprehensive regulatory framework for digital assets, focusing on consumer protection and market integrity. Establishing a national Bitcoin reserve would necessitate clear legal guidelines and robust infrastructure to manage and secure the assets.
Conclusion:
Australia's existing financial practices, including the current valuation of gold reserves, do not provide a straightforward pathway to fund a Bitcoin reserve through marking gold certificates to market value. Alternative funding strategies would need to be carefully evaluated, considering fiscal responsibility and alignment with the evolving regulatory landscape for digital assets. If Australia is to align itself with the world leader the USA, we should strongly consider the adoption of Bitcoin in a strategic national stockpile. The Bitcoin Lawyers is able to give strategic legal advice on developing your own “strategic reserve” for yourself, your family, your business, or your institution.
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