A US federal Bitcoin reserve? Something along the lines of the US strategic oil reserve or the American gold reserve at Fort Knox?
One thing we should all have learned by now about US President Donald Trump's is that it's not enough to look where he's pointing. Scan the other direction too... He's talking tariffs under the spotlights — 'tariffs, it's such a beautiful word' — but in the semi-darkness, stage left? Perhaps the acquisition of a million Bitcoin by the US Treasury...
Maybe. Could happen. Nothing's for sure.
But, earlier today Trump stated that he had asked his administration to study the possibility of setting up a "national digital asset stockpile." Studying something is not the same thing as ordering such a reserve to be established. But in a world where many more people don't understand cryptocurrencies than do, it's an unusual — even outlandish — idea. So is this for real?
Petar Pejovic, tonight's guest on Hannaford is a Calgary-based Senior Portfolio Manager at Wellington-Altus Private Wealth Canada. He says there's certainly a real interest, and that if it could be done, there would be an equally real advantage to the US.
"They owe a lot of money," says Pejovic. "If they could create a reserve asset that would keep up with the growing US debt, they would be smart to do it. Think of it in house terms; if your asset — your house — loses value while your debts increase, that's not a good place to be. But if your house is appreciating in value more than your debts, that's not so bad. Bitcoin is now established as a commodity under the Commodity Exchange Act — there is a finite amount of it — so what Trump is talking about is setting up another reserve to offset US debt."
It's not as if the US government doesn't already own Bitcoin, says Pejovic. "The Bitcoin Act, now being floated to Congress, proposes the US buy a million Bitcoins over 5 years to help manage the US Debt. The US Government already holds over $20 Billion worth of Bitcoin (obtained mainly through proceeds of crime seizures,) and many other countries already store Bitcoin under similar means.
Great idea or fantasy, Trump's serious enough that he doesn't want any competition. Earlier today he also signed an Executive Order to ban Central Bank Digital Currencies. If digital currency is going to be important, the US government is going to have a monopoly.
The back story on this is fascinating. The US government has always tried to preserve US dollar dominance as a reserve currency, and before the end of the Second World War, negotiated the Bretton Woods Agreement to tht purpose. The agreement provided a fixed currency exchange rate, using gold as the universal standard.
However, when in the early 1970s after years of inflation the US moved off gold, the system came to an end. To maintain reserve status, the US made a deal with Saudi Arabia to create the so-called petrodollar to maintain the international demand for US dollars. However, last year the Saudis cancelled the deal; the world had got tired of having to buy US dollars before it could buy oil.
This left the US with a huge debt and a huge problem.
Is a Bitcoin Reserve the answer? Can it be done? Who are the winner and losers in this? Why Bitcoin, as opposed to any other cryptocurrency? What stops other countries attempting what the US is attempting?
And, what could possibly go wrong?
But if it is the answer, and it is possible, what does it mean for you? Petar Pejovic gives his thoughts, tonight.
Hannaford airs at 7:00pm.