Bitcoin Crash Raises Concerns About U.S. Strategic Reserve Plans
The Idea and the Controversy
Several U.S. politicians, including Donald Trump and Robert F. Kennedy Jr., have floated the idea of creating a strategic Bitcoin reserve ahead of the U.S. elections. However, a BTC crash earlier this week has shaken that thesis. Bitcoin's price plunged below $50,000, triggering over $1 billion in liquidations amid fears of an impending U.S. recession. That volatility, according to some experts, underscores why Bitcoin would fall short as a strategic reserve asset.
“Bitcoin is a high-risk asset,” Cerus Markets CEO Michael Brescia said. “If we’re not talking about putting other high-risk assets in the national reserve like… Apple [stock], why would we be talking about putting Bitcoin in there?”
Concerns About Stability
The Federal Reserve exists to “promote the stability of the U.S. economy and overall financial system,” Lehman College associate professor Dr. Sean Stein Smith said. Adding a volatile asset such as Bitcoin to the nation’s reserves could undermine that mandate, he said, exposing the Federal Reserve and American economy more directly to a dangerous degree of volatility.
Proponents' Arguments
Proponents of a U.S. Bitcoin reserve argue that BTC would serve as a better hedge against inflation compared to gold or silver due to the token’s scarcity and decentralized issuance. The maximum supply of Bitcoin is capped at 21 million tokens. But some experts remain skeptical of such rationales, noting that more traditional assets such as gold and silver are more stable and substantive.
“The [U.S.] gold pile… is among the highest percentages of national reserves for any country in the world, and is one of the principal reasons—along with the strength of the U.S. dollar—that the U.S. remains a safe haven for investors,” Brescia said.
Market Performance
As of Monday, Bitcoin’s price fell 27% from its all-time high of $74,000 in March 2024. During the same five-month period, gold futures increased roughly 20%, while silver futures were up 22%.
Political Support
The idea of a Bitcoin reserve has gained steam among some politicians and mainstream thought leaders in recent weeks.
Last month, U.S. presidential candidates Donald Trump and Robert F. Kennedy Jr. both expressed support for backing the U.S. treasury with Bitcoin at the Bitcoin 2024 conference in Nashville, Tenn. In addition, Sen. Cynthia Lummis (R-WY) unveiled a bill to establish a “strategic Bitcoin reserve to serve as an additional store of value to bolster America's balance sheet,” directing the U.S. to accumulate 1 million BTC or 5% of the token's total supply.
The bill received criticism from several major U.S. Republicans, adding that its odds of becoming law are low.
Feasibility Concerns
According to Brescia, that's because using Bitcoin to back the U.S. monetary system just isn't feasible—at least not yet. “One day, Bitcoin may well become bigger than gold, but today it is not even one-fifteenth the size,” he said. “There is a long, long way to go before we should even contemplate including such a volatile asset in our national reserves.”
