As usual, the sheer number of monthly developments in digital assets bears all the hallmarks of a new technology rubbing up against its next phase of development.
Particularly noteworthy was the launch of the US-based Ethereum spot ETFs. Despite a multi-day streak of net negative flows (largely attributable to ETHE outflows), the 'New Nine 2.0' debut went off without a hitch and is now trending positive.
But of course, it was the bitcoin conference in Nashville that stole the headlines in July. As the world's biggest bitcoin even, it featured an impressive 'all-star' cast of bitcoiners as well as a certain former president, and it was hard not to notice the growing buzz around one topic in particular in the lead-up to the event: the bitcoin strategic reserve.
These rumours appeared weeks ago after Trump remarked on the "geopolitical significance of the world’s largest cryptocurrency" and then went into overdrive after Dennis Porter claimed 'sources' pointed to an announcement of a bitcoin strategic reserve could happen during Nashville.
But what are the potential implications?
Implications of a Strategic Bitcoin Reserve
In basic terms, strategic reserve assets (SRA) which include gold, commodities, bonds, and others, are held by governments to safeguard economic stability and national security during emergencies. Additionally, they can be used to influence exchange rates, maintain international payments and provide liquidity to the financial system in times of stress.
Although some do not see the possibility of a US Strategic Bitcoin Reserve as a big deal given what certain other countries have already implemented with respect to legal tender status and government purchases of bitcoin, there are several obvious differences if the US were to go down this path.
First, the US has the world's largest gold stockpile of over 8,100 tons (though calls to audit US gold reserves have intensified in recent years), and accumulating bitcoin alongside it would further elevate its bonafides at the sovereign level – a logical step given the rising trend of corporate cryptofication currently underway.
Figure1: Countries ranked by bitcoin holdings
Secondly, the adoption of bitcoin as a bedrock reserve asset would signal a permanent shift in the regulatory climate toward digital assets across the board. That's a big deal when you're talking about the largest economy in the world that has so far been all over the map regarding its stance on bitcoin.
Last, but not least, the US government is already the largest sovereign holder of bitcoin with a current balance of just over 213K (most, if not all, held by the DoJ), and we mentioned recently that it's not a stretch to imagine that an officially sanctioned Strategic Bitcoin Reserve could open the door to large purchases. Lo and behold, just this weekend Senator Cynthia Lummis revealed draft legislation for a "Bitcoin Purchase Program" of up to 200K yearly BTC purchases over five years, a move that would in part be financed by revaluing the country’s gold reserves.
Will the Strategic Bitcoin Reserve happen?
Whether or not these plans come to pass will of course depend on whether Trump is elected – something that looks likely according to the latest polls – and whether he truly has the conviction in digital assets his recent change of heart suggests. Here, it's also a good time to remember that, ultimate executive power notwithstanding, Trump's is just one of many high-profile opinions to have done a 180 in recent years on bitcoin and/or crypto, and others include Larry Fink (Blackrock), Steven Squeri (AmEx), Ray Dalio (ex-Bridgewater), Howard Marks (Oaktree).
Indeed, one cannot be 100% sure any of these individuals arrived at their changed mindset following a thorough investigation into bitcoin's technical underpinnings, its sound money properties, or its potential role in the future of payments. But we can be sure that all of them have very powerful incentives for doing so (revenue, AUM, votes) which may or may not align with our own reasons for believing in bitcoin (transparency, freedom, sound money, decentralised value transfer/store) or crypto (DeFi, frictionless payment rails, Dapps) as net positives on the current page of history.
The other key elements on Trump's crypto agenda
Aside from the expected promises to "make bitcoin in America" and the sacking of Gary Gensler as SEC chair, there were plenty of other pledges that could bode well for the crypto industry in addition to the Strategic Bitcoin Reserve.
• Bringing down Operation Chokepoint 2.0
For example, Trump's vow to end Operation Chokepoint 2.0 would have broadly positive impacts on the regulatory landscape for digital assets. Operation Chokepoint 2.0 is a crackdown on the banking and lending practices as they relate to crypto businesses and represents a significant threat to the crypto industry.
By targeting banking relationships, it would hamper crypto businesses' access to TradFi, thereby hindering operations and potentially stifling innovation. Additionally, it raises concerns about the government's overreach into the industry and could discourage investment and participation in the crypto market which will instead flow to Asia and other regions.
• Stablecoins as significant to global US dollar demand
Whether people like it or not, stablecoins are crypto's killer app (market cap currently ≈$170 billion) and they have a guaranteed role in the future of payments.
Trump is now echoing recent statements by Former Speaker of the House, Paul Ryan, which have been more formally advanced by FED Governor, Chris Waller, who has pointed out that the highly dollarised nature of crypto via US dollar-denominated stables as a medium of exchange will help maintain global reserve status (1thereby maintaining soft power benefits of sanctions-making ability, lowering borrowing costs and insulation from macro shocks).
It's important to note that other economists and academics such as Gary Gorton and Rohan Grey take an opposite view on stablecoins, so Trump's stance is by no means the default one coming out of Washington which is what makes it all the more interesting.
Nashville a snapshot of things to come
Taking these points together, it's clear to see how Trump's pronouncements at Nashville appear hugely bullish for bitcoin and the broader crypto industry. Despite this, it would be imprudent not to take such statements or promises from powerful individuals with a hefty pinch of salt in order to continually re-evaluate the degree to which one's own convictions have been influenced by those who have the means to control narratives not just on bitcoin, but on a whole host of issues.
Ultimately, bitcoin specifically was not and should not be conceived as a political tool. But like most new technologies, it is a blunt instrument that can be used for any purpose irrespective of whether it happens to agree or disagree with a particular worldview. But the increasing political activity around it is an inevitable step in its development arc as it continues to bend financial and economic systems to its will.
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Disclaimer: The information contained within is for educational and informational purposes ONLY. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision. No commercial relationships or partnerships exist with any of the technology providers, manufacturers, or suppliers herein.
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