The proposed Federal Bitcoin Reserve would be a fundamental step in the global evolution towards Central Banked Digital Currencies. But it remains unclear if this threatens, or enforces, American Exceptionalism and USD hegemony.
Running the simulation :
- 1. US enacts BTC reserve in 2025.
- 2. US borrows USD at T_IRR, and goes long BTCUSD ; BTCUSD goes up ; at this time roughly 78% of US debt is still held by domestic counterparties, and 22% is held by foreigners.
- 3. BTC_IRR > T_IRR, with near certainly in the 5-year-term, and probably in the 15- and 50-year-terms. ( Caveat : 8. )
- 4. ( Reversal of 2. )
As BTCUSD goes up, US goes short BTC, and repays its USD debt. BTCUSD price velocity is thus moderated by the rate at which the US sells BTC to pay off USD debt. - 5. ( Effects of 4. on 3. )
Therefore this strategy works for the US if it holds the reserve for a long-enough time, until most other nation-states have BTC reserves also, constricting BTC_ACTIVESUPPLY, such that the BTCUSD price has appreciated astronomically from 2025. - 6. ( Effect of 4,3. on DXY )
If the US uses its BTCUSD investments to pay off USD debt, it just means that the US is chopping ( or at least throttling ) USD M2, tautologously moderating the reason for BTC price appreciation which makes it a bankable investment in the first place. ( There may be other reasons that BTC is a bankable investment. ) - 7. ( Logical conclusions of 5. )
If all nation-states horde BTC, the end-game is the same as if no nation-states horde BTC, except that now there would exist a common understanding of how digitally constrained money supply works. This puts the long-term BTCUSD price much higher than it is in 2024, but not at infinity, as it becomes some clarified function of global M2 ( all commodity prices are some murky function of global M2 ). - 8. ( Possible implications of 7. )
In some near-future when ( a sufficiently powerful majority of ) nation-states, and global monetary governors (such as the IMF) have reached a comfortable relationship with BTC pricing, then the case for uniformly replacing BTC with a more sophisticated global currency technology would be clearer to all. This is the general evolution-or-obsolescence case for BTC, which may see BTC either - 8a. ... adapted into a global CBDC ( where the UN-or-equivalent controls all the validators, or splits the network ), or
- 8b. ... being banned, with nation-states opting to switch from allowing non-state cryptocurrency use, to banning non-state cryptocurrency use. This could be supplemented by the introduction of a per-state CBDC coupled with international CBDC protocols, or a single unified CBDC ( other than a direct descendant of the BTC network ) at the global level.
There are many reasons why each of these options is a pro/con for each state. To be elucidated elsewhere. Modelling these would fun.
This note was originally titled, 'Bitcoin as a Global Reserve Currency : Price Stability, then Evolution, or Obsolescence?'
I am also starting to wonder if the US BTC Reserve enactment would throttle the price growth of Bitcoin, while boosting valuations for non reserve currencies like LTC. It's basically increasing correlation between USD and BTC. So simply by holding BTC in reserve, there's a fed-put on the BTCUSD.
These are just thought floating around in my head that I've been scribbling down. No proper research has been done about this and there's probably some critical flaws in my hypotheses.
thanks. I'm just here for free tuition.(1/2)- The intended purpose of a thing is irrelevant to the functions it actually fulfills. There are now 'newer technologies than bitcoin for ( all sorts of things related to decentralised immutable ledgers )'.- BTC's value at the present is (FWIW) due to its (admittedly outsized) role as the 'lingua franca' for the asset class ... at about 60% of capitalisation.- The 'intrinsic value' of any fiat ( USD, BTC, etc. ) is basically zero, and its extrinsic value is a bunch of trust in a promise of limited supply. (There's a commonly cited argument that the value of state fiat is down to the state's promise to repay state debt, but that's a flawed perspective as real repayment of state debt is contingent on the more fundamental promise of limited supply of state fiat.) State fiat, or currency in general, functions as a language for denominating obligations, and has no intrinsic value. (You may disagree, I'm just elaborating on my position.)- Back to the 'current' function of BTC. ( I have a word limit. Hah. ) Reports seem to glomp Fed and Tresury holdings https://www.federalreserve.gov/data/intlsumm/current.htm .
(2/2)- Regardless of whether the Fed or the Treasury holds it, the reserve asset would be 'on USGOV' from the point of non-US parties.- We're discussing the proposal that USGOV could add BTC to its reserve assets. There's no reason to to do so, EXCEPT, that the asset has been marketed to public as a hedge against USD M2 expansion, and every ex-USGOV is buying it as a potential replacement currency vs the USD. Of course you wouldn't be able to agree with this point if you disagreed with the 'intrinsic value of any fiat is zero' specified above; but assuming this is true, then by extension ...- The very act of USGOV holding a large quantity of BTC, should cause an increase in USD-BTC correlation ( which you seem to agree with ), which implicitly runs contrary to very 'current reason' that people hold BTC, regardless of its originally intended use. At some magnitude of USGOV holdings of BTC ( because we are examining the proposed strategy ) this tempers or outright reverses the rise of BTCUSD.- At that point, USGOV doesn't even need to sell BTCUSD, it just holds it as a reserve currency. And the THREAT of a BTCUSD sale, followed by a reduction of M2, would temper / reverse BTCUSD price growth even more.
Further banter :
Yours is a commonly cited valuation of currencies - I have argued elsewhere in this comment tree that 'the repayment reason' is a strawman, which fundamentally depends on 'the limited supply reason'. Briefly :
There are actually three parties involved in the use of a currency.
- - ( A : they who control its circulating supply )
- - ( B,C : they who use it to denominate obligations )
B and C can only use a currency if A sticks to a promise to reasonably limit supply. The unlimited supply of the currency by A would deflate the value of the currency over time, thus making it useless to B, and C as a denominator of value.
This is true of all fiat ( non-gold backed ) currencies, regardless of whether that fiat is issued by a state ( USD, EUR, etc. ) or a decentralised community bank ( BTC, BCH, etc. )
Further banter :
Facts : it's NOT unlimited, because when it IS unlimited, you get Zimbabwe. B and C can only have the faith to use A's currency, because there's an implicit understanding that the expected rate of inflation is low. If it were high, B and C would simply switch to another currency.
The technology of distributed immutable ledgers, simply lets anyone set up their own currency. It's just plain old NGO-issued currency, BUT WITH MUTUALLY ASSURED CONTROLS OVER SUPPLY.
Caveat : average cryptocurrency user has no idea how it works ... hence no actual control over its supply ... but for whatever reason they trust the NGO community bank more than states. So they go long one fiat, and short the other.
Nothing complicated. Just a plain old loss of trust, resulting in trades. But at scale, it becomes stupidly interesting lol. Now BlackRock ( you know the news )
Further banter :
Well, the problem is partly because US and USD exceptionalism is an offensive play to begin with. No one knew how to get around it because all the other roads (currencies) sucked.
The technological innovation was simply to create a road (currency) that any NGO with a communications network could use to set up a central bank with controls visible to the users.
With that in place, at this point, it is US/D exceptionalism which is under attack. The US has various levers for defense. It can, as you say, go deflationary and spike unemployment ... or it can do (one of the other funny/stupid things we're discussing).
Further banter :
the 'why haven't they just banned BTC yet?' Is one of the more interesting questions.
So far there are 2-3 angles I have on this :
- 1. It's a mutual assured enfeeblement strategy, to backdoor all state-fiat, since every state doesn't want too much strength in any other state's fiat.
- 2. It's a deer in headlights reaction to not knowing how states can efficiently use decentralised ledgers, blockchains, CDBCs, for defense or offensive purposes. So everyone just tolerates it while they look at testtubes like Tether, where TetherInc can remotely confiscate any USDT and remit the backing USD to TetherInc cooperates with.
- 3. States have some vested interest in the existing BTC network. No idea who the 64% of anon validators are right now. Right?
Further banter :
No, no, not quite.
"Bitcoin is simultaneous long-and-short position versus global carry" - I finally got to read the details on December 2024's latest jargon.
Bitcoin is not so 'short global carry', because BTC's price in other currency terms will deflate if those currencies are rebased ( monetary deflation ). This is also why the creation of a US Strategic Bitcoin Reserve is both a short-term booster, and a long-term dampener on the BTCUSD pair.
First of all, everyone is familiar with the concept that if the US has an SBR, then SBRs become mainstream, and 'every' country will have one too.
In the short-term, SBRs drive down Bitcoin supply, and thus drive up BTCUSD. But in the long-term, the very feature of Bitcoin which gives it value is eroded ... Bitcoin's value is mainly derived from decorrelation with the global M2, or the unhinged money printers which are the collective fiscal irresponsibility of the world's governents. So by the time every state has Bitcoin, Bitcoin's price appreciation will start to stabilise, implicitly becoming a low-tech CBDC.
At that point, it's rather likely that the UN either (a) builds a CDBC protocol around using Bitcoin, (b) forks Bitcoin or establishes an alternative which is more technologically sophisticated which becomes the UN-CDBC, or a protocol around a bunch of per-state CDBCs. The (b1, b2) contigencies are that Bitcoin continues to co-exist with UN-CDBC, or becomes outlawed/denigrated.
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