🔋Strategic Assets
Trump wants to create a national digital asset reserve, with the potential for a huge moral hazard.
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After Russia invaded Ukraine, the US and its allies seized 300 billion of Russian reserve assets, including bank liabilities such as dollars, bonds, and gold held at US and European banks. This was a striking and groundbreaking move that could have sparked doubts about the trust of the Western financialized world. Although this may seem like an exaggeration, today's financial world is built solely on the trust and power of the United States government.
Until 1944, each country tied its currency to gold directly and did not have to trust the other party, just the gold that they delivered. Then, until 1971, the world switched to convertibility to dollars, which were trusted to be tied to gold. In 1971, the US realized that it could not sustain its gold convertibility and froze the world’s gold reserves similar to what it did with Russia. This effectively severed the dollar's tie to gold “temporarily,” which means forever in government terms. In the last 50 years, there have been no physical or real-world asset ties to money. This has resulted in exponential increases in money supply, increased wealth disparity, increased size/control of central governments, and a host of other consequences.
This system is a pernicious under-the-table tax on US citizens and US bondholders but allows the US to remain in control of the monetary system. While the US dollar has no more ties to real assets, the US as a whole has claims on land assets, held physical assets, the US military, and the economic output of corporate citizens which back its position on the geopolitical totem pole. To keep confidence in their ability to run the world’s monetary system, they need to keep confidence in all of these things.
Whether it is remaining the world’s military superpower or holding the most gold reserves in the world, these are vitally important to US supremacy. After a slew of executive orders out of Trump’s first few days in the White House, one in particular stood out. The White House plans to create a “national digital asset stockpile.” In a world where digital assets are becoming more important, the US can’t be seen as falling behind in its dominance.
Digital assets of course are referring to cryptocurrencies. The only problem is on the campaign trail, the idea of a strategic Bitcoin reserve was floated around. While Bitcoin is a cryptocurrency, these are entirely different things. There is a fundamental difference between Bitcoin and all other cryptocurrencies that is of vital importance. Bitcoin is not controlled by any one entity or corporation and its code and network size are such that its rules/supply cannot be manipulated. For more information on the value proposition of Bitcoin and the misconceptions about its energy use, see my past piece called Proof Of Energy. If you do not think the world has any need for Bitcoin, I politely suggest you check your financial privilege by taking a look around the world and doing some reading on monetary history.
On the other hand, cryptos like stablecoins, Ethereum, XRP, Solana, etc are all essentially securities like a corporation. Some have CEOS, they can and have been seized, and the rules around supply can be changed. All of these are properties of our current flawed monetary system that is the reason for its failure. These alt-coins do nothing other than grift a trend and take advantage of people.
That being said, Bitcoin’s unique properties as a truly decentralized and immutable network make it the only digital asset worthwhile as an asset in the same way as gold or other resources. From a theoretical point of view, Bitcoin doesn’t need or want central governments to hold it. However, from a strategic point of view, the US may want to hold it to hedge against it becoming an important asset in the future such that they can back their world power.
You may think this is a nothing burger and a silly side quest of the president and that’s fine, but I think Bitcoin will play a key role in maintaining freedom over money and savings for years to come. Whether it is a grassroots movement to save and transact for individuals/corporations or it is used to course correct the current monetary system it will play a growing role in the future due to its fundamentals and the world debt issues.
Trump also signed an order banning the US from creating a central bank digital currency (CBDC). While positive, if the government is supporting alternate cryptocurrencies with the same pernicious characteristics as our current fiat currency, then there is a backdoor to a CBDC through these other cryptos.
We know that Ripple/XRP is lobbying millions of dollars in Washington to be adopted and stockpiled. The Ripple CEO even donated 12 million to the Harris campaign. This is the same as Exxon or Nvidia donating millions and the White House buying stocks officially. While there are government-owned companies around the world, this is not ideal in a free market and they do not directly challenge your financial freedom. Bitcoin on the other hand lives/dies by its real-world utility and no one but users advocating for its use. Ripple is advocating to nations around the world its utility in bridging to CBDCs. For Trump to ban CBDC but also order the US to support Ripple is a contradicting executive order as well as unethical.
I don’t think that the US government owning Bitcoin is necessarily a good thing. In general, I am as indifferent as if the US government wanted to stockpile gold which they do. However, if the US is advocating for the purchase of stocks as national assets that is something I think is not good for markets or the world's prosperity. Taking one step further, advocating for the US to support alternate cryptocurrencies could be a dark path to a future with less monetary freedom for citizens, or at the least a perpetuation of the current fiat money system. Until next week,
-Grayson
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