Jameson Lopp, an early Bitcoin supporter and founder of cryptocurrency custody business Casa, believes that Trump's consideration of Bitcoin as important enough to become a campaign issue is a "historic" shift in itself.
Author: Chloe, PANews
Cover: Photo by Shubham Dhage on Unsplash
Trump gave a speech at the 2024 Bitcoin Conference, saying that the United States would establish a "national bitcoin reserve" to offset inflation, and the audience cheered. "For too long, the U.S. government has violated an important principle for every Bitcoin holder, which is never to sell Bitcoin." "And the Republican policy is to retain 100% of the Bitcoin currently held or acquired by the U.S. government."
In a recent interview with live mainnet Adin Ross, Trump also warned the current administration not to sell any of the U.S.’s Bitcoin holdings. He believes that if the U.S. does not innovate in digital assets, other countries will catch up, and pointed out that the United States’ most important geopolitical rivals have made significant progress in the fields of cryptocurrency and artificial intelligence.
However, economists interviewed by the US media "Wired" believe that Trump's plan to reserve Bitcoin is actually not very beneficial. "Basically, I can't see any economic benefits. The only real benefit is that Bitcoin fans can vote for Trump." James Angel, a financial market economist from Georgetown University, said.
Trump reserves Bitcoin to repay US debt based on two assumptions
In an interview with Adin Ross, Trump highly praised the advantages of the Bitcoin industry. U.S. Senator Cynthia Lummis, who is a member of the Republican Party like Trump, also released a draft legislation called the "Bitcoin Act of 2024" on July 31, which formulated a Bitcoin purchase plan, that is, a maximum of 200,000 bitcoins can be purchased each year within 5 years, for a total of 1 million bitcoins.
In addition, these bitcoins will be held by the United States for at least 20 years and can only be used to repay U.S. debts. After that, no more than 10% of the assets can be sold in any two years.
According to financial market economist James Angel, Trump's advocacy of investing in Bitcoin to offset the decline in people's purchasing power caused by inflation is based on two uncertain assumptions. One is that it is uncertain whether Bitcoin will rise, and the other is that it is uncertain whether the US government has the ability to cash in Bitcoin and exchange it back to US dollars without crashing the market.
"The government by buying bitcoin will push up the price so it looks like it's making a lot of money, but once it actually starts selling bitcoin for a profit, it will push the price back down," Angel said. While Trump initially proposed that the current administration must pause the sale of bitcoins it already owns, he also vaguely promised that the U.S. would increase its holdings over time.
And if Trump wants to expand his Bitcoin reserve funds, he must find other funds to buy these additional Bitcoins, but the ready-made options, such as increasing taxes, borrowing or printing US dollars, are inconsistent with the goals of reducing inflation and the national debt, and are inconsistent with Trump's tax cut promises.
Cynthia Lummis's "Bitcoin Act of 2024" legislative draft mentions that the U.S. Treasury currently holds a large amount of gold reserves, which are calculated at historical cost rather than current market prices. This valuation may be based on the legal price of $42.22 per ounce, which is far lower than the current market price. Therefore, if the value of the gold certificate is updated to reflect the current market price, it will lead to a significant increase in the value of assets on the Federal Reserve's balance sheet. In other words, if the value of gold reserves can be increased from $42.22 per ounce to close to the current market price (for example, about $2,000 per ounce), it will increase the assets on the Federal Reserve's balance sheet by trillions of dollars. Lummis proposed that this newly added "book" value can be used as a source of funds for purchasing Bitcoin.
"The money has to come from somewhere," Angel said.
Even if Trump intends to only reserve bitcoins acquired through law enforcement activities, his administration must weigh the opportunity cost of holding bitcoins. Assets like bonds can provide holders with a continuous income stream, but bitcoins do not, so they are expensive to hold.
George Selgin of the Cato Institute, a US think tank, believes that the question is what the US government can get from stockpiling Bitcoin. If the US government chooses not to sell the Bitcoin confiscated from law enforcement activities, it will not be able to get any benefits at all because the money originally obtained from the cash can be used to do many things, including eliminating federal debts and funding other government programs.
The majority of citizens pay for the minority of citizens? The government cannot act as an investment trust on behalf of citizens
George Selgin is a supporter of Bitcoin, but he opposes the US government's speculation on Bitcoin on behalf of its citizens. He said, "No matter which government is, it is not a savvy investor, not to mention that it is not reasonable for the government to make certain investment trusts or mutual funds on behalf of its citizens."
Michael Green of asset management company Simplify said that while the ambition to build a Bitcoin reserve is welcomed and supported by a large number of Bitcoin holders and industry executives, it may cost the majority, especially if the government wants to expand its existing holdings. "The only possible way for the U.S. government to buy Bitcoin is to buy it from existing holders," Green said. "But if the government uses taxes or bonds to buy Bitcoin, it will create a situation where taxpayers subsidize a very small number of people, and ultimately let the majority pay for the interests of a small number of people.
"It's just like the U.S. government promising to buy real estate in California at high prices to unfairly benefit California homeowners, which is fundamentally no different," Green said.
In addition, the larger the government's Bitcoin position, the more it relies on mining companies to maintain the underlying operations. In the near future, the mining industry will become another special interest group. Over-centralization means that once this industry goes wrong, the US government will have to intervene to provide relief.
Trump and Lummis did not respond to criticisms about the Bitcoin reserve plan. Angel believes that even if Trump is elected, he may not necessarily establish a strategic Bitcoin reserve. "Trump is a master demagogue who appeals to the emotions of the masses. This is a pure election operation. I think this plan may turn into a dream bubble like Trump Airlines, Trump Casino, and Trump University."
Bitcoin supporters also know that Trump is trying to please this group of voters
Finally, Bitcoin participants are also well aware that Trump is trying to win their support. Jameson Lopp, an early Bitcoin supporter and founder of the cryptocurrency custody business Casa, believes that Trump's consideration of Bitcoin as important enough to become a campaign issue is a "historic" shift in itself.
However, he also pointed out that "Trump is clearly trying to please us, and the way he speaks gives people a sense of condescension." Lopp also mentioned the obvious change in Trump's position. He said: "Although Trump previously denounced Bitcoin as a 'scam', he now clearly recognizes its political value. In this way, he can win over a sizable group of voters who are core to Bitcoin."
As for how to actually come up with a strategy that will help American citizens economically, that will have to wait until Trump is re-elected president.
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