Senator Cynthia Lummis’s recent proposal to establish a strategic bitcoin reserve has sparked significant debate. Former President Trump’s endorsement at the Bitcoin Conference further amplified the discussion. Still, the crypto market’s sharp sell-off last week challenges the premise of Bitcoin as a stable reserve asset.
- Strategic reserve purpose: A reserve traditionally stabilizes critical inputs like oil during supply disruptions. Bitcoin, unlike oil, is not systemically important to the economy.
- Market volatility: Bitcoin’s price fell sharply below $50,000 amid macroeconomic turmoil, including a weak U.S. jobs report and a Japanese rate hike. While gold remained stable, crypto proved unreliable as a hedge against inflation.
- Comparison to petroleum: Bitcoin lacks the economic role oil or gold holds. Holding a bitcoin reserve would equate to hoarding iPhones—a non-essential input with little economic necessity.
- Diverse crypto landscape: The U.S. government’s seized crypto largely comprises tether and other assets, raising questions about which cryptocurrencies would form part of the reserve.
- Institutional goals: Critics suggest the proposal is less about national security and more about legitimizing bitcoin in traditional finance. Institutional moves like BlackRock’s bitcoin ETF have already driven crypto’s adoption realistically, without overstating its utility.
The proposal overstates bitcoin’s strategic importance, prescribing it qualities it does not yet possess. While mainstream institutionalization of crypto is advancing, creating a strategic reserve of bitcoin is premature and detached from economic and national security priorities.
