Don’t Let Silicon Valley Crucify Mankind On A Cross Of Blockchain

The latest proposal from the cryptocurrency-backed Republican Party? A handout for Bitcoin investors in the guise of public policy.

Cynthia Lummis, self-described “Bitcoin senator,” has a new proposal. She calls it “our Louisiana Purchase moment.” The proposal isn’t purchasing Greenland from Denmark as Donald Trump once proposed, nor is it any other purchase of land or valuable resources. It’s the opportunity for the US government to waste billions of taxpayer dollars subsidizing those who have invested in Bitcoin. 

While the proposal — introduced formally as a bill on Wednesday — currently lacks any cosponsors, the policy was endorsed by Donald Trump when he was speaking at the Nashville Bitcoin Conference, making it as good as economic orthodoxy in the Republican Party. Framed by Lummis as a “strategic Bitcoin reserve” and by Trump as a “strategic national Bitcoin stockpile,” the policy is fairly simple. Lummis wants to force the Federal Reserve and the Department of Treasury to purchase 5% of the world’s Bitcoin supply. Given the current price of Bitcoin (around $63,000 at the time of writing) and the approximately 19.8 million Bitcoin in existence, Lummis’ proposal would cost somewhere around $62,000,000,000 (comparable to the entire 2024 budget of the US Department of Justice). This, of course, doesn’t include the invariable price increases that would result from an institutional actor entering the space with near unlimited funds and a mandate to purchase a massive quantity of the cryptocurrency. One can easily see how Lummis’ bill, which would also legitimize Bitcoin as an investment for many currently suspicious of the cryptocurrency, would end up costing significantly more. 

As the proposal suggests, this would not simply be the United States government purchasing Bitcoin, but it would be a strategic reserve of Bitcoin. To those who follow the government closely, the term strategic reserve should not be unfamiliar. The US has had a strategic petroleum reserve since 1975, and held a strategic helium reserve for more than eight decades. The strategic petroleum reserve was created in the wake of the oil crises of the 1970’s as a means of preventing oil-supply shocks. The basic principle is that the US government has a huge supply of oil (currently more than 180 million barrels) that it can sell to the market whenever oil prices get too high. This drives down the cost of things like gas, and it makes the US less vulnerable to the pressures of oil producers like OPEC or Russia. In the wake of the Russian invasion of Ukraine, oil prices throughout the world increased dramatically. The Biden administration released millions of barrels of oil from the strategic petroleum reserve to ease these high prices. Since the decline in oil prices from their peak of $95, the Biden administration has ordered the refilling of the reserve, rebuilding the supply while prices are low. Part of the reason for the importance of the strategic oil reserve is its use in price stabilization, and another crucial part of its strategic value is the economic dependence on oil. The US economy relies upon oil, and the reserve is able to insulate the economy from negative effects of oil prices. Neither of these is true of Bitcoin. 

Bitcoin is not a strategic resource (it is a string of useless computer code) nor is it a crucial part of the American economy. While this may make a strategic Bitcoin reserve useless, the thing that makes Lummis’ framing an outright lie is the lack of desire for the US to ever sell its Bitcoin. Unlike oil, which is sold from the reserve to prevent high prices, those pushing the strategic Bitcoin reserve only want the value of Bitcoin to go up. There is no desire for the Treasury to ever dump a massive amount of Bitcoin on the market to lower the price of Bitcoin, nor is there any strategic purpose to doing so. In fact, Lummis’ bill would make it illegal for the Treasury to sell a single Bitcoin for the next twenty years, tying the US government to the price of the cryptocurrency for longer than it has existed. 

Lummis, Trump and their Bitcoin supporters have co-opted the language of strategy for the purposes of one of crypto’s long-standing traditions; the pump and dump. The strategy is simple: find a large number of purchasers (or, in this case, one massive purchaser), convince them to buy, sell your holdings when the increased demand has led to higher prices, and laugh all the way to the bank. Those Bitcoin investors pushing this proposal (including Lummis who has disclosed six-figure holdings of the cryptocurrency in the past) want their investment to go up. Forcing the US government to purchase vast amounts of Bitcoin is the easiest way for their investment to rise in value. The final step would be to sell off all their Bitcoin before the bubble bursts, leaving the US government with a massive stockpile of useless blockchain, or at least, with an investment worth less than the original purchase price. 

If this proposed plan was not a pump and dump, but instead truly about a strategic reserve of Bitcoin, not only would its supporters be able to articulate the strategic importance of Bitcoin (something seemingly only sanctioned nations and terrorist groups have found) but they would also have a planned course of action beyond the accumulation of large amounts of Bitcoin and its storage in a “decentralized network of secure Bitcoin vaults.” 

Despite Lummis’ “strategic” branding of this policy, the plan is not to create a strategic reserve. The world of cryptocurrency is replete with libertarian nonsense, and there is nothing libertarian cranks love more than the gold standard. This is why Lummis, in her marketing of the bill, has compared her Bitcoin reserve to the US government’s gold reserves. Lummis seeks to indelibly  tie the US economy to Bitcoin, allowing her allies in the cryptocurrency industry and large investors like herself to profit from taxpayer money.

In Trump’s defense, his speech appeared to endorse the idea of holding Bitcoin not as a strategic reserve, but instead as an investment. In Nashville, Trump stated that the stockpile (as he called it) would “transform that vast wealth into a permanent national asset to benefit all Americans.” This certainly hints at the creation of some sort of Bitcoin sovereign wealth fund, a massive investment account for the nation as a whole. This is not only a bad idea due to the lack of underlying value in Bitcoin and its volatility, but Trump himself contradicted this idea by saying that the government should never sell Bitcoin. His statement, “for too long our government has violated the cardinal rule that every bitcoiner knows by heart: never sell your Bitcoin” would make that very premise impossible. Bitcoin does not produce dividends like other financial products. Growth in Bitcoin value is only realized upon the sale of the cryptocurrency, until that point, it is unrealized gain in the form of a wildly volatile string of code. Meaning that even if it were to massively accrue in value, the American people would be unable to benefit from this risky investment.

Whichever vision for the government owning Bitcoin comes to dominate the Republican Party, the GOP is beholden to the world of crypto. Republicans have pledged to not only allow the industry to exist free of financial regulation, but to also cash in big time on public funds. Democratic attempts to win over the industry will have to contend with the fact that the party of fraudsters and grifters is simply better suited to serving the desires of an industry rife with criminality and graft. Pundits like Matt Yglesias, who have advised VP Harris to moderate on cryptocurrency regulation must now explain how Democrats can match this promised payoff. In this race to the bottom, Republicans have the advantage. 

While there are few Americans outside of good governance groups and financial regulators invested in the tight regulation of the crypto industry, this latest policy might just be a step too far. Perhaps the pledge to spend billions of taxpayer dollars on a handout for wealthy cryptocurrency investors will finally draw attention to the reckless abandon with which lawmakers have sought favor from the industry for years. After all, it’s not just financial stability at stake this time, it's your tax dollars.