Economists Analyze from a Perspective: Is Trump's BTC Strategy Really Feasible or Just an Election Strategy?

Author: Chloe, PANews

Trump gave a speech at the 2024 BTC conference, stating that the United States wants to establish a “national BTC reserve” to counter inflation, instantly causing cheers from the audience. “For too long, the US government has violated a fundamental principle of every BTC holder, which is never to sell BTC.” “And the Republican policy is to 100% reserve the BTC currently held or acquired by the US government.”

And in a recent interview with Adin Ross on the Mainnet, Trump also warned the current government not to sell any BTC holdings in the United States. He believes that if the United States does not innovate in the digital asset field, other countries will catch up, and pointed out that America’s most important geopolitical rivals have made significant progress in the Cryptocurrency and artificial intelligence fields.

However, economists interviewed by the American media Wired believe that Trump’s plan to hold BTC reserves is not beneficial. ‘I can’t see any economic benefits, the only real benefit is that it can make BTC fanatics vote for Trump,’ said James Angel, a financial market economist at Georgetown University.

Trump’s Bitcoin reserves to repay US debt based on two major assumptions

During an interview with Adin Ross, Trump heavily praised the advantages of the BTC industry. Cynthia Lummis, a Republican senator who shares the same views with Trump, also released a legislative proposal called the “2024 BTC Act” on July 31st, which includes a BTC purchase plan. Within five years, a maximum of 200,000 BTC can be purchased each year, with a total of 1 million BTC.

In addition, these BTC will be held by the United States for at least 20 years and can only be used to repay U.S. debt. After that, a maximum of 10% of the assets can be sold within any two-year period.

According to financial market economist James Angel, Trump’s proposal to invest in BTC to offset the decline in purchasing power caused by inflation is based on two uncertain assumptions. One is uncertain whether BTC will rise, and the other is uncertain whether the US government has the ability to redeem BTC for US dollars without dumping it.

“The government pushes up the price by buying BTC, so it looks like it has made a lot of money, but once it actually starts selling BTC to make profits, it will push the price back,” Angel said. Although Trump initially proposed that the current government must suspend the sale of already owned BTC, he also vaguely promised that the United States would increase its Holdings over time.

And if Trump wants to expand the BTC reserve funds, he must find other funds to buy these additional BTC, but ready options, such as increasing taxes, borrowing, or printing US dollars, are not in line with dropInflation and the goals of national debt, nor with Trump’s tax reduction commitment.

Cynthia Lummis’s “2024 BTC Act” legislative proposal mentions that the US Department of the Treasury currently holds a large amount of gold reserves, which are valued at historical cost rather than current market prices. This valuation may be based on the statutory price of $42.22 per ounce, far below the current market price. Therefore, if the value of gold certificates is updated to reflect current market prices, the asset value on the Federal Reserve’s balance sheet will increase significantly. In other words, if the value of gold reserves can be raised from $42.22 per ounce to near the current market price (e.g., around $2000 per ounce), it would increase the asset value on the Federal Reserve’s balance sheet by trillions of dollars. Lummis proposes using this additional “paper” value as a source of funds to purchase BTC.

“Money has to come from somewhere,” Angel said.

Even if Trump intends to only hold BTC obtained through law enforcement activities, his government must weigh the opportunity cost of holding BTC. Assets like bonds can generate income streams for holders, but BTC cannot, making its holding cost high.

George Selgin of the Cato Institute believes that the problem lies in what the US government can gain from holding BTC. If the US government chooses not to sell the BTC confiscated from law enforcement activities, it will be impossible to realize any benefits because the money that could have been obtained from selling it can be used for many purposes, including reducing federal debt and funding other government programs.

Most citizens foot the bill for a few citizens? The government cannot act on behalf of citizens to make investment trusts

George Selgin is a supporter of BTC, but he opposes the US government representing citizens in speculative operations on BTC. He said, “No government is a savvy investor, let alone the idea of government representatives making certain investment trusts or mutual fund plans on behalf of citizens is simply unreasonable.”

Asset management company Simplify Michael Green said that while the ambition to establish a BTC reserve has been welcomed and supported by a large number of BTC holders and industry executives, it may come at a cost to the majority, especially if the government wants to expand existing holdings. “The only possible way for the US government to purchase BTC is from existing holders,” Green said. “But if the government uses taxation or bond issuance to purchase BTC, it will result in taxpayers subsidizing a very small number of people, ultimately leaving the majority to foot the bill for the benefit of a few.”

“It’s no different in essence from the US government’s promise to buy real estate at high prices in California and unfairly benefit California homeowners,” Green said.

In addition, the larger the government’s BTCPosition, the more it relies on Mining companies to maintain the underlying operation. In the near future, the Mining industry will become another special interest group. Once this industry encounters problems, the US government will have to intervene and bail-out.

And regarding the criticism of the BTC reserve plan, neither Trump nor Lummis responded. Angel believes that even if Trump is elected, he may not establish a strategic BTC reserve. ‘Trump is a master provocateur who appeals to public emotions. This is just a pure election operation. I think this plan may turn out to be a pipe dream, just like Trump Airlines, Trump Casinos, and Trump University.’

BTC supporters also know that Trump is pleasing this group of voters.

Finally, BTC participants also clearly know that Trump is seeking their support. Early BTC supporter and founder of Cryptocurrency custody business Casa, Jameson Lopp, believes that Trump sees BTC as important enough to be a campaign issue, which is in itself a “historic” shift.

However, he also pointed out, “Trump is obviously trying to please us, and his way of speaking gives a condescending feeling.” Lopp also mentioned Trump’s obvious change of position. He said, “Although Trump used to dismiss BTC as a ‘scam,’ he now clearly realizes its political value. In this way, he can win a fairly large group of voters with BTC as the core focus.”

As for the strategy that truly benefits American citizens economically, we’ll have to wait for Trump to be re-elected as president again to find out.