It is argued that creating a stockpile of bitcoin by the Federal Reserve will reduce the quantity available to others and help appreciate its price further.

It is argued that creating a stockpile of bitcoin by the Federal Reserve will reduce the quantity available to others and help appreciate its price further.

It is argued that creating a stockpile of bitcoin by the Federal Reserve will reduce the quantity available to others and help appreciate its price further.

Investors, cryptocurrency executives, and Elon Musk, the world's richest man, are pushing US President-elect Donald Trump to force the US Federal Reserve to buy billions of dollars worth of bitcoins and hold them for decades in the hope that the price will rise further and help pay down the national debt, which is now around $36 trillion.
They argue that creating a stockpile of bitcoin by the Federal Reserve will reduce the quantity available to others and help appreciate its price further. However, having bitcoins in the US Treasury and Federal Reserve balance sheets is problematic at multiple levels.
One, bitcoin is not the only crypto with a capped supply — Solana is another. And if a capped supply makes bitcoin worthy of being on the Fed's balance sheet, there are others that qualify, like limited edition Pokemon cards. An even safer option is paintings by a deceased artist. These are so rare that no one will 'mine' a fresh one given the artist is long dead.
Two, other investments outrank bitcoin as an appreciating asset. Crypto executives and Musk use the 'appreciation' argument, asking the US Treasury to buy and hold bitcoins. While the capped supply of bitcoin is a fact, it being an appreciating asset is only an opinion, a hope. And such a criterion again opens up lots of better options. Why not buy stocks of companies that produce goods and services people buy.. How about Nvidia shares or a sovereign wealth fund like Norway or Singapore, which can hold a well-diversified global portfolio of stocks?
But asking for a concentrated portfolio of a single asset will be like putting all your eggs in one basket. This, when around 5 per cent (more if we consider unusable holdings of others) of bitcoin holdings are with its creator, the pseudonymous Satoshi Nakomoto. What if Satoshi dumps them all?
bitcoin came into being in response to the 2008 global financial crisis. It started with the subprime mortgage crisis, which was based on the mistaken notion that home prices can only go up and go up forever. But home prices crashed – even when homes have intrinsic value.
bitcoin does not have intrinsic value or cashflows like interest or dividends. It has capital gain like equity shares, but equity shares are fractional ownership of businesses whose products people pay for and are hence tied to intrinsic value, unlike bitcoin. It is compared to gold. But gold has industrial use, which, in turn, is based on its unique properties such as high conductivity and non-corrosion.
Gold is an asset that humans have held for centuries. Fire, acid, water or oxygen cannot corrode it - truly a precious metal, against which bitcoin has nothing to offer. And for something to be called currency, it should have stable purchasing power over the medium term. Stable purchasing power results from the elasticity of a currency’s supply to its demand. But bitcoin, with its capped supply, doesn’t have that elasticity and hence can never function as a currency.
Despite all these negatives, it is the freedom of a private individual or entity to invest their money in whatever they deem fit, be it bitcoin or a banana stuck to a wall with Ducktape. But the US Treasury and Fed are arms of a constitutional democratic republic answerable and accountable to its citizens. Their decisions should be more reasoned and logical and never impulsive. So how will they justify a concentrated portfolio of a single asset to which the President-elect and his advisors have commercial connections?
bitcoin was created so that we all could have a private alternative to the monopoly of official currency and thus bypass the state. State monopoly on currency means its supply could be increased indiscriminately, resulting in inflation or hyperinflation, destroying its purchasing power. But Trump and his crypto executives are advocating for state adoption of something whose primary purpose was to bypass the state! Isn’t this nationalisation, the very idea Trump, Musk and DOGE are vocally against?
It's a bit ironic that Musk, who leads Space X, Tesla, and many other cutting-edge ventures and has expanded the frontiers of human knowledge and capability, is backing something that can very well be called an example of human folly.
Also, any plans to use bitcoin to make reserves using taxpayers' money will involve the US borrowing some of that money, for which it will have to pay interest, which will add to the national debt problem that crypto advocates claim they will solve.