A strategic reserve is a stock of a systemically important input, which can be managed to mitigate economic disruption. The key example that we all think about is the US strategic petroleum reserve (SPR) which was created in response to the Arab oil embargo half a century ago.
The United States is reportedly considering creating a "strategic reserve" of Bitcoin, with some proposals suggesting the government acquire one million BTC over five years. However, economists argue that such a stash of a non-essential asset, like cryptocurrency, would provide little value to taxpayers and may benefit those who already hold large amounts of Bitcoin.
The proposal, spearheaded by Senator Cynthia Lummis, aims to establish a US Treasury Bitcoin Trust Fund, through which the government would acquire, hold, and manage up to one million Bitcoin. This initiative seeks to integrate digital assets into the country's strategic reserves, positioning Bitcoin as a hedge against inflation, a tool to reduce national debt, and a means to strengthen America's financial leadership globally.
According to recent market valuation, acquiring one million Bitcoin would set the US back to the tune of around $100 billion, at current prices. However, if the government's presence in the market were to drive up the price, as some anticipate, the final cost could easily surpass a trillion dollars.
But what exactly would be the purpose of such a reserve? After all, Bitcoin has no inherent utility. To a first approximation, it is used only for speculation (and I suppose some ransomware too). If Bitcoin were to disappear tomorrow, it wouldn't really matter. Planes would still fly, lathes would still turn, and corn would still get harvested.
I suppose one could argue that Bitcoin holdings are not a reserve at all but might more properly be labeled a stash, and it is fair to observe that economists consider such a stash of little value to taxpayers but of great value to the crypto "whales" who hold most of it. Given that those whales manipulate the cryptocurrency market, it is no surprise that their sentiment is in favor of the government buying Bitcoin.
One of their arguments is that Bitcoin is a form of digital gold, and since the government holds actual gold, it should sell some of it and replace it with the modern alternative. But that gold has little utility either.
Gold reserves (about a sixth of global reserve assets) are no longer used to settle international accounts but are there as a hedge against exchange rate risk. Still, much of the world's official gold reserves are held for no better reason than sheer inertia. There is no benefit to replacing them with gold (or lithium, or water, or anything else that might be more scarce in the future).
Never mind national reserves, though, as some observers think that the creation of a strategic Bitcoin reserve is far more likely to happen at the state level first. Ten U.S. states have already proposed some form of reserve, including a proposal in Texas to build up a Bitcoin reserve simply by encouraging Bitcoin miners in the state to pay their taxes in Bitcoin.
