There is a lot of discussion, of late, about the possibility of Bitcoin becoming the world's strategic reserve asset. It is a topic that started on the fringe but is now getting some mainstream discussion.
The United States Presidential election has this involved.
Donald Trump stated that he is favor of the US having Bitcoin having part of its strategic reserve. Robert F. Kennedy Jr opined that he would require the US to buy $612 billion in BTC, matching its reserve in gold. Then we have Senator Cynthia Lummis introducing a bill that, if passed, would make this law.
So how realistic is this?
Let us dig in and see.
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Bitcoin As The World's Reserve Asset
The first question is could Bitcoin fill this role?
I think the answer lies in the fact this is a topic that is gaining some traction. Bitcoin most certainly could fill these needs. Here is where the idea of "digital gold" does take hold.
For years I railed against the idea of Bitcoin as a medium of exchange. It simply did not work. As a reserve, however, that is a different story.
Those who object or question Bitcoin will present some lack of fundamental or whatever. Do not be swayed by this. When it comes to what we are focusing upon here, it all comes down to confidence.
Bitcoin could become the world's strategic reserve if people have confidence in it. There is really nothing more to the equation. In fact, if we look closely at gold, the role it plays is due to that. Fans of this precious metal will give you all kinds of characteristics as to why this is the case.
Guess what? If confidence in gold waned, those attributes mean nothing.
Ironically, it might be the emergence of Bitcoin that causes gold to lose it status. Of course, we are a long way from this becoming a reality.
Business Lead The Way
Over the past year, we saw a lot of progress relating to Bitcoin, at least within the TradFi world. This has opened up the doors to something much bigger.
The biggest move was the emergence of Bitcoin ETTs (spot). This has launched a flurry of buying activity of these funds. We see Blackrock topping $15 billion in their fund alone.
Why is this important?
This brings Bitcoin to a wider range of investors. While most are still not cryptocurrency investors in the sense of buying a token and dealing with it in a wallet, more are gaining exposure. ETFs fulfill this role.
It also allows entities such as pension funds to enter the market. We have an article that shows how Jersey City (NJ) is looking to invest part of its pension fund in Bitcoin ETF. We could see this same behavior from other municipalities. It is also likely businesses are doing the same.
As this happens, the acceptance of BTC grows. We are far removed from the time that governments are going to ban crypto. Instead, they will control it.
Again, we are hit with the irony that something which was designed as "electronic cash" might end up as a foundation for governments.
Fortunately, over the last decade, a lot more innovation came out of the cryptocurrency and blockchain realm that is offering up potential solutions to a number of problems.
Bitcoin On Balance sheets
It is reasonable to think, based upon its growing track record, that Bitcoin will end up on the balance sheets of many entities around the world.
There are a number of advantages to this asset over gold, something spelled out in many articles around the Internet. In a digital world, a reserve of yellow pieces of metal does not make sense. On this front, Bitcoin better fills the need.
Last year, the United States Internal Revenue Service changed the rules regarding Bitcoin on the balance sheets of companies. This opened up the potential for corporations to add BTC to its balance sheet as part of the treasury.
Prior to that, digital assets had to be marked at the lowest price point of the quarter. Hence, if the price dropped, the company took an impairment loss. It could not raise the value on the balance sheet if the opposite happened.
By changing the regulatory environment to one of fair value, this was removed. The asset can now be realized according to the market price movement, simply taking a snapshot in time.
It is a move that the likes of Michael Saylor applauded. This did open up the potential for more to acquire and hold BTC in their treasury.
As we can see, municipalities are looking to gain exposure.
Hence, the idea of governments hold it as part of their strategic reserve is possible.
We must, however, keep in mind that we often see a lot of "talk" about particular ideas that ultimately go nowhere. This also could be an example of this.
Time will tell how this all unfolds.
Posted Using InLeo Alpha