Michael Saylor, Executive Chairman of MicroStrategy (MSTR) and arguably Bitcoin’s most prominent advocate, has also been agitating for the U.S. government to move aggressively.
Drawing comparisons to the Louisiana Purchase, he wants the U.S. to buy a large chunk of the Bitcoin network, which currently sits at approximately 20 million coins and will be ultimately capped at 21 million coins.
The total value of all Bitcoin is currently around $2 trillion, which is less than 6% of the U.S. federal debt. This makes the math here tricky.
Even if the government now owned all Bitcoin in circulation, it would not make much of a dent.
The government in fact currently owns about 200,000 Bitcoin, or 1% of the supply, worth approximately $20 billion. This was obtained over the years by confiscating it from criminals.
HOW IT MIGHT WORK
There are two primary ways in which a Bitcoin strategy could theoretically have an impact on the U.S. federal debt problem, as Saylor and others have articulated.
First, the government could simply invest in Bitcoin.
This would potentially lead to a perception that Bitcoin is a must-own asset for any sovereign nation and set off an arms race of sorts that drives the price of Bitcoin up significantly.
In this scenario, the U.S. could, hypothetically, invest hundreds of billions, which over time could turn into trillions.
Second, the government pursues policies to drive the price of Bitcoin higher.
The strategy here is more indirect and likely works in tandem with actual purchases of Bitcoin by the federal government.
The general idea is that the government could attract capital into the U.S. by not only buying a lot of Bitcoin but also promoting the use of Bitcoin across the traditional financial system.
STABLECOINS
As Bitcoin goes from a $2 trillion to perhaps a $20 trillion or higher asset class, stablecoin operators will inevitably purchase an enormous volume of Treasury bonds.
The theory here is that this demand would potentially make it easier and cheaper to support the federal debt load.
Money flows into Bitcoin, which then flows into stablecoins, which then flows into Treasuries.
Stablecoins essentially replace bank accounts, money market funds and bond funds within the crypto ecosystem. An investor can convert Bitcoin, for example, into a stablecoin that is denominated in U.S. dollars and offers a cash yield.
Stablecoins, like Tether (USDT), the world’s largest with a market capitalization around $100 billion, function much like a traditional bank. Their operators purchase U.S. Treasury instruments and then capture a spread by paying coin owners a slightly lower interest rate.
To further illustrate the pro-crypto orientation of Trump’s cabinet, it is perhaps worth mentioning that Tether’s government bond holdings are largely managed by Cantor Fitzgerald. Howard Lutnick, Trump’s nominee for Commerce Secretary, is the CEO of Cantor Fitzgerald.
COMPETITION OR SUPPORT?
As another form of money, it is not entirely irrational to think of Bitcoin as competitor to the dollar and therefore a threat to the dollar’s status as the global reserve currency.
Bitcoin advocates contend that Bitcoin proliferation and adoption will actually strengthen the dollar.
The stablecoin argument fits within a broader narrative that crypto can function as a conduit for tremendous capital flows into the U.S. financial system and economy.
As a result of regulations and other frictions, savers around the world have limited access to the U.S. capital markets. This could change entirely.
The U.S. may be the strongest, most innovative and most important economy in the world, but Americans are only 4% of the total global population. In real GDP terms, the U.S. economy is 26% of the total world economy.
The average American is much wealthier than the average person on the planet, but there are tremendous pools of capital that reside outside the U.S., especially in Asia, which accounts for 60% of the world’s population.
With the exception of people who live in a small number of economically irrelevant countries governed by repressive regimes, such as Afghanistan and Bangladesh, access to Bitcoin is essentially global, limited mainly by access to the Internet.
Just a few week ago, a Shanghai court clarified that Bitcoin ownership is not unlawful in China. A lot of crypto-related commercial activity is highly restricted in China, but Chinese citizens can own Bitcoin.
The grand vision of some Bitcoin champions is that Bitcoin ownership will function as a gateway into the U.S. financial system, which is both safer and, from a growth perspective, more attractive than almost any other.
DIGITAL ASSET FRAMEWORK
One of the main factors behind the current push for a comprehensive digital asset framework is to facilitate global access to U.S. assets.
A digital asset framework could pave the way for global investors to purchase tokenized shares of U.S. stocks and bonds, for example.
Tokenization refers to the process of using cryptography to secure an asset’s connection to its owner. It is one of the main principles behind all blockchain networks.
In traditional finance systems, ownership is essentially secured by legal arrangements. With tokenization, ownership is secured by computer codes generated through cryptographic techniques.
Crypto assets like Bitcoin are bearer assets, similar to paper currency. The owner of a $100 bill is the person who has it in his or her possession. The same applies to Bitcoin.
A key innovation with cryptocurrency is that it enables and protects direct ownership of a non-physical asset on the Internet, just as a safe in your basement enables and protects ownership of paper cash.
TOKENIZED SECURITIES
A digital asset framework could lead to the development of systems that support digital ownership of stocks. One could buy and sell a share of NVIDIA, hypothetically, just as one might own Bitcoin.
Tokenization essentially replaces the complex chain of custody and transaction settlement that currently prevails when it comes to ownership of stocks and other financial instruments.
U.S. companies currently represent about two-thirds of the market capitalization of all global equities (as measured by the MSCI ACWI Index). The potential digitalization of stocks could therefore naturally lead to a flood of money into U.S. companies.
Tokenized capital markets, potentially accessible to anyone in the world with Internet access, could also eventually lead to upward pressure on stock prices. This strikes us as yet another reason (perhaps more long-term) to have some form of exposure to the stock market.
What might happen to U.S. stocks, which represent the most well-managed and innovative businesses in the world, if anyone on the planet could one day invest in them through a simple app on their smartphone?
The idea that America’s $36 trillion debt problem will be repaired in short order through the magic of Bitcoin is perhaps a bit fanciful.
Things can change over time, but we are still talking about an asset class that is currently only about twice the size of the annual interest the U.S. pays on its debt.
This does not mean Bitcoin is irrelevant to the national debt conversation.
The Trump administration will clearly be focused on figuring out how Bitcoin and crypto technology can be leveraged to help the U.S. achieve its long-term economic goals.
Bitcoin and crypto could be an opportunity for the federal government to make money directly, but perhaps the more important effect is how it can lead to growth in the broader economy.
At the end of the day, taxpayers are on the hook for the government’s debt. The wealthier they are, the easier it becomes to support it.
The ultimate solution to the nation’s debt problem is to grow the nation’s wealth. Bitcoin and blockchain technology have the potential to contribute materially to that project.
NON-SOVEREIGN ASSETS
From the standpoint of individual investors, we continue to favor allocations to supply-constrained, non-sovereign monetary assets like gold and Bitcoin.
The U.S. economy remains highly indebted and will therefore likely continue to grow its money supply even if the economy performs well.
As a mature and established asset class, gold should continue to attract capital from global investors and central banks.
A nation’s domestically held gold supply (as opposed to Treasury bonds and other financial assets held within western financial institutions) cannot be seized and given to your enemies to buy weapons to attack you.
This is a lesson that Russia, along with every central banker paying attention to Russia, has learned.
Trump’s recent threat to tariff any country participating in a potential BRICS currency system may have teeth.
Precisely because the western financial system is now so hostile and unreliable, gold is likely to continue to function as a foundational central bank asset for any country that is not a core U.S. ally.
Along these lines, discussions of a strategic Bitcoin reserve are not limited to the U.S.
Nation-states are increasingly viewing Bitcoin as a financial instrument that is not only likely to continue to grow in value but cannot be taken from them (which is itself a major reason that Bitcoin may continue to grow in value).
In Russia, just like the U.S, legislation has been proposed to create a strategic Bitcoin reserve. Putin himself has publicly noted Bitcoin ownership cannot be prohibited.
At the same conference Eric Trump just keynoted, Prince Philip of Serbia shared his belief that many sovereign governments are already accumulating Bitcoin stakes in secret.
