Move over gold and bonds; bitcoin (BTC) is making its way into the virtual vaults at government treasuries.
Earlier this year, the incoming president of the United States, Donald Trump, unveiled a bold plan to establish a Strategic Bitcoin Reserve, consolidating its current holdings mostly accumulated through government seizures of illicit assets. Meanwhile, Republican senator and crypto advocate, Cynthia Lummis, has proposed the BITCOIN Act, aiming to establish a reserve by purchasing no more than 200,000 BTC per year for a period of five years once implemented. The proposal has been advanced as hedge against inflation and to diversify US federal reserves.
The US is just one of several countries exploring the idea of a sovereign BTC reserve - alongside countries like Bhutan, El Salvador, Poland, Brazil and Russia. Is it time for Australia to join the digital asset dance?
The USA: Seize, buy and hodl
The Lummis plan is nothing short of ambitious with the US to hodl its BTC in ultra-secure digital vaults for at least 20 years. The plan also contemplates blockchain-based audits and quarterly updates to maintain the integrity of the reserve.
Why BTC? With its capped supply of 21 million coins and a history of (wild) price appreciation, BTC is being positioned as an inflation hedge. Although undoubtedly volatile, advocates for BTC argue its potential gains far outweigh the risks. In an economic environment where fiat currency is volatile in and of its own right, a number of governments and corporates are embracing Bitcoin as a decentralised store of value.
Critics of a BTC reserve however point to some of the potential pitfalls: volatility, security concerns, and the sheer audacity of investing public funds into what many still see as digital Monopoly money.
Meanwhile, there is speculation the outgoing Biden administration may sell down the country’s current Bitcoin holdings, perhaps to forestall the Trump plan to establish a strategic reserve.
Bhutan’s Himalayan Highs and Germany’s Own Goal
While the US dreams big, Bhutan has quietly been stacking sats (which is BTC, for the uninitiated). Bhutan has mined and managed its Bitcoin holdings strategically, harnessing ample clean energy reserves, and cashing out USD $100 million during recent market peaks. Bhutan currently still holds over USD $1 billion in BTC, placing it among the world’s largest sovereign BTC holders.
Germany, on the other hand, is likely regretting the sale of nearly 50,000 BTC in July this year at USD $53,000 per coin. While it may have seemed like a win at the time, BTC has recently surpassed USD $100,000 per coin, effectively costing Germany over USD $1.1 billion in lost profits. The sale, a result of legal constraints on seized assets, highlights the importance of timing when dealing with such a volatile asset. This unfortunate result highlights the benefits of a minimum holding period as suggested by the US in the Bitcoin Act (although, who knows what the price of BTC will be in 20 years!).
Russia’s Crypto Pivot: Sanctions and Strategy
Facing crippling sanctions, Russia is turning to blockchain and BTC in an effort to stem the bleeding. Recent leaks reveal State Duma deputy Anton Tkachev has proposed a strategic BTC reserve to rival traditional currency reserves. President Vladimir Putin, meanwhile, has openly praised Bitcoin as a way to sidestep Western financial control, stating:
For example, bitcoin - who can prohibit it? No one.
Russia has also legalised cryptocurrency mining and is preparing to use BTC for international trade. Sanctions intended to isolate the country may result it in increasingly adopting blockchain as alternative payment rails and pushing further into decentralised financial systems. While controversial, Russia’s moves highlights potential challenges to traditional SWIFT payment rails after Russia was booted as a member after it was sanctioned over the Ukraine conflict.
Australia: Time to Jump on the Bandwagon?
So, what about Australia? Should we establish our own BTC strategic reserve?
Here’s how it could work:
Gradual investment: acquire BTC incrementally to mitigate market volatility (while hodling illicit BTC seized under new asset confiscation powers).
Sustainable mining: leverage Australia’s renewable energy resources to mine BTC domestically, aligning with green energy goals.
Secure custody: the Australian government could collaborate with local crypto custodians and blockchain businesses to ensure security.
Transparency: much like the US, any BTC strategic reserve plan would have to be accompanied by a level of transparency.
The potential benefits of a BTC strategic reserve include diversification, inflation hedging, and the chance to position Australia as a tech-savvy financial leader. A strategic reserve would also encourage collaboration between government and industry to the benefit of the digital economy. Finally, with the likes of El Salvador and Bhutan demonstrating BTC’s potential to reduce debt and fund ambitious projects, Australia could use its reserve to fund innovation, infrastructure, or even that super fast train line we’ve been talking about for decades.
The Final Block
The idea of sovereign BTC reserves might seem far-fetched and risky, but the world is changing fast. From the US strategic tack to Bhutan’s savvy management and Germany’s lesson in market timing, there is plenty to learn.
Indeed, when recently pressed on Bitcoin’s role in Australia's economy and payment system, the Governor of the Reserve Bank, Michele Bullock, claimed she didn’t understand Bitcoin or consider it to have any such role. The comments seem somewhat glib in the context of broader global discussions over the assets’ future, it having recently flipped Silver and Saudi Aramco as the world’s 7th largest asset by market cap.
So, will Australia take the leap and add a bit of blockchain to its balance sheet? Or will we sit on the sidelines, watching the crypto caravan pass us by? Only time (and perhaps some brave and bold policymakers) will tell. For now, the idea is simply as intriguing as it is revolutionary - just like Bitcoin itself.
Written by Luke Higgins and Steven Pettigrove