Is it a fantasy for the United States to establish a strategic BTC reserve?

Author: Liu Jiaolian

Overnight, BTC pulled back and pierced the 5-day moving average at 96.8k. After briefly breaking through 96k, it rebounded and pulled back to the 5-day moving average at 97.4k this morning. It seems like a well-designed hunting operation to liquidate the long leveraged positions lying in ambush below 96k.

Today let’s talk about the US’s plan to establish a Strategic Bitcoin Reserve (SBR) as a national strategy.

In fact, as early as the Bitcoin2024 conference in July this year, Kennedy Jr. raised the matter of strategic reserve BTC in his speech. In the 2024.7.27 article “BTC Will Enter the Era of National Reserves”, Kennedy Jr. said that if he is elected president of the United States, he will sign an executive order for the U.S. Treasury to buy 550 BTC a day until the reserves of 4 million BTC are hoarded, thus establishing a dominant position that other countries cannot usurp.

The next day, Trump attended the conference and expressed similar views. Specifically, you can review the following article from July 28, 2024, titled ‘Trump: BTC Will Surpass Gold, the United States Must Reserve 100% as a National Strategic Reserve’ on the Education Chain.

Later, Trump did win the election as expected. Then, due to his supportive attitude towards the encryption industry, the market began to price it. The price of BTC kept rising. It surged from around $70,000 on election day to nearly $100,000 in just about 20 days.

Many people who don’t understand start various discussions, saying that BTC is created by Americans to harvest others, and that the US BTC strategic reserve is a continuation of financial warfare, and so on. These bloggers really don’t study well. The teaching chain suspects whether they have fully read the Open Source code of BTC, whether they have seriously studied and understood the working principle of the BTC system, or just rely on hearsay, coupled with imagination, fabricate a bunch of seemingly plausible statements, use threatening tones to arouse fans’ emotions and secondarily disseminate, thus harvesting a wave of traffic. After all, what exactly is BTC, they don’t really care - they don’t have Holdings, but using emotional language to describe a terrifying horror story, stimulating the amygdala of the audience to perceive fear and threats and actively forward it, making them interested in gaining traffic and benefits, they really do!

If they have a little understanding of computer technology, they will know that the code of BTC is all Open Source. Anyone can download it to review every line of code. Satoshi Nakamoto cannot hide any backdoors either. The public’s eyes are sharp. Anyone can make any changes to the code. The difficult part is, why would others use the code you modified? If you cannot convince thousands of computer nodes scattered around the world to use your code, then the changes you make are meaningless. This is called the public Consensus.

The consensus of BTC is completely based on voluntary principles.

Rousseau and Hobbes believed that things like the state are established by people voluntarily entering into contracts. But in fact, from a historical materialism perspective, the state is the product of top-down implementation of rule by violence. Does anyone born with a contract with the state? No. Every baby passively or even forcibly accepts the established state structure. There is no personal will, no choice process, and even no option.

Voluntarily accepting BTC is like being reborn. This time, it is a global human Consensus beyond national construction, internationalist Consensus voluntarily established.

No one is forced to enter the BTC door. And no one can force anyone. I can’t force it. You can’t force it. The United States can’t force it either.

Even a powerful country like the United States can hardly change the code rules and plunder other BTC holders, such as giving itself the power to overissue BTC. First of all, it must have the ability to force thousands of nodes around the world to accept its modified new code. Moreover, it must also have the ability to make billions of holders around the world accept its tampered new BTC.

So, even the US government must abide by the constraint of not exceeding the total supply of 21 million BTC. If they want to establish a national strategic reserve, they can only honestly purchase the desired amount of BTC from the market or from others at a fair and reasonable price.

If the US government unilaterally modifies the code and over-issues BTC, then the majority of people worldwide who oppose this over-issuance can unite and run a Satoshi Nakamoto version of BTC without over-issuance, refusing to run and recognize the tampered over-issued BTC, leaving the US government with no solution.

Some people say that it sounds like a fantasy to use BTC as a national strategic reserve to repay US debt, and their imagination is too wild. They may not have understood history. Even more imaginative and unreliable ideas have been proposed before.

During the 2011 U.S. debt ceiling crisis, it was suggested that the U.S. Treasury Department should print a $1 trillion platinum coin and use it to pay off part of the high U.S. debt.

Well, not to mention, this is really a “genius” idea!

Legally, under Title 31, Volume 5112 of the 1997 United States Code, the U.S. Treasury is authorized to mint platinum coins of any denomination. The law was originally intended to commemorate coins, but it does not limit the maximum face value of platinum coins. This legal loophole has made the above idea a theoretical possibility to bypass the debt ceiling.

Financially speaking, the so-called assets, liabilities, and value are nothing more than numbers on the Fed’s balance sheet. Financially, it is only necessary to maintain total assets equal to total liabilities. As for the value of total assets, that is completely determined by humans.

For example, Teaching Chain has previously analyzed the Federal Reserve’s balance sheet in the article ‘The Truth of the Federal Reserve’ on 2023.12.10, and has conducted detailed calculations on the gold assets in the article ‘How Much Gold Does the United States Really Hold?’ on 2023.11.14. After calculation, we found that the Federal Reserve’s on-balance sheet gold reserves amount to 261 million troy ounces, or 8,133 tons. However, the Federal Reserve does not calculate the value of these gold assets based on market price, but instead uses the value recorded in 31 USC § 5116-5117, which is 42.2222 per troy ounce.

If these gold are calculated based on the latest gold price of about $2,700, the total value of these gold will be about $700 billion.

Dear readers fren may wonder why the Federal Reserve artificially depresses the value of gold through accounting techniques? It’s too long and too far to unfold this, reviewing the relevant articles written by Education Chain, I believe all readers fren can come up with their own answers.

The educational chain cited the example of the Fed’s balance sheet valuing gold artificially just to illustrate that if a platinum coin with a face value of 1 trillion U.S. dollars is recorded on the Fed’s balance sheet, it is fully capable of being accounted for as an asset that has increased in value by 1 trillion U.S. dollars.

This will eliminate the $1 trillion worth of US Treasury bonds issued by the US Treasury, which are also on the asset side of the balance sheet.

Now the scale of US national debt has just exceeded 36 trillion US dollars. As long as you move your hand a little, you can create 36 platinum coins with a face value of 1 trillion each, and completely offset all US debts!

Compliance (U.S. Code). Compliance (accounting standards).

But is it reasonable? Obviously, it is not reasonable.

Fiat currency, such as the current US dollar, is not valued based on the physical paper or digital representation, but entirely on the assets of the Federal Reserve that back it, and whether these assets can support the value of the currency.

From the establishment of the Bretton Woods System to the Nixon shock in 1971, the whole world recognized the US dollar, recognizing the gold anchored behind the US dollar.

After 1971, the world recognized the US dollar, which is essentially recognizing the US national strength behind the US debt.

If we replace all 36 trillion US Treasury bonds with 36 platinum coins worth 1 trillion each, will the world automatically recognize the value of these 36 coins? If we cannot make the world recognize the value of these 36 coins, then the value of the US dollar will collapse and the dollar will become worthless.

So obviously, the idea of ​​designating a face value for platinum coins is not feasible.

But what if the platinum coin is changed to BTC with global Consensus and generated by Algorithm, and priced by the market spontaneously? Then this seemingly far-fetched idea suddenly becomes somewhat feasible.

Let’s do a thought experiment.

Assuming the US Treasury first borrows some debt and redeems gold that is undervalued by 50 times. Because it is undervalued by 50 times, it will not cost much, only about 14 billion US dollars. Then, it is exchanged in the market at 50 times the market price for BTC. Assuming that off-market Block Trading does not affect the market price, BTC is calculated at 100,000 US dollars. Then, this market capitalization of 700 billion US dollars in gold can roughly be exchanged for 7 million BTC.

Due to the continuous hoarding of BTC, the marginal price is rising, and the price of these 7 million BTC is also rising. When BTC rises 50 times, from $100,000 to $5 million, the market capitalization of the 7 million BTC returned by the Treasury will rise to $35 trillion. This is almost equivalent to the current scale of US debt.

Putting 700 million BTC with a market value of 35 trillion into the Fed’s balance sheet can correspondingly eliminate 35 trillion US dollars of US debt, while the balance sheet remains balanced.

Because the value of BTC as an asset is globally recognized and its price is determined by the market, the corresponding US dollars on the liability side of these BTC assets also receive support from Consensus worldwide.

The asset price is determined by marginal pricing. Just like in your neighborhood, there are 10,000 trap houses, but usually only 1-2 trap houses are sold. If their transaction price is 10 million per trap, then the total Market Cap of the entire neighborhood’s houses as assets is 10,000 multiplied by 10 million, which equals 100 billion. This does not mean that there is actually 100 billion dollars to buy all the houses, but only the occasional transaction of those 1-2 trap houses sets the price. This is called marginal pricing.

As long as the Federal Reserve holds these BTC without moving them, and keeps the circulating BTC in a relatively scarce state, then the price of the marginal BTC transaction is likely to be maintained at a relatively high position. As long as this marginal price can be maintained, the total market capitalization of BTC assets in the Federal Reserve’s balance sheet can be calculated by multiplying the hoarded quantity by the marginal pricing.

This is the hypothetical model of replacing gold reserves with BTC, and completing the switch of the US dollar from US bonds to BTC.