clear. At the federal level, purchases could be financed from appropriations, which depend on sales of Treasury notes and bonds, a growing percentage of which are purchased by American retirement funds or monetized through the Federal Reserve in a way that is driving inflation. Another source of funding for Bitcoin strategic reserves could be asset seizures by the DOJ.

Bitcoin lobbyists have suggested the following questionable reasons for such an investment by a government:

1. To show a commitment to embracing innovation and driving economic progress
2. To showcase a dedication to financial advancement and pave the way for a thriving future
3. To boost financial stability with a “high-performing” asset
4. To become a destination for Bitcoin entrepreneurship and innovation
5. To create new jobs

Of course, such lobbyists make no mention of the energy and technology consumption and environmental stress that would necessarily accompany such a reserve, the volatile nature of the crypto markets, or the regressive nature of a system in which working class, government, and other workers’ retirement accounts are used to fund the buy-out of Bitcoin billionaire crypto positions. If the returns on Bitcoin to date are dependent on attracting more speculators into a Ponzi-type speculation, it is clear that there will be no investor large enough to keep the historical returns going.

The central banks and large gold investors have traditionally generated revenues on their precious metals inventories by leasing their gold; this is one of the reasons there are concerns about collateral risks in the precious metals markets. Clearly, the Treasury could lease Bitcoin holdings to ETFs, which could solve the exchange-traded funds’ challenge of acquiring Bitcoin in a relatively illiquid market. This would make it easier for BlackRock, Graystone, Fidelity, and other ETF sponsors to market their Bitcoin ETFs to institutional investors, including state pension funds.

States typically run balanced budgets using tax collections (and sometimes borrowing) to fund current expenses. Acceptance of Bitcoin in payment of state user fees and taxes for long-term holding would tie up current revenues and require increased borrowing, higher taxes, or cutting expenses. If state investment guidelines are modified to treat Bitcoin as a “permitted investment” for state rainy day funds or state pension funds, state fund managers would necessarily sell investments in real and performing assets—including real estate, securities backed by real assets, bank certificates of deposit, and bonds of federal, municipal, and corporate enterprises—in order to invest in speculative assets. Doing so would generate no productive economic activity other than the generation of profits for speculators, including the early Bitcoin insiders and billionaire campaign donors.

Sources:

Questions for RFK Regarding Your Proposed Bitcoin Executive Orders (Solari Report)
The Crypto Trio: How the Cryptocurrency Industry Has Made Its Mark on 2024 Elections (Open Secrets)
Crypto Industry Political Donations Top $200M: Biggest Donors in the 2024 Presidential Race (CCN)

8. Cui Bono? The Bailout of the Big Boys

Key Points:

• Large early investors need significant new purchasers to keep the speculation going—and to support liquidity for their exit before the speculative mania is over or the infrastructure becomes unsustainable.
• A Bitcoin bailout does not provide an inflation hedge for the government; it is a reverse Robin Hood—taking from working people to bail out the big boys.
• If governments can afford to bail out Bitcoin billionaires, they can afford instead to cut taxes and/or provide excellent government services that support productive activities.
• Citizens should be free to speculate in the Bitcoin market or not as they choose rather than be taxed to bail out billionaires and maintain speculative bubbles.

Summary:

We can see why large Bitcoin holders would want federal and state buying programs to help them increase prices and create a sufficiently liquid market to make it possible to exit their positions, particularly before the Bitcoin ecosystem becomes unsustainable and the competition for increasingly scarce energy resources and the growing environmental damage become more widely understood. We can also see why ETF sponsors would view federal and state purchases and holdings as a highly profitable way to build their asset management business in digital assets. Finally, we can see why some politicians might be interested in campaign donations that could result from the facilitation of donor profit-taking through large crypto sales and ballooning government investment in digital assets.

However, using taxpayers’ and state pension funds’ money to fund Bitcoin reserves serves no public purpose. If citizens want to purchase speculative digital assets in a dark market, they can do so on their own accord. They should not be forced to do so by government mandates that represent a reverse Robin Hood scheme where the government takes from the poor to give to the rich.

If the government can afford to buy private crypto assets, it can afford to—and should—cut taxes instead. Let citizens decide if, in what, and when they wish to speculate. Citizens do not need Bitcoin to fight inflation. What they could use to fight inflation is lower taxes, basic infrastructure, and public services that support a productive economy. These are the types of investments that generate healthy children, strong education, skills-building, and entrepreneurial activity that lead to employment and income growth. Citizens do not need the government to use their precious resources to further speculative bubbles that increase the income gap.

Sources:

Plunder Capitalism: Is the Bitcoin Strategic Reserve Trial Balloon the Next Step in the Great American Land Grab?

9. How Can I Learn More?

Feedback and Questions:

Subscribers can post feedback and comments below or at Ask Catherine & the Solari Team.

Monthly Briefings

Solari provides a monthly online briefing for state legislators and officials and their staff on actions they can take to protect financial transaction freedom and state sovereignty. During the briefing on January 9, 2025, Catherine will address why states should reject proposals for Bitcoin bailouts and answer participants’ questions. To reserve one or more places for your representatives, subscribers or state officials can submit their request at our Support system accessed from the home page. We will send you a confirmation.