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

Let’s do a thought experiment.

Author: Liu Jiaolian

Overnight, BTC pullback pierced the 5-day moving average of 96.8k, and once broke through 96k, Rebound rallied and pulled back to the 5-day moving average of 97.4k this morning. It seems to be a well-designed hunting operation to burst the long positions leveraged by lying in ambush below 96k.

Today we’re going to talk about the United States’ plan to establish a national strategic BTC reserve (SBR, Strategic Bitcoin Reserve).

In fact, regarding the strategic reserve of BTC, it was first proposed by Little Kennedy during his speech at the Bitcoin2024 conference in July this year. In an article titled ‘BTC Will Enter the Era of National Reserves’ on July 27, 2024, Jiao Chain recorded that Little Kennedy said that if he was elected as the President of the United States, he would sign an executive order for the U.S. Department of the Treasury to buy 550 BTC every day until a reserve of 4 million BTC is accumulated, thereby establishing a dominant position that other countries cannot seize.

The next day, Trump attended the conference and expressed similar views. You can refer to the following article on Chain of Education dated 2024.7.28: ‘Trump: BTC will surpass gold, and the United States must retain it as a 100% national strategic reserve’.

Later, Trump was indeed elected. Then, because of his support for the development of the encryption industry, the market began to price it. BTC price has been rising all the way. From around $70,000 on election day, it soared to nearly $100,000 in just about 20 days.

Many incomprehensible people start various discussions, saying that BTC is created by Americans to harvest others, and that the US strategic reserve of BTC is a continuation of financial warfare, and so on. These bloggers really don’t study well. The chain of teaching suspects whether they have read the Open Source code of BTC completely, whether they have seriously studied and understood the working principle of the BTC system, or just rely on hearsay, coupled with imagination, to fabricate a bunch of seemingly plausible statements, using an intimidating tone to stimulate the emotions of fans and secondary dissemination, thereby harvesting a wave of traffic. After all, what BTC really is, they don’t really care—they don’t have Holdings, but using emotional language to describe a horrifying horror story, stimulating the amygdala of the audience to perceive fear and threat and actively forward, making them interested in traffic revenue, they really do!

If they have a little understanding of computer technology, they will know that the code of BTC is 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 modifications to the code. The difficulty lies in, why would others use the code you modified? If you cannot convince thousands of computer nodes distributed worldwide to use your code, the changes you make are meaningless. This is called public Consensus.

The consensus of BTC is entirely based on voluntary principles.

Rousseau and Hobbes believed that something like a country is established by people voluntarily entering into a contract. But in fact, it is not. From the perspective of historical materialism, the state is the evolutionary product of top-down implementation of violence and rule. Does anyone come into the world and sign a contract with the state? No. Every baby passively or forcibly accepts the established state structure. There is no personal will, no choice process, and even no options here.

Accepting BTC voluntarily is like being born again. This time, it is a global human Consensus beyond national construction, an internationalist Consensus voluntarily established.

No one is forced to enter the door of BTC. 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 powerful countries like the United States can hardly change the code rules to plunder other BTC holders, for example, giving themselves the power to issue excessive BTC. First of all, it must have the ability to force thousands of nodes around the world to accept its modified code. Moreover, it must also have the ability to make billions of holders around the world accept its tampered new BTC.

Therefore, even the US government must abide by the constraint that the total amount of BTC cannot exceed 21 million. If it wants to establish a national strategic reserve, it can only honestly purchase the desired BTC from the market or from others at a fair and reasonable price.

If the US government unilaterally tampered with the code and issued more BTC, then the majority of people worldwide who oppose this excessive issuance can unite to run a Satoshi Nakamoto version of BTC without excessive issuance, refuse to run and refuse to acknowledge the tampered excessive issuance of BTC, and the US government will be powerless.

Some people say that the idea of the United States creating a BTC national strategic reserve to repay its debt sounds like a fantasy, with a very far-fetched imagination. They may not have understood history. Even more ‘unreliable’ ideas have been proposed than this imagination.

During the 2011 US debt ceiling crisis, someone proposed that the US Treasury Department should mint a platinum coin worth $10 trillion to partially repay the high amount of US debt. Wouldn’t this create new borrowing space and allow for continued borrowing and spending?

Well, don’t say, this is really a ‘genius’ idea!

Legally, according to Section 5112 of Title 31 of the 1997 United States Code, the U.S. Department of the Treasury has the authority to mint platinum coins, and there is no limit on the face value. This law was originally designed for the commemorative coin program, but it did not limit the maximum face value of platinum coins. This legal “loophole” has created a theoretical possibility to circumvent the debt ceiling.

Financially speaking, the so-called assets, liabilities, and value are nothing more than the numbers on the Federal Reserve’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 entirely determined by humans.

For example, the Education Chain has previously analyzed the Federal Reserve’s balance sheet in the article ‘The Truth about the Federal Reserve’ on December 10, 2023, and has conducted detailed calculations on the gold assets in it in the article ‘How Much Gold Does the United States Actually Hold?’ on November 14, 2023. After calculation, we found that the Federal Reserve’s on-balance sheet gold reserves are 261 million troy ounces, which is equivalent to 8,133 tons. However, the Federal Reserve does not calculate the value of these gold reserves based on market prices, but uses the value recorded in 31 USC § 5116-5117, which is 42.2222 per troy ounce.

If these gold is calculated at the current latest gold price of about 2700 US dollars, the total value of these gold will be as high as about 700 billion US dollars.

Dear readers, fren may wonder why the Federal Reserve artificially depresses the value of gold through accounting practices? It’s too long and too far to go into this. Looking back at the related articles written by the teaching chain, I believe that all readers, fren, can come up with their own answers.

The education chain uses the example of gold on the Federal Reserve’s balance sheet, valued by humans, just to illustrate that if a platinum coin with a face value of 10 trillion US dollars is recorded on the Federal Reserve’s balance sheet, it is fully capable of accounting for it as an asset that has increased in value by 10 trillion US dollars.

This would eliminate the $1 trillion worth of US Treasury bonds issued by the US Department of the Treasury that are also on the asset side of the balance sheet.

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

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

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

Fiat currency, such as the current US dollar, its value does not lie in that piece of paper or that number, but entirely depends on what assets are behind the balance sheet of the Federal Reserve, 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, which was backed by gold.

Since 1971, the world has recognized the US dollar, which is backed by US debt. Recognizing US debt is essentially recognizing the national strength of the United States.

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, the value of the US dollar will collapse, and the US dollar will become worthless.

So obviously, the idea of using artificially designated face value platinum coins is not feasible.

But what if we replace the platinum coin with BTC that has global Consensus, is generated by Algorithm and priced spontaneously by the market? Suddenly, this seemingly far-fetched idea becomes somewhat feasible.

Let’s do a thought experiment.

Assuming the US Treasury first borrows some debt and redeems the undervalued gold 50 times. Because it is undervalued 50 times, it will only cost a few dollars, about 14 billion US dollars. Then, it can be exchanged in the market for BTC at 50 times the market price. Assuming that off-market Block Trading does not affect the market price, BTC is calculated at 100,000 US dollars. Then, the market capitalization of 700 billion US dollars in gold can probably 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, that is, from $100,000 to $5 million, the market capitalization of the 7 million BTC exchanged by the Treasury will rise to $35 trillion. This is almost equivalent to the current scale of US debt.

By putting 7 million BTC with a market value of 35 trillion into the Federal Reserve’s balance sheet, it is possible to correspondingly eliminate 35 trillion US dollars of US debt, while the balance sheet remains balanced.

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

Asset prices are marginal pricing. Just like your neighborhood has 10,000 trap houses, and usually only 1-2 trap houses are traded. If their transaction price is 10 million per trap, then the total Market Cap of all houses in the entire neighborhood is 10,000 multiplied by 10 million, which equals 100 billion. This does not mean that there is really 100 billion dollars to buy all the houses, but only occasionally traded 1-2 trap houses are priced. This is called marginal pricing.

As long as the Federal Reserve holds these BTCs still and keeps the circulating BTCs in a relatively scarce state in the market, then the price of marginal traded BTCs is very likely to be maintained at a relatively high level. As long as this marginal price can be maintained, the total Market Cap 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 transition of the US dollar from US bonds to BTC.