Trump Announces Strategic Bitcoin Reserve
Last week Donald Trump spoke at the Bitcoin conference in Nashville.
He promised to build a Bitcoin Reserve, similar to the 8,000 tons of gold the federal government holds and starting with the various Bitcoin the Federal government has seized over the years.
This is a bigger deal than I think even Trump realizes.
Because it signals a shift in America’s political discourse towards hard-backing the dollar again, whether it be with Bitcoin or with gold.
Why a Bitcoin Reserve?
So, first, why build a reserve. Sure, it promotes Bitcoin as an industry and gives the government more hard assets for the hard times.
But the most important reason is owning assets the Fed can't print, whether traditional gold or the "digital gold" of Bitcoin, can save the US dollar from a potential global collapse of paper money.
Now, for the first 144 years of the Republic — until FDR in 1933 — the dollar was backed by gold. That's why it replaced the British pound as reserve currency.
So you could take a twenty dollar bill to the bank and trade it for about an ounce of gold — fixed by law. Banks and foreign governments could then hand those twenties to Treasury, getting gold in return.
The gold wouldn’t necessarily be loaded on a truck -- or a wagon — rather it would be transferred to their account at the New York Fed, which has enormous gold vaults.
Every so often banks or countries would take delivery of their gold — France famously did this in the the late 1960’s, with de Gaulle threatening to send a warship to speed things up.
For history buffs, that warship was named after Jean-Baptists Colbert, Louis XIV’s finance minister who’s widely credited with shoring up the Sun King’s ravaged finances.
The Nixon Shock
In 1971, Nixon put the warshippery to an end by closing the so-called “international window,” removing the last vestige of dollar convertibility into gold in what was called the “Nixon Shock.”
Countries could no longer redeem dollars in anything.
Since then we’ve had the current system: the dollar is backed by thin air and the Fed prints as much as the public will bear in inflation.
The US does still hold roughly 8,000 tons of gold, but they're not backing the dollar anymore, they’re just sitting there as an asset akin to, say, student loans or mineral rights held by the federal government. And their total value at this point is roughly 2% of all the dollars in existence — $500 billion of gold vs $21 trillion of M2 dollars.
Instead the dollar is “backed” by nothing more than expectations -- the public or investors guessing how much Jerome Powell will print.
In fact, in recent decades a number of countries have been auctioning off their gold since it’s no longer backing anything. In the late 90's Britain’s Gordon Brown sold most of their gold at such terrible prices the episode was dubbed Brown’s Bottom.
Subsequently, Switzerland also sold most of their gold, notable since they’d been the last hold-outs on gold backing the franc.
The Last Guardrail Against Inflation
The problem, of course, is that without hard backing, they removed the last guard-rails against inflation. Governments could now print as much as they like.
And print they did: When Nixon closed the gold window, the US had a debt-to-GDP ratio of 35%, West Germany was at 18%, and Japan was 10%.
Today the US is at 135%, the Eurozone's at 91%, and Japan's above 260%.
In all 3 the currency has lost at least two-thirds in buying power while economic growth has slowed to a crawl and financial crises have come like clockwork.
Adam Smith actually warned of this in 1776, calling paper money a "Wagon-way in the air.” Meaning it looks like a free lunch -- you don't have to pave farmland for your road or, metaphorically, waste gold backing your money. But it invites catastrophe when you inevitably fall off that floating highway.
Which we did in 1929, the 1970’s, 2008, and again today.
What’s Next
Backing paper with expectations works in normal times -- I mean, sure prices triple, but you don't collapse.
The problem is without hard-backing they keep spending until the public won't accept any more inflationary money-printing.
Which makes markets doubt governments ability to repay.
This day is coming closer given our soaring national debt and soaring debt interest payments. And that, historically, is when it gets exciting: people stop accepting words and start demanding hard backing. At which point he who has the gold -- or the bitcoin -- makes the rules.
A bitcoin reserve, like a gold reserve, is insurance for that day.
And if Trump builds one, the rest of the world will be forced to follow, a game theory cascade that would drive Bitcoin to prices that will send Peter Schiff schiff-posting for months.
Every week I write an article on the top stories in economics with regular deep dives into history like the Fall of Rome, the Weimar hyperinflation, or FDR’s Great Depression.
I also make daily videos on economics and freedom, posted on X/Twitter, Youtube, and Rumble.
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"He who controls the money supply of a nation controls the nation." - President James Garfield
They shot him, too.
Of course Trump is now a supporter of crypto. Bitcoin is just the precursor to the Feds CBDC. It is of course a trap. Once cryptos are universally accepted by the public then there is nothing stopping the CBDC dystopian nightmare they have planned.