Debates over a government bitcoin reserve have swelled up this week after former president Donald’s Trump’s comments at a bitcoin convention over the weekend.
Meanwhile, a new government in the UK with ambitious spending plans is leaving many wondering whether Britain should sell its bitcoin.
Currently, the UK government holds over 60,000 bitcoin worth over £3bn, which have been seized from criminals over the years, mostly as part of a money laundering case against hospitality worker Jian Wen.
This is one of the biggest stockpiles of bitcoin among world governments, said Richard Byworth, head of liquid alts at Syz Capital.
So, as questions begin to swirl over what the US and UK should do with their bitcoin, which is the right approach to take?
What to do with all that bitcoin?
In the US, right-wing politicians are attempting to one-up each other to appeal to crypto fanatics.
Trump is being supported Billionaire businessmen like Elon Musk and the Winklevoss twins with close ties to the crypto industry, which makes the reasons behind the reversal of his position on digital currencies obvious.
In his speech at the bitcoin convention, Trump said he would transfer the 210,000 bitcoin held in the US Department of Justice to the Treasury.
Meanwhile, Senator Cynthia Lummis from Wyoming introduced legislation this week that would require the US government to acquire about five per cent of the world’s bitcoin supply, valued at around £55bn.
Things have been quieter here in the UK, but last week, a bitcoin lobbying group sent an open letter to the new government asking them to not sell our bitcoin.
Syz Capital’s Byworth analogised the issue to the “disastrous sale of the nation’s entire gold supply by former chancellor Gordon Brown at the market bottom” in 1999, which has remained a stain on Labour to this day.
“The UK has, by luck, found itself in a position where it holds the third-largest national reserve of this unique asset,” he said.
Given the supply dynamics of bitcoin, there will only ever be a few players who will be able to achieve a similar position size said Byworth, noting that at the current rate of issuance, a country would need to buy the entire daily supply of bitcoin for over 130 days to usurp the UK’s position.
“Does the UK trade with anyone in bitcoin? No. Therefore it would be held as pure speculation.”
Ben Yearsley, director of Fairview Investing
However, Ben Yearsley, director of Fairview Investing, questioned what the purpose would be of actually keeping a Bitcoin reserve.
While the Bank of England keeps reserves of other foreign currencies, “we trade with those countries”, he said.
“Does the UK trade with anyone in bitcoin? No. Therefore it would be held as pure speculation,” said Yearsley.
While some have argued that the Bank of England keeps reserves of gold, which is also not used to trade with anyone, Yearsley noted that gold is trade-able “virtually anywhere in the world, whereas bitcoin isn’t”.
This presents the problem with a bitcoin reserve. A reserve is not meant to be an investment, but for payments and funds in case of emergency.
Indeed, bringing in a healthy cash injection could be good news for the new government, and other countries have taken this path, as the German government liquidated its almost 50,000 bitcoins throughout June and July of this year, netting it around £2.2bn.
Sure, crypto enthusiasts can present this as a way to bring in new revenue for the government, but wouldn’t government money be better spent investing in houses, roads, and hospitals than a digital currency?
Proponents of a bitcoin reserve should stop presenting it as a reserve, since all of their arguments seem to centre around how much the reserve would grow, not how stable and useful it would be.
There have been few outside of the crypto sphere advocating for this, and the conflict of interest becomes obvious.
Clearly, if governments hold crypto, that increases its credibility and ups both its price and stability, and that is exactly the point.