The President of the United States has expressed a desire to position the nation as a “Bitcoin superpower,” but it raises the question of who the competition actually is.
During his remarks at a digital asset summit on March 20, aimed at crypto industry leaders and enthusiasts, he stated, “Together we will establish America as the indisputable Bitcoin superpower and the center of the cryptocurrency universe.”
The US crypto sector has significantly benefited from favorable executive actions from the current administration, including the creation of a “strategic Bitcoin reserve,” an initiative that proponents see as crucial for Bitcoin’s mainstream acceptance.
Yet, many other nations, including key trade partners of the US, are not quite prepared to embrace Bitcoin as a reserve currency, prompting the question of what exactly the US is vying against in its quest to be a “Bitcoin superpower.”
US allies and rivals are not in the Bitcoin race
In comparison to significant trade partners and geopolitical competitors, the US currently leads in Bitcoin adoption. Neither the European Union, China, Mexico, nor Canada has undertaken such bold measures to integrate the asset into their financial systems.
China, which is the US’s largest trading partner and also a major geopolitical adversary, has adopted a stern posture toward Bitcoin, having initially imposed a complete ban before slightly easing restrictions. The country now permits mining but strictly prohibits the utilization of Bitcoin.
Overall, the Chinese government is more focused on advancing a retail central bank digital currency known as the digital yuan.
The European Union, another major US trading ally, implemented its Markets in Crypto-Assets regulatory framework in May 2023, which will fully come into effect for member nations by late 2024.
While the EU has taken steps ahead of the US in terms of clear legislative measures, it offers considerably less favorable conditions for the industry compared to what is anticipated in concurrent legislation in the US Congress.
The penetration of crypto users within the EU is expected to remain virtually unchanged this year, and overall enthusiasm for cryptocurrency is quite low among the wealthiest economies in the union. No member state currently holds a Bitcoin reserve.
Even in Switzerland, known for its crypto-friendly stance and significant dollar exports from the US, there are constraints on embracing crypto. On March 1, the president of the Swiss National Bank remarked that Bitcoin is not a suitable candidate for a reserve asset due to stability, liquidity issues, and security risks.
In Germany, the head of the central bank has rejected the notion of maintaining a Bitcoin reserve, and Canada’s Prime Minister has previously criticized Bitcoin as an inadequate form of currency.
Meanwhile, South Korea has indicated its unpreparedness to adopt Bitcoin as a reserve asset, as the Bank of Korea argues that BTC’s volatility disqualifies it under International Monetary Fund criteria.
Russia has allowed cryptocurrency to be utilized for international transactions to evade sanctions, and the central bank is setting up a three-year pilot to permit select investors to trade in crypto. Some legal experts in Russia have proposed forming a crypto fund from assets seized through criminal proceedings, although there has been no formal establishment of such a fund by the Duma.
Critics and supporters voice concern over “Strategic Bitcoin Reserve”
An economics professor at Cornell remarked, “This isn’t a strategic or logical approach but predominantly benefits Bitcoin investors while putting US taxpayers at risk, making the government a major price influencer for Bitcoin during its fluctuations.”
As highlighted by various analysts, the purpose of most strategic reserves is to store commodities that are vital to a country’s economic operation. Governments often create reserves to stabilize the prices of essential goods. The US has strategic reserves for oil and grains, while China even maintains a pork reserve.
The proposed Bitcoin reserve does not fit this model, as there’s insufficient demand for Bitcoin among the American populace, and its supporters do not desire price stability.
A senior fellow at a prominent think tank criticized the reserve’s aim of reducing US national debt as unrealistic. “The million-coin reserve would need to more than double in value over two decades just to account for its implicit interest costs. Additionally, the reserve must eventually be liquidated to realize any gains, and it’s likely that the same Bitcoin holders who urged the government to retain the Bitcoin it possesses will oppose any attempts to sell off newly acquired coins,” he commented.
Assertions that it could function as a digital Fort Knox have been labeled “just as questionable,” as gold reserves haven’t underpinned the dollar’s value since the US exited the gold standard during Nixon’s presidency.
Even among Bitcoin enthusiasts, there is criticism of the reserve. The founder of a notable hedge fund commented on the reserve’s “hold only” stipulation, describing it as “disappointing” and akin to “putting lipstick on a pig.”
The reserve has also not catalyzed any significant movement in Bitcoin prices, which have remained relatively stable following the executive order signed on March 6.
Currently, the US appears to be leading a race that others are not participating in. However, circumstances could shift rapidly. Right-wing political groups sympathetic to Bitcoin reserves have been gaining traction in elections across Europe.
Brazil, another significant economy in the Western world, is also exploring the prospects of establishing a Bitcoin reserve.
Moreover, the US Bitcoin reserve enables the Treasury to acquire Bitcoin as long as it does so without driving up costs for taxpayers. The true impact of this reserve, along with its effect on Bitcoin adoption, may still be forthcoming.