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

Author: Liu Jiaolian

Overnight, BTC pulled back, piercing the 5-day moving average at 96.8k. After briefly breaking through 96k, it rebounded and pulled back to the 5-day moving average at 97.4k this morning. It seems to be a carefully designed hunting operation to liquidate long leveraged positions lying in ambush below 96k.

Today we're going to talk about the US's plan to establish a national strategic BTC reserve (SBR, Strategic Bitcoin Reserve).

In fact, as early as the Bitcoin2024 conference in July this year, Kennedy Jr. raised the matter of strategic reserve BTC in his speech. In the 2024.7.27 article "BTC Will Enter the Era of National Reserves", Kennedy Jr. said that if he is elected president of the United States, he will sign an executive order for the U.S. Treasury to buy 550 BTC a day until the reserves of 4 million BTC are hoarded, thus establishing a dominant position that other countries cannot usurp.

The next day, Trump attended the conference and expressed similar views. You can review the following Jiao Chain 2024.7.28 article titled 'Trump: BTC will surpass gold, the United States must retain 100% as a national strategic reserve'.

Later, Trump did win the election. Then, because of his attitude in supporting the development of the encryption industry, the market began to price it. The BTC price has been rising all the way. It surged from around $70,000 on election day to nearly $100,000 in just about 20 days.

Many people who don't understand it start all kinds of discussions, saying that BTC was created by Americans to harvest others, that America's BTC strategic reserve is a continuation of financial warfare, and so on. These bloggers really don't study well. The TeachChain doubts whether they have read the Open Source code of Bitcoin in its entirety, whether they have seriously studied and understood the working principles of the Bitcoin system, or just rely on hearsay, imagination, fabricate a bunch of seemingly plausible statements, use an intimidating tone to arouse the emotions of fans and spread them secondarily, thus harvesting a wave of traffic. After all, what BTC is exactly, they don't really care - they don't have Holdings either, but using emotional language to describe a shocking horror story, stimulating the amygdala of the audience to perceive fear and threats and actively forward it, making them interested in gaining traffic benefits. They really do!

If they know a little bit about computer technology, they know that the code of BTC is all Open Source. Anyone can download it and review every line of code. Satoshi Nakamoto can't hide any backdoors, and the public's eyes are sharp. Anyone can make any modifications to the code. The difficult part is, why would others use the code you modified? If you can't convince thousands of computer nodes scattered around the world to use your code, then the changes you make are meaningless. This is called consensus among the masses.

The popular Consensus of BTC is entirely based on voluntary principles.

Rousseau and Hobbes believed that things like the state are established by people voluntarily entering into contracts. In fact, they are not. From a materialistic perspective, the state is the evolutionary product of top-down implementation of violence. Does anyone come into the world and sign a contract with the state? No. Every baby passively or, one might say, forcibly accepts the established state structure. There is no personal will here, no choice process, and even no options.

Voluntarily accepting BTC is like being reborn. This time, it is beyond the construction of the nation, an internationalist global human Consensus, a voluntary consensus.

No one is forced to enter the door of BTC. And no one can force anyone else. I can't force it. You can't force it. The United States can't force it either.

Even a powerful country like the United States can hardly change the code rules to plunder other BTC holders, for example, giving itself the power to overissue BTC. First of all, it needs to have the ability to force thousands of nodes around the world to accept its modified new code. Moreover, it also needs to 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, and if it wants to establish a national strategic reserve, it can only purchase the desired BTC from the market or from others at a fair and reasonable price.

If the U.S. government unilaterally tampered with the code and over-issued BTC, then all the majority of the world's opponents of the over-issuance could unite and run a Satoshi Nakamoto version of BTC without over-issuance, refusing to run and refusing to admit the tampered over-issuance of BTC, and the U.S. government would have nothing to do.

Some people say that the idea of the United States establishing a BTC national strategic reserve to repay its debts sounds like a fantasy, too imaginative. They may not have understood history. Even more imaginative and "unreliable" ideas have been proposed in the past.

During the 2011 U.S. debt ceiling crisis, some suggested that the U.S. Department of the Treasury could mint a platinum coin with a face value of $1 trillion to partially pay off the high amount of U.S. debt. In this way, wouldn't it create a new borrowing space and allow for continued borrowing and spending?

Well, I have to say, this is truly a "genius" idea!

Legally, according to Section 5112 of Volume 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 to the face value. This law was originally designed for commemorative coin programs, but it did not limit the maximum face value of platinum coins. This legal "loophole" has theoretically created a possibility to circumvent the debt ceiling.

Financially speaking, assets, liabilities, and value are nothing more than numbers on the Federal Reserve's balance sheet. From a financial perspective, it is only necessary to ensure that total assets equal total liabilities. As for the value of total assets, that is entirely determined by human beings.

For example, Jiao Chain once dissected the balance sheet of the Federal Reserve in the article 'The Truth of the Federal Reserve' on December 10, 2023. Regarding the gold in the asset items, Jiao Chain conducted detailed calculations in the article 'How Much Gold Does the United States Hold?' on November 14, 2023. After calculation, we found that the gold reserve of the Federal Reserve on the balance sheet is 261 million troy ounces, or 8,133 tons. However, the Federal Reserve does not calculate the value of these gold reserves based on the market price, but uses the value recorded in 31 USC § 5116-5117, which is 42.2222 per troy ounce.

If these golds are calculated based on the latest gold price of about 2700 US dollars, the total value of these golds will reach about 700 billion US dollars.

Dear readers, you may wonder why the Federal Reserve wants to artificially depress the value of gold through accounting practices? This is a long and distant discussion. Looking back at the relevant articles written by the teaching chain, I believe all readers can come up with their own answers.

The Jiaolian cited the example of the Fed's balance sheet valuing gold as a way of illustrating that it would be entirely possible for a $10 trillion platinum coin to be entered on the Fed's balance sheet and accounted for as a $10 trillion asset.

Now the scale of US Treasury bonds has just exceeded $36 trillion. Just by creating 36 platinum coins with a face value of $1 trillion each, you can completely offset all US debt with just a little effort!

Compliance (United States Code). Compliance (accounting standards).

But is it reasonable? Obviously it is not reasonable.

Fiat currency, such as the current US dollar, is not valued based on the paper or the number, but entirely on the assets on the balance sheet of the Federal Reserve behind it, 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 world recognized the US dollar and its anchor to gold.

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

If the $36 trillion of US debt is replaced with 36 platinum coins worth $1 trillion each, will the whole world automatically recognize the value of these 36 coins? If the value of these 36 coins cannot be recognized by the whole world, then the value of the US dollar will collapse and it will become worthless.

So obviously, the idea of ​​designating the face value of platinum coins is not feasible.

But what if we change the platinum coin to 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 by 50 times. Because it is undervalued by 50 times, it won't cost much, only about 14 billion US dollars. Then, it can be exchanged for BTC at a market price 50 times higher. Assuming that off-market block trading does not affect the market price, BTC is calculated at $100,000. So, this market capitalization of 700 billion US dollars in gold can be exchanged for approximately 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, 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 size of the US debt.

By putting 7 million BTC with a market value of 35 trillion into the Fed's balance sheet, it can correspondingly eliminate 35 trillion US dollars of US debt, while the balance sheet still remains balanced.

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

Asset prices are marginal priced. Just like there are 10,000 trap houses in your neighborhood, usually only 1-2 trap houses are sold, and if their transaction price is 10 million per trap, then the total market cap of all the houses in the neighborhood as assets is equal to 10,000 multiplied by 10 million, which is 100 billion. This doesn't mean that there is actually 100 billion dollars to buy all the houses, but only occasional transactions of those 1-2 trap houses are priced. This is called marginal pricing.

As long as the Federal Reserve hoards these BTC and keeps the circulating BTC in a relatively scarce state, the price of the marginal trading BTC 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, completing the switch from the US dollar anchor to BTC.