President Trump has proposed that the Federal government consider holding digital currencies, igniting a wave of responses from various media and political figures, many of whom issue dire warnings regarding the potential impact on the U.S. dollar. However, this critique often lacks a nuanced understanding of the reality surrounding Trump’s proposal. In fact, the assertion that Bitcoin (BTC) poses a threat to the U.S. dollar is misguided. Furthermore, the U.S. government’s acquisition of BTC or other digital currencies should not be interpreted as an endorsement of these assets.
As of December 2024, the U.S. dollar maintains its dominant position, representing nearly 60% of the total currency held by central banks worldwide, according to the International Monetary Fund (IMF). Unlike traditional fiat currencies that are controlled by central banks, Bitcoin and similar digital currencies operate outside this framework. Consequently, the concept of an adversarial relationship with the issuer of BTC is non-existent, unlike the dynamics experienced with currencies such as the Chinese yuan or the Russian ruble.
When examining the foreign exchange (forex) reserves held by the United States, it is notable that most of these consist of euros and Chinese yuan. No one advocates for the abandonment of euro reserves, as holding a currency does not denote an endorsement. Countries primarily maintain forex reserves for liquidity purposes, facilitating trade with partners using those currencies. Given that BTC and Ethereum (ETH) represent the largest digital currencies in terms of liquidity and trading volume in USD, it follows that the U.S. would benefit from holding these assets.
Crucially, the scale of the U.S. dollar far exceeds that of Bitcoin. The total value of USD holdings at approximately $2,300 billion dwarfs BTC, valued at about $2 billion, by a factor of over 1,150. As of the start of 2024, Bitcoin ranked as only the 16th largest foreign currency worldwide based on USD market capitalization. Therefore, if the U.S. were to hold 50,000 BTC, it would represent less than 5% of its foreign currency reserves.
The United States also maintains substantial reserves of gold and silver—metals that are no longer used as currency by major nations. There is little concern that these holdings are seen as an endorsement of gold as currency, as gold is held partly for its value as a store of wealth.
Critics often assert that digital currencies lack intrinsic value. This sentiment disregards the concept of subjective value, similar to how a Picasso painting possesses worth beyond its basic materials. What Bitcoin has is social and scarcity value, as evidenced by its role as a decentralized asset outside governmental control. The limited supply of Bitcoin supports its price and enhances its appeal as a store of value.
Additionally, there are compelling reasons for the U.S. to hold virtual currencies—they signify a significant advancement in financial technology. It is in the United States’ best interest to lead in fintech innovations, which will not only elevate its position as a key financial player but also prepare it for inevitable changes in the future. The benefits of blockchain technology extend beyond digital currencies, including reduced transaction costs, which most consumers may ultimately benefit from.
In summary, Trump’s proposal is underpinned by solid economic reasoning and aligns with the U.S.’s existing currency holdings. It also stands to reinforce the fintech sector, representing a smart and forward-thinking approach. This suggests an advantageous outcome for the United States as it navigates the evolving landscape of digital currencies.
