Money does all things for reward. Some are pious and honest as long as they thrive upon it, but if the devil himself gives better wages, they soon change their party.
- Seneca
Donald Trump and his plans as the first ‘crypto president’
The Fallacy of Strategic Bitcoin Reserves: A Gamble for the Wealthy
In recent months, proposals advocating for the establishment of strategic Bitcoin reserves have gained attention.
While these ideas remain nebulous, their potential repercussions are already evident: they are unlikely to succeed, pose economic risks, and facilitate wealth redistribution. But what exactly is being proposed?
In the United States, President-elect Donald Trump has signaled plans to transfer confiscated Bitcoin held by the government to the Treasury Department to establish a strategic Bitcoin reserve.
Across the Atlantic, EU Parliamentarian Sarah Knafo has called for a similar initiative for the European Union. In Switzerland, a popular initiative demands that the Swiss National Bank allocate a portion of its reserves to Bitcoin. Meanwhile, in Germany, Christian Lindner, leader of the FDP, suggested that both the European Central Bank (ECB) and the Bundesbank integrate Bitcoin into their reserves.
Proposals for strategic reserves are not new. Historically, they have been used to stockpile critical resources—like oil or gas—to mitigate crises or supply chain disruptions. Such reserves are practical when they address tangible, real-world needs, as illustrated by the pandemic-induced shortages of medical supplies.
However, Bitcoin does not satisfy any comparable real-world demand. While the 2008 Bitcoin whitepaper envisioned a global, decentralized currency, the reality has fallen short: 16 years later, Bitcoin transactions remain cumbersome, expensive, and slow.
The Pitfalls of Bitcoin as a Strategic Asset
The structural flaws of Bitcoin as a reserve asset are glaring. First, its reliance on an uncontrollable mining process and a volatile, unregulated market exposes it to manipulation and risks unsuitable for national reserves.
Furthermore, Bitcoin’s notorious energy consumption stands at odds with global sustainability goals. While advocates tout its potential for decentralized finance, its primary use cases include money laundering, tax evasion, and even terrorism financing.
Unlike traditional reserve assets such as gold, the U.S. dollar, or International Monetary Fund (IMF) Special Drawing Rights, Bitcoin does not stabilize currencies or facilitate interventions in financial markets.
Gold, for instance, was historically part of central bank reserves due to the Bretton Woods system. However, even gold’s role has diminished over time, with Western central banks reducing their holdings since 1973.
Bitcoin’s extreme price volatility—with gains of 1,000% in 2020-21 and losses of up to 80% in 2022—makes it a poor candidate for reserve status. A central bank holding Bitcoin risks jeopardizing its credibility with such unstable assets on its balance sheet.
The market liquidity of Bitcoin also falls short. Even modest sell-offs, such as the confiscated Bitcoin auctioned by the German state of Saxony in mid-2024, were perceived by enthusiasts as a threat to its price.
This fragility underscores the speculative nature of Bitcoin and its unsuitability for large-scale institutional use.
Bitcoin as a Tool for Wealth Redistribution
Sovereign wealth funds, which manage national savings in countries with structural trade surpluses and low debt, might theoretically invest in Bitcoin.
However, this is not a realistic option for the United States or Europe, where public debt reduction is a more pressing concern than speculative asset investments.
Bitcoin’s lack of inherent value compounds the issue. Unlike real estate (which generates rent) or bonds (which yield interest), Bitcoin offers no productive utility. Its value relies solely on speculation, driving a zero-sum redistribution of wealth rather than economic growth.
Most economists agree that Bitcoin represents a speculative bubble destined to burst. Yet even in the implausible scenario of perpetually rising prices, the social consequences would be dire.
As Bitcoin’s value increases, early adopters amass immense wealth while latecomers shoulder the losses, exacerbating inequality. This dynamic fosters societal resentment among those left behind, destabilizing communities. The speculative cycle necessitates continuous cash inflows, sustained by shifting narratives.
A System Designed for the Wealthy
In the U.S., the approval of Bitcoin ETFs in January 2024 by financial regulators lured institutional investors and retail traders alike.
The presidential election campaign, backed by months of aggressive lobbying and hundreds of millions in donations from crypto interests, further fueled the bubble.
With Trump’s victory, expectations of looser regulations have soared. Now, the suggestion that the state itself could act as a major Bitcoin investor signals a disturbing shift.
Bitcoin, originally envisioned as a rebellion against centralized finance, risks becoming a state-sponsored speculative vehicle, enriching a privileged few while amplifying societal harm.
If governments were to invest in Bitcoin, they would effectively inflate the bubble further, magnifying the eventual fallout.
It would be a bitter irony: nearly two decades after the 2008 financial crisis, the state could end up not just rescuing speculators but actively enriching them at the expense of the broader population.
The message is clear: Bitcoin is a playground for the wealthy, a gamble they can afford to lose. For everyone else, the stakes are far too high.
Your welcome.
Sincerely,
Adaptation-Guide
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