By Brett Munster
Will bitcoin soon become a strategic reserve asset for the U.S.?
On Friday, July 26th, former President Donald Trump delivered a highly anticipated speech at the Bitcoin Conference in Nashville, where he made several significant policy statements regarding bitcoin. Notably, he outlined plans to boost energy production to support Bitcoin miners, pledged to end “Operation Chokepoint 2.0,” reaffirmed his promise to protect the right to self-custody, committed to creating a framework for the safe expansion of stablecoins, and promised to dismiss Gary Gensler as SEC chairman, a promise that received the loudest applause from the audience. However, the most notable announcement was Trump’s proposal to designate the approximately 200,000 bitcoins already held by the government as a “strategic stockpile” if he were re-elected.
Following Trump’s speech, Senator Cynthia Lummis unveiled a bill to establish a strategic bitcoin reserve for the United States. This proposed legislation not only designates the 200,000 BTC currently in the U.S. government’s possession as a strategic reserve asset but also mandates the purchase of an additional 1 million bitcoin over a five-year period. These purchases would be held for a minimum of 20 years and are intended to help pay down the U.S. debt over time. Lummis referred to this initiative as “our Louisiana Purchase moment,” drawing a parallel to the historic acquisition of 530 million acres of land from France in the early 1800s for $15 million. The bill was officially introduced and referred to the Banking Committee on August 3rd.
The day before Trump’s speech, Presidential candidate Robert F. Kennedy Jr. delivered his own rousing speech at the same conference, advocating for the use of the 200,000 bitcoin in the U.S. government’s possession as a strategic reserve asset. Kennedy took it a step further than Trump or Lummis by proposing that, if elected president, he would purchase an additional 4 million bitcoins on behalf of the U.S. government. His plan involves acquiring 550 bitcoins per day until the full 4 million are purchased, with the intention of using them to back the U.S. dollar.
While it is highly unlikely that the Lummis bill will pass this year, and even if the statements made by Trump and Kennedy are simply to court votes, these developments mark a significant moment for the crypto industry. Over the past two years, the crypto industry has faced an openly hostile approach from various government branches, including numerous lawsuits based on questionable legal arguments, a coordinated effort to de-bank the entire crypto industry, and politicians openly declaring the formation of an “anti-crypto” army.
Just two years ago, it was unimaginable that two Presidential candidates (including the current frontrunner) and a sitting U.S. Senator would publicly discuss the inevitability of bitcoin as a global reserve asset and propose steps for the U.S. government to accumulate its own stockpile to maintain its top position in the global economic hierarchy. Whether these proposals are genuine or merely campaign platitudes, the shift in tone and rhetoric surrounding the crypto industry has evolved from outright hostility to not just neutrality, but full embracement of bitcoin and the crypto industry.
The implications of the U.S. acquiring and storing a stockpile of bitcoin as a reserve asset, even if currently just talking points, could potentially force other countries to consider doing the same. No country can afford to ignore the potential strategic advantages of bitcoin accumulation. Regardless of the outcomes of these speeches and proposed legislation, the theorized “arms race” to acquire as much bitcoin as possible may have just begun. This strategic pivot towards bitcoin could also influence monetary policies, international trade agreements, and geopolitical dynamics, as nations vie to secure their own positions in this new digital economy.
The discussions and proposals surrounding bitcoin at the Nashville conference signal a potential turning point in the relationship between governments and the crypto industry. As the U.S. contemplates integrating bitcoin into its strategic reserves, the global financial landscape may be on the brink of a profound transformation, heralding a new era where digital assets play a central role in national and international economic strategies. This could lead to increased adoption of digital currencies worldwide and reshape the international financial system.
Why Bitcoin’s Recent Dip Signals a Strategic Investing Opportunity
Note: This article was originally sent to investors in Blockforce Capital’s Fund on Wednesday August 7th, two days after bitcoin’s price fell to $50k. Since publishing this research piece, the price of bitcoin has bounced back to above $61k.
In our March edition of The Node Ahead newsletter, when bitcoin first broke its previous all-time high of $69,210, we highlighted that this moment has historically marked an increase in volatility in the following months. Although the subsequent 12-18 months have typically seen the largest gains, they have also come with numerous double-digit drawdowns. This past Monday, we experienced another one of these pullbacks within a larger upward trend. For newer investors, such moments can be nerve-wracking. However, for those of us who have been investing in the asset class for a decade and seen this pattern play out numerous times, these dips are buying opportunities. Let’s examine why we at Blockforce have so much conviction despite the recent price drop and why we believe it’s a great opportunity to double down.
Pullbacks of this magnitude are historically common within a larger upward trend. During the 2016-2018 run-up to $20,000, bitcoin experienced five pullbacks of 24% or greater after breaking new all-time highs. Despite these periods of volatility, bitcoin’s total price appreciation over that period was 1,649%.
Source: Glassnode
Similarly, in the 2020-2022 bull market, Bitcoin had five pullbacks of 24% or greater on its way to a market top of $69,000, resulting in a 570% return over that timeframe.
Source: Glassnode
As we predicted in March, we have seen multiple pullbacks so far this cycle, with Monday being the third 20% or greater pullback of this cycle. Despite Monday’s drop, bitcoin is still up 240% since our article on January 1, 2023, calling the bottom of the cycle. All data points tracked by Blockfroce indicate that we are likely mid-way through this larger bull cycle, suggesting that bigger gains are likely later this year, along with a few more significant pullbacks. It’s worth reiterating that Monday’s drop was well within historical norms and to be expected in this part of the cycle.
Source: Glassnode
In addition to comparing historical norms, understanding why the drop happened is crucial. If the reasons and data for the pull back invalidate our core thesis, we would need to reexamine our portfolio construction. However, if the data does not invalidate our thesis and the dip in price was caused by other forces, then it’s an opportunity to get aggressive when prices are low.
Several factors likely contributed to the recent pullback in crypto prices. Last week, the government released a weaker-than-expected jobs report just days after Fed Chair Jerome Powell spoke of a still-robust labor market. This contradictory data caused a wave of panic-selling in the stock market over sudden recession concerns, evaporating hopes for a soft landing. This panic spread to Asia, leading to a rapid unwind of the yen carry trade (a strategy aimed at exploiting interest-rate differentials between currencies) as the Nikkei 225 dropped 12.5% on Monday, the sharpest daily drop since Black Monday in 1987. Rising geopolitical risks in the Middle East, a stronger Japanese yen, and rumors of market maker Jump Trading liquidating its crypto business further exacerbated the situation. Consequently, the S&P 500 saw its biggest single day drop since September 2022, the Dow shed more than 1,000 points, the Nasdaq 100 erased almost $1 billion in market value, and the VIX, Wall Street’s Fear Gauge, hit levels only seen during the 2008 Financial Crisis and the 2020 pandemic.
When there is this type of fear in the market, all assets tend to become highly correlated for a short period of time as investors look for liquidity wherever they can find it and thus the broad market sell-off dragged crypto down with it.
The last time the market melted down like this was on March 12, 2020, when the impacts of COVID-19 were first realized. The Dow Jones Industrial Average had its worst day since 1987, tech stocks were in free fall, and bitcoin crashed 38%. Critics claimed bitcoin had failed its test as a store of value asset (quick hint, it hadn’t).
As governments stepped in to stabilize the economy by cutting interest rates and printing large amounts of money, bitcoin bounced back better and faster than any other asset. A year later, it was up more than 1,200%. In retrospect, March 12, 2020, wasn’t a time to panic—it was the best buying opportunity for bitcoin in a decade.
Source: Glassnode
Nothing fundamental had changed about bitcoin because of COVID-19. There were still only ever going to be 21 million bitcoin. The adoption and usage of bitcoin around the world was still growing. The fixed supply, increasing demand thesis had not changed.
In fact, COVID-19 supercharged the value proposition of a currency with a fixed supply and a predictable supply issuance schedule that can’t be changed. It showed that central banks would bail out the economy at the first sign of trouble, demonstrating the limitations of centralized institutions.
The current situation feels similar to March 2020. The Fed Fund futures markets are already pricing in an aggressive response. A week ago, Federal Reserve Chair Jerome Powell was talking down the need for interest rate cuts this year, with the market assigning just an 11% chance of a 50 bps rate cut by the Fed’s September meeting. Today, the market has increased those odds to a 98% chance, with some even calling for an “emergency rate cut” before the September meeting. The US government debt is structurally guaranteed to grow and the only way to continue financing its operations is to further debase the currency. Financial easing and an increase in global liquidity is likely coming just like it did in 2020.
Recent events do not invalidate any of our core thesis about Bitcoin, Ethereum, Solana, or other crypto networks. These networks continue to process transactions, global adoption continues to grow, and pullbacks like the one we saw on Monday are within historical norms. In fact, the crypto markets have already started to recover, and bitcoin seems to have stabilized around the $60k price range. The fact that the recovery was underpinned by exceptionally strong volumes is also encouraging. Bitcoin was created exactly to fix the types of cracks in our current monetary architecture that events like this expose.
The difference this time compared to 2020 is that there is less available supply to be traded (bitcoin held on exchanges is at historic lows relative to price), access is easier than ever with Bitcoin and Ethereum ETFs (potentially leading to greater demand than in 2020), and we have two Presidential candidates (including the current frontrunner) and a sitting U.S. Senator who have publicly expressed the inevitability of bitcoin as a global reserve asset and proposed steps for the U.S. government to accumulate its own stockpile. Microstrategy will not be the last corporate to buy BTC, El Salvador will not be the last nation state to buy BTC, Wisconsin and Michigan will not be the last pension funds to buy BTC.
This setup is incredibly bullish for the rest of the year. Excuse me while I go look under my couch cushion for some spare change.
In Other News
Pensions in Michigan, Jersey City add bitcoin to their portfolios.
Trump announces plans to launch U.S. strategic bitcoin reserve.
Sen. Cynthia Lummis announces bill for US Treasury to buy 1 million bitcoin.
Morgan Stanley greenlights wealth advisors to recommend bitcoin ETF.
Crypto market cap registers largest daily drop since 2022.
XRP spikes as the Ripple-SEC case ends.
Disclaimer: This is not investment advice. The content is for informational purposes only, you should not construe any such information or other material as legal, tax, investment, financial, or other advice. Nothing contained constitutes a solicitation, recommendation, endorsement, or offer to buy or sell any securities or other financial instruments in this or in any other jurisdiction in which such solicitation or offer would be unlawful under the securities laws of such jurisdiction. All Content is information of a general nature and does not address the circumstances of any particular individual or entity. Opinions expressed are solely my own and do not express the views or opinions of Blockforce Capital.
Disclaimer: This is not investment advice. The content is for informational purposes only, you should not construe any such information or other material as legal, tax, investment, financial, or other advice. Nothing contained constitutes a solicitation, recommendation, endorsement, or offer to buy or sell any securities or other financial instruments in this or in any other jurisdiction in which such solicitation or offer would be unlawful under the securities laws of such jurisdiction. All Content is information of a general nature and does not address the circumstances of any particular individual or entity. Opinions expressed are solely my own and do not express the views or opinions of Blockforce Capital or Onramp Invest.
BACK TO INSIGHTS