Is Strategic Bitcoin Reserve Feasible to Reduce US National Debt?

Amid the talks of building a strategic Bitcoin reserve under Donald Trump’s administration, experts have started weighing in on the feasibility of such a proposal and to what extent it would help in reducing the massive $36 trillion US national debt. Wyoming Senator Cynthia Lummis, who has been actively pushing for this proposal has shared some details about the plan which involves a minimum BTC HODLing for 20 years by the US government.

Implementing Strategic Bitcoin Reserve For US

Earlier this year, Senator Cynthia Lummis presented bill for the United States to accumulate 1 million Bitcoins over the course of the next five years. Detailing further about her plans, Lummis wrote:

“To be clear, the “strategic” purpose of the Strategic Bitcoin Reserve is to: explicitly, strategically, pay down gov’t debt hanging over the head of every American. Put future Americans on a better footing, unencumbered by debt that they never supported or benefitted from”.

Senator Cynthia Lummis stated that the bill requires assets to be held for a minimum of twenty years and mandates proof of reserves. She added that by then, the appropriate next steps will become clear.

VanEck’s Head of Digital Assets Research, Matthew Sigel, explored the potential impact of having a strategic Bitcoin Reserve and to what extent would it solve the issue of US National Debt. Sigel proposed a hypothetical scenario where the U.S. Treasury purchases 1 million Bitcoin over five years, starting at a price of $200,000 per Bitcoin.

Under the assumption that U.S. debt grows at an annual rate of 5%—lower than the 8% compound annual growth rate (CAGR) observed over the last decade—and Bitcoin’s price compounds at 25%, Sigel calculates that by 2050, a U.S. Strategic Bitcoin Reserve would hold assets equivalent to 36% of the national debt.

Apart from the US, European lawmakers pitched for a strategic BTC reserve for the EU. Earlier this week, a European MP also made a similar proposal amid the global acceptance of the asset class. The MP praised El Salvador’s significant investments in Bitcoin over the past few years.

How a BTC Reserve Could Offset US National Debt

In order to offset the US national debt, CryptoQuant CEO Ki Young Ju explained the feasibility behind building the Bitcoin Reserve. Ki Young Ju pointed out that over the last 15 years, $790 billion in realized capital inflows have driven Bitcoin’s market cap to $2 trillion.

Reiterating Sigel’s stand, u proposed that if the U.S. government designated Bitcoin as a strategic asset, acquiring 1 million BTC by 2050 could offset up to 36% of domestically held U.S. debt, which accounts for 70% of the total. While foreign creditors, holding the remaining 30%, might resist such a move, the strategy does not aim to settle all debt with Bitcoin, making the proposal more practical.

The CryptoQuant CEO also stated that gaining creditors’ consensus could be challenging given Bitcoin’s volatility compared to traditional assets like gold or dollars. He emphasized that Bitcoin must achieve global recognition and authority equivalent to gold for broader acceptance. Establishing a Strategic Bitcoin Reserve could serve as a pivotal first step toward this goal. MicroStrategy executive chairman Michael Saylor stated that the US can earn $81 trillion by building the Bitcoin reserve.

Addressing potential risks, Ki Young Ju noted the possibility of long-term Bitcoin holders (“whales”) selling large amounts to undermine such a strategy. Yet, he expressed confidence that governments accumulating Bitcoin and a rising price trajectory would deter such actions.

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Bhushan Akolkar

Bhushan is a FinTech enthusiast with a keen understanding of financial markets. His interest in economics and finance has led him to focus on emerging Blockchain technology and cryptocurrency markets. He is committed to continuous learning and stays motivated by sharing the knowledge he acquires. In his free time, Bhushan enjoys reading thriller fiction novels and occasionally explores his culinary skills.

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