The United States is a debtor nation and the world’s largest debtor country. The Congressional Budget Office projected the debt-to-GDP ratio for the federal government would exceed 100% in the current fiscal year, which ends Sept. 30, 2025. The CBO also predicted the debt would rise to 118% of GDP within a decade. This means debt is rising faster than GDP is growing.
The debt-to-GDP ratio is a key metric of the federal government’s ability to pay its bills. High debt ratios raise borrowing costs. As a debtor nation with a large annual fiscal deficit, which currently runs at about 6% to 7% of GDP each year, the U.S. is not in a position to establish new liabilities or to invest in high-risk assets. So why did President Donald Trump just sign an executive order to establish a strategic bitcoin reserve and a digital asset stockpile?
The president said the federal government would not buy additional bitcoin or other crypto assets, but he also explained that a strategic bitcoin reserve would be maintained as a store of value. The problem is that by establishing a strategic bitcoin reserve, the president is sending the wrong signal to the market. Yes, bitcoin and other cryptocurrencies are assets. But the value of bitcoin and other cryptocurrencies are highly volatile, and they are not safe assets. They are highly speculative. Many eminent economists say bitcoin and other cryptocurrencies are “fairy tales” worth nothing.
In fact, just a few years ago, Trump dismissed bitcoin as worthless. He said it was an attack on the U.S. dollar.
This brings us back to Trump’s new strategic reserve. Volatility is another name for risk. The greater the volatility, the greater the risk. When the president announced that the federal government would not purchase bitcoin or any other cryptocurrency for the strategic reserve, bitcoin fell 2% to about $87,000. That followed a fall of 5% when news of the bitcoin reserve leaked out. Holders of bitcoin sold on the news. That is the nature of highly speculative markets. An asset that can drop by 7% in the space of 24 hours should not be part of a strategic reserve for the U.S. There is nothing strategic about bitcoin. It is a highly speculative asset. Given its debtor status, the U.S. cannot afford to speculate and waste money on a crypto reserve.
The U.S. dollar is the global reserve currency. This lowers U.S. borrowing costs. In addition, because of the dollar’s position, U.S. treasuries are viewed as effectively risk-free. International investors see the dollar and treasuries as safe-haven assets. By creating a bitcoin reserve, Trump and his inner circle would create doubt about the value of the dollar and treasuries. Again, Trump said just that four years ago.
Bitcoin is described as an alternative currency and a hedge against dollar devaluation and against inflation. Such comments undermine the dollar. In the late 1970s, former President Jimmy Carter was forced to order the issuance of U.S. debt denominated in a foreign currency, so-called Carter Bonds. Investors did not trust the dollar. If international investors lose confidence in the dollar, U.S. borrowing costs and interest rates will soar. Recession risk will increase dramatically. The president should not do or say anything to undermine the dollar and establishing a bitcoin strategic reserve would do just that.
Trump and his inner circle have ownership interest in various crypto assets. Establishing a strategic crypto reserve suggests straightforward self-interest and self-dealing. The president and his Cabinet should strive to be above reproach. There is nothing transparent and honest about a strategic crypto reserve.
CLICK HERE TO READ MORE FROM RESTORING AMERICA
James Rogan is a former U.S. foreign service officer who later worked in finance and law for 30 years. He writes a daily note on the markets, politics, and society. He can be reached at [email protected]