There’s no denying that cryptocurrency is a polarizing asset class. While there is some interest starting to emerge at an institutional level, I would bet that the bulk of the crypto enthusiasm still lies with retail investors.
Given this dynamic, it could be a big deal if a notable personality makes a comment about crypto – whether positive or negative. During the past few years, MicroStrategy Executive Chairman Michael Saylor has emerged as one of the crypto realm’s biggest proponents. The technology mogul is particularly taken with it Bitcoin (CRYPTO: BTC).
On December 16, Saylor sat down for an interview with CNBC’s Sara Eisen and told the host that he thinks President-elect Donald Trump is serious about creating a strategic reserve of Bitcoin. Just one day after Saylor’s comments, Bitcoin’s price soared to new highs, reaching over $108,000.
Below I will outline why a Bitcoin reserve might make sense, how building this stock would work, and what it could mean for Bitcoin investors.
Currency is a tricky thing. Whether it is the US dollar, the euro or the Chinese yuan, the values of different currencies are constantly changing. But unlike stock volatility, differences in currencies against each other can carry some weight when it comes to trading, borrowing and more.
In recent years, inflation has hit a 40-year high, prompting the Federal Reserve to implement 11 interest rate hikes in an effort to curb rising prices for goods and services. Given the inflationary pressure on the US dollar, consumer purchasing power fell significantly.
During times of economic uncertainty, it is not uncommon for investors to either stockpile cash or flock to alternative assets such as cryptocurrencies. Furthermore, given Bitcoin’s fixed supply of 21 million coins, adding some of the cryptocurrency to the US balance sheet could act as a hedge against inflationary pressures on fiat currencies (such as the US dollar), while also providing an additional layer of diversification.
Although President-elect Trump and some of his associates, such as Robert F. Kennedy Jr. and Elon Musk, who have been outspoken proponents of Bitcoin and crypto in the past, many changes would have to be made from a regulatory perspective before the US could start building a strategic reserve of Bitcoin. Essentially, Congress would have to pass a specific budget or amend existing legislation that would allow the US Treasury Department to acquire Bitcoin.
Additionally, given the lack of legal structure for Bitcoin and crypto in general, the Treasury Department should work with the Securities and Exchange Commission (SEC), the Commodity Futures Trading Commission (CFTC), and the Internal Revenue Service (IRS). a more fine-tuned framework on how Bitcoin would be classified, and to determine whether it is even eligible to be placed as a reserve on the US balance sheet.
In my view, building a Bitcoin reserve is currently more of a pipe dream than a realistic scenario.
While I understand the theoretical benefits of stockpiling Bitcoin, it is imperative to remember that cryptocurrency prices tend to experience excessive volatility compared to traditional assets. For this reason, Congress may feel that it is irresponsible to allocate a portion of the budget (taxpayer money) to speculative property.
I think the idea of a Bitcoin reserve is just that… an idea. It’s intriguing, but I think it’s less likely to happen anytime soon — even if a pro-crypto government comes to Washington in about two months.
I would encourage those interested in investing in crypto or Bitcoin to consider Bitcoin Exchange Traded Funds (ETFs), or brokers that enable crypto trading, such as Coin base or Robinhood.
Consider the following before buying shares of Bitcoin:
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Adam Spatacco has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Bitcoin. The Motley Fool has a disclosure policy.
You Won’t Believe What Michael Saylor Just Said About Bitcoin, originally published by The Motley Fool
