The proposal by U.S. Senator Cynthia Lummis to establish a strategic Bitcoin reserve is garnering attention, but experts believe it won’t be sufficient to address the escalating national debt crisis, which has now reached $35 trillion. Avik Roy, the president of the Foundation for Research on Equal Opportunity, shared his insights on the matter during the North American Blockchain Summit 2024 in Dallas, Texas, on November 20.
“When Senator Cynthia Lummis of Wyoming talks about how a Bitcoin reserve could help us eliminate the federal debt, that’s an overselling of what Bitcoin could do,” said Roy during his speech.
While the concept of a strategic Bitcoin reserve is intriguing, he cautioned that even if the U.S. were to acquire a massive amount of Bitcoin that appreciates over time, it would still fall short of tackling the staggering $35.46 trillion debt. This figure has grown nearly exponentially since the 1980s, highlighting systemic fiscal challenges beyond cryptocurrency solutions.
Roy emphasized that while Bitcoin could provide some relief, fundamental budgetary reforms are essential. “The Bitcoin reserve is good, but it does not solve the problem. You still have to actually do the budgetary reforms to get us out of this $2 trillion a year of federal deficits,” he said.
However, Roy pointed out a potential benefit: Bitcoin could alleviate stress in the bond market. By partially backing the U.S. dollar with Bitcoin, the government could restore some confidence among bondholders, mitigating fears that the U.S. economy is on the brink of financial collapse.
Historical Parallels: Gold and Bitcoin
Roy raised concerns about the risks associated with such a reserve. He drew parallels to the 1970s, when the U.S. government significantly reduced its gold reserves. A similar scenario with Bitcoin could undermine its potential as a long-term stabilizer.
From 1981 to the present, the U.S. national debt has grown at a compounded annual growth rate of 5.3%, rising from $3.81 trillion to the current $35.46 trillion, according to U.S. Treasury Fiscal Data. This exponential growth underscores the urgency of finding sustainable solutions.
In July, Senator Lummis introduced the Bitcoin Act, proposing that the U.S. government acquire 1 million BTC—equivalent to approximately 5% of the total Bitcoin supply—and hold it for at least 20 years. Lummis also suggested converting a portion of the U.S. Treasury’s gold holdings, valued at approximately $448 billion, into the proposed Bitcoin reserve.
President-Elect Donald Trump, set to take office on January 20, 2025, has also expressed support for a national Bitcoin stockpile. Back in July, he announced plans to create a reserve as part of his economic strategy.
While the idea of a Bitcoin reserve offers an innovative approach to mitigating financial challenges, experts agree it cannot replace the need for comprehensive fiscal reforms. Bitcoin may provide a partial hedge against debt-related risks and improve market confidence, but addressing the root causes of deficit spending and economic mismanagement remains critical.
