Why Governments Should Add Bitcoin to Their Foreign Reserves
As Bitcoin holders lament the latest slump in the currency’s value, they’re pointing fingers at national governments for dumping large quantities on the market. And they might have a point. In the last week alone, the U.S. government sold off nearly 4,000 Bitcoins, worth around $240 million, while the German government dumped 900 Bitcoins, sparking fears that Berlin could sell off its entire stash of over 45,000.
Those government hoards are worth billions of dollars. Even though Bitcoin is highly liquid and widely distributed, it’s still subject to the law of supply and demand, and large-scale sell-offs will invariably drive prices down. This isn’t the first time, though, that government sell-offs have put a strain on Bitcoin prices. In the case of Uncle Sam, the U.S. Marshalls Service has been auctioning off Bitcoin stashes seized by the FBI, IRS, DEA, and other agencies for over a decade now.
A graph showing the fluctuation of Bitcoin prices
In Bitcoin’s early days, when its staying power was in question, it made sense for the U.S. government to promptly sell off the currency it seized. Today, this “sell it all” mentality makes less sense. Whether you like the currency or not, the reality is that people in every country of the world hold Bitcoin, and it has been one of the highest performing assets of the last decade. So why doesn’t Uncle Sam hold on to some long-term?
“I’m no expert on foreign reserves, but the broad strokes are that central banks hold other countries’ currencies in order to cushion the shock if their own currency falls into crisis.”
Given inflation and geopolitical troubles, is it a sure thing that the yen and the euro—not to mention the pound and Swiss franc—are more durable than Bitcoin? It would seem only prudent for governments to allocate a small portion of their reserves (perhaps 2% to 5%) to the most popular decentralized currency. Indeed, they have held another non-government-backed asset—gold—as part of their foreign reserve for centuries.
A stack of gold bars
This is already a live issue in Switzerland, where Bitcoin advocates are pushing for a change in the law to allow the Swiss central bank to hold it. The chairman of the bank rebuffed the suggestion, claiming Bitcoin is not liquid or sustainable. I would be curious to know how many of Switzerland’s younger people feel the same way—it’s a good bet many would disagree.
The Swiss flag
As I ponder the wisdom of governments holding Bitcoin, I’m reminded of my own experiences with the currency. I recall buying my first Bitcoin back in 2017, when it was still a relatively new and unknown entity. I was skeptical at first, but as I delved deeper into the world of cryptocurrency, I became convinced of its potential.
The Bitcoin logo
Today, I believe that Bitcoin has a place in the foreign reserves of governments around the world. It’s time for them to rethink their stance on this decentralized currency and consider the benefits of holding it alongside their traditional assets.
