This is an audio transcript of the Unhedged podcast episode: ‘The Bitcoin National Strategic Wha?’
Katie Martin
So listeners, just so you know, we recorded this a couple of weeks ago ‘cause we were being organised for holiday season, so we’re gonna hope that nothing massive changes between now and the time you hear this.
Donald Trump has a very crypto-friendly set of people around him. And there’s even apparently serious talk that the federal government should establish a national strategic reserve of bitcoin.
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Now, if you’re listening carefully there, you might be able to hear me rolling my eyes, but you can also hear me standing back in admiration at the explosive jump in bitcoin prices since Trump’s re-election. The price has more than doubled this year to about $100,000. So today on the show we’re asking, what is this all about? Why would Uncle Sam buy bitcoin and what all that will mean?
This is Unhedged, the markets and finance show from the Financial Times and Pushkin. I’m Katie Martin, a sad no-coiner and a markets columnist at the FT in London. And I’m joined by one of the brainiest people I know, former fund manager and now FT contributing editor Toby Nangle. If anyone can solve these mysteries, it’s Toby. No pressure, Toby. But Toby, tell me, in the great pantheon of unconventional policy proposals, where would a strategic national bitcoin reserve rank?
Toby Nangle
It’s gonna be up there, isn’t it? I mean, there was some chat with your former colleague, Philip Coggan, about the South Sea bubble back in the 18th century, which almost bankrupted the UK state because everyone piled into that as a way to make lots of money.
Katie Martin
So we’re in South Sea bubble territory here.
Toby Nangle
Well, you know, we could be. We have to see how we go.
Katie Martin
So, look, let’s really, really quickly go back to the beginning and explain what bitcoin is because listeners to the show, like my friend Leila — hi, Leila — feel like they still just don’t get it. And I would argue that there’s not that much to get. But how does this stuff work? Like, really, really, you know, top level.
Toby Nangle
OK, really top level. And there’s gonna be a lot of people who get cross with this being so top level.
Katie Martin
Please send your emails to [email protected]. (Laughter)
Toby Nangle
So there’s some really complex mathematical puzzles that need to be solved. And in solving those puzzles, computers win prizes and those prizes are bitcoin. And there can be a maximum of 21mn prizes ever won in the entirety of the universe. And so if you wanna buy one of these bitcoins that someone else has mined by solving these puzzles, you can go and buy it on an exchange for a bitcoin.
Katie Martin
And this process of mining, right, so it’s not people going down on the ground and finding a thing. It is this process of computers shouting at each other until they solve puzzles. And that process uses a lot of energy, uses like as much electricity as Egypt. But the point is, if they win the prize, those prizes are worth $100,000 each. And so this isn’t like a physical coin or anything, and it’s not a currency that you can like go to the shop and buy your groceries with. It’s too volatile. And it’s not like a bond or a stock that’s linked to something underlying. It’s not linked to a business or to a state as such. So you can argue about a lot of things to do with crypto like what it’s for, what it does. One thing you can’t argue with is the price, right? Just $100,000 is $100,000. It’s up by, I think 100, 130 per cent so far this year. Does it deserve to be $100,000, do you think?
Toby Nangle
I don’t know. I mean, you can’t argue with the price, but you can go out and you can sell these things on the basis that they’re gonna be worth less than that. Until recently, people have lost a lot of money doing that, though, so it hasn’t paid to argue with the price recently.
Katie Martin
People have had fun staying poor. But so you have these lines of code that have a certain value attached to them. They have no intrinsic value, really, but they have a price that’s attached to them. Why would a national government, why would Donald Trump or anyone else, want a national reserve of these things?
Toby Nangle
Yeah, so people get really angry when you say there’s no utility value to bitcoin because they say it’s like digital gold. It’s, you know, you can’t destroy it. I mean, you can lose it in a landfill, as a British guy famously has lost hundreds of millions of pounds of bitcoin sitting in some landfill in Wales. But you can’t destroy it. And so the folks on the crypto side would say, well, it’s a bit like fiat currency, except it’s limited in supply, that you can make as much fiat currency as you want. You can make as many dollars as you want, but you can’t make as many bitcoins as you want. And so it’s got a little bit of value on that. But you’re right. I mean, basically, value, to get all high-falutin, is plutocratically defined. That is to say you get . . .
Katie Martin
I told you he was clever. (Laughter)
Toby Nangle
If you have one person say, you know, this banana I’m gonna put on a wall is worth $7mn, it’s not worth $7mn. If you get two people willing to buy it, then it is worth $7mn. And that’s what you got with bitcoin or meme stocks or all these sorts of things. Their value is exactly what more than one person can agree they’re gonna buy it for. And so there we go. That’s market for you.
Katie Martin
And so you’d want a strategic national reserve of these things so that you have a pot of things that’s worth more and more money over time?
Toby Nangle
Yeah. So I mean, I guess for a lot of people, the utility value of bitcoin has been that the number has gone up, right? And so if you have an absolute belief, I mean, if you know in your core that these things are gonna go up in value, why wouldn’t you have more of them? I think that’s . . . I mean, I don’t think it’s getting any more complicated than that.
Katie Martin
There is a sort of school of thought that this is a way . . . So the US is already absolutely central to global finance. You know, the dollar is the world’s currency. It should be similarly dominant in crypto is part of how this argument runs. It’s still not obvious to me what it would do with this stuff.
Toby Nangle
Yeah. I mean, I think that the idea of a strategic bitcoin fund, I mean, it’s obviously something that’s hugely popular from folks who have held bitcoin because it means that, hey, you know, you got the government printing dollars to maybe get in on the action propping up the price of your bitcoin. But if you’re gonna, you know, if you’re gonna have a strategic fund, then that’s gonna be used for something. So as to say the government will wanna sell it at some point. It’s gonna upset a lot of people if you’re holding this stuff and the whole point of it is to go up and suddenly you’ve got the government selling loads of this stuff. That’s not gonna win crypto rates.
Katie Martin
And let’s set aside the irony that supposedly the whole point of bitcoin and crypto is it’s this thing that lives outside of kind of official channels and it’s outside of government. Now all of a sudden what the crypto crowd want to happen is that the government buys it. Let’s set all of that aside and let’s actually answer that little question, which is, would a strategic fund mean the federal government going out and buying bitcoin necessarily?
Toby Nangle
Yeah, well, I mean, it’s not . . . It wouldn’t have to because actually, you know, the US federal government is sitting on a big pile of bitcoin as it is. They’ve got about 200,000 bitcoins worth about $20bn already.
Katie Martin
Where’d they find them, down the back of the sofa?
Toby Nangle
A lot of them came from . . . I don’t . . . I mean, older listeners will remember the Silk Road, that dark web place where you could pick up drugs and, you know, contraband and was run by this guy who called himself the Dread Pirate Roberts in a lovely homage to The Princess Bride — great film. But they transacted exclusively in bitcoin. And when that whole thing was shut down in a huge FBI sting, they seized massive amounts of bitcoin and kept it on a computer and sold some of it off, but not all of it. And then they’ve seized other, you know, bits of illegal kind of bitcoin hoards from other criminals. So in total, they’ve got about $20bn worth. And so the commitment that Trump made on the campaign trail was basically not to sell this stuff. That was the first thing. It was like, don’t sell this stuff.
Katie Martin
Because some people have been worried that they would accelerate sales and arguably they would have done under Kamala Harris.
Toby Nangle
Yeah. I mean, you know, they’ve got $20bn worth of little shiny pixels.
Katie Martin
Lines of code. Yeah.
Toby Nangle
People really want this stuff, you know. Why not sell it?
Katie Martin
So they wouldn’t necessarily have to buy it. But to the extent that they are sitting on a pot of money that is growing — I know you were writing about this recently — one idea that’s kicking around is that the government could use this pile of bitcoin to pay down national debt. Now, talk me through this. How does this make sense?
Toby Nangle
Yeah. So Trump back in August gave this interview on Fox Business. He says, like, you know, maybe we’ll hand over a little bitcoin, wipe out $35tn of debt. And you kind of go, OK, well, you might need a few more bitcoin than all the bitcoin that currently exist or the price has to go up a lot. So without buying any more bitcoin, the price of a bitcoin has to go up to about $173mn per bitcoin to pay off the national debt. And you have to find people who are happy to give that money, you know. It needs not only to sort of sit there on a computer, it also has to be like offloaded. You know, it’s the opposite of hodling, right? You’re just dumping this stuff into the market.
Katie Martin
Hodl, boys and girls is . . . So I don’t quite know where this came from and frankly, I don’t care. But the whole idea of like buy and hold, H-O-L-D, became “hodl” in cryptospeak. I don’t know, man, but that’s the whole thing, right? You buy this stuff and you hold on to it.
Toby Nangle
Well, I mean, as in, I’ve seen it referred to as hold on for dear life. But then I’ve also saw that it was first used in some Reddit board where people were like typing hold, hold and then did a . . .
Katie Martin
Just like literally a typo.
Toby Nangle
Typo for hodl. And then people were like, yeah, hodl, hodl!
Katie Martin
But either way, this is like, you know, you’ll see it all over the internet — hodl, hodl, hodl. So in the event that you do have a government acting as hodler-in-chief, you know, then what happens, right? Because so one of the other things that’s happened sort of separately from the presidential election campaign is that there’s a senator from Wyoming, Cynthia Lummis, who’s talked about introducing a bill demanding the creation of this effectively like a strategic national fund. How would it work? Where would the money come from to buy these things?
Toby Nangle
Looking through the legislation, so, first of all, they want to not sell this 200,000 bitcoin that they’ve already had, which seems fairly straightforward, right? Then it requires them buying another 200,000 bitcoin every year for five years. And basically it’s gonna come from the Federal Reserve, in some shape or form. They’ve got like three different ways in which you get this money. Some of it’s by decapitalising the Fed, some of it’s by moving seigniorage, which would go towards paying down QT deferred assets. That goes instead to go and . . .
Katie Martin
Seigniorage being what?
Toby Nangle