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
Sorry, that’s like the profits made from like being in control of the currency and minting dollars. And then the third one, which is the really big one, right, is that right now all the government gold is valued at only $42.22 per ounce, right, rather than like, you know, $2,500 or $2,700 an ounce. So on balance sheet, it’s only marked down as $11bn. So, yeah, Senator Lummis says, hey, you know, why not just like revalue it all up on to market prices and then tell the Fed to just remit the difference? So that would be like $640bn and that can be used. And it’s not really clear to me whether, you know, that’s saying the Fed’s gotta dump its gold into the market. I mean, that would be a big deal for the gold market, right?
Katie Martin
Yes.
Toby Nangle
Or whether it’s saying, hey, let’s just imagine that we’ve got like all this extra money so we can use these new dollars to buy bitcoin and (inaudible) be collateralised by gold. I don’t know. It’s just really, really unclear right now.
Katie Martin
This is pretty wackadoodle stuff. But like in your considered opinion, would it be a good idea to require banks to remit, whatever it is, $640bn to the Treasury? Does it strike you as an obviously good idea?
Toby Nangle
It doesn’t strike me as like, you know, it’s like a genius idea that solves all our problems. No, absolutely no. I mean, I think it looks pretty crazy, to be honest.
Katie Martin
So partly just sort of for sport and because I’m sad like that. Sometimes I ask portfolio managers or bankers, OK, let’s imagine the strategic reserve thing actually happens. Then, like, what are the implications then for stuff that normies care about, like me? What are the implications for the dollar? What are the implications for US government bonds? And they generally look at me blankly and say, no comment, or just pretend that I haven’t asked. Like, do you have any . . . You’re not allowed to say no comment. Do you have any sense what this would mean for like normal assets?
Toby Nangle
I really struggle. I try to work out like, what it would mean if you pushed up the price to $173mn for a bitcoin and it basically shrinks down the portion of assets which are non-bitcoin to almost nothing. So like all the world’s bonds, all the world’s stocks are worth pretty much nothing in that universe. And so you have to kind of think, right, if you’re going down this route, if the idea is to pay off debt, it sort of sounds like you kind of wanna get rid of the dollar along the way, which as you know, you know, crypto folks are never very keen about fiat currency. It’s not like their number one love. And I don’t think that that’s really being relayed to President-elect Trump yet. I ended up watching a bunch of speeches he made to people which was . . .
Katie Martin
You know how to enjoy yourself, Toby — watching Donald Trump talking about crypto.
Toby Nangle
And he kind of, you know, he meanders a little bit and part of this crypto meander he then sometimes, he sort of meanders off to talk about the dollar. And having sort of spent sort of love on crypto, he then gets a little bit upset that this might roil the dollar and so rows back a little bit. And there was one speech I watched where he said if the dollar’s hegemony was upset — I don’t think he used the word hegemony — then that would be like a war. It would be like world war three. So I think he doesn’t want to undermine the global status of the dollar. But the most obvious thing that comes to mind is that, you know, if you move bitcoin into the system and then move Treasuries out and you pump up dollars and you create as many dollars as you need in order to achieve this end, then that does do something bad for the dollar, I think.
Katie Martin
It feels like it has to, right? Given that this would be a massive experiment, like a kind of like operation on the heart of the US financial system with no anaesthetic and with no clarity on what the implications would be, do you think this is gonna happen?
Toby Nangle
I think that that 200,000 bitcoin of seized, you know, contraband, I see it’s a pretty easy win to not sell that.
Katie Martin
And then you can say, look, we did it.
Toby Nangle
Yeah, absolutely. Do I think that they’re gonna sell $640bn of gold and send bitcoin even further to the moon? I don’t really think they’re gonna do that. Maybe they can use a bit of, you know, exchange stabilisation funds to pump it up a little bit further. But if this is all for the government and they’re looking to sell it again, you know that just doesn’t sound great.
Katie Martin
And maybe there’s a world where his nomination for Treasury in the form of Scott Bessent, he’s a kind of quite stabilising force within the administration. Maybe he’s the man to sit Donald Trump down and say, do you know what, this is a potential risk to stuff that Donald Trump cares about, right? So the dollar and stocks. And maybe that kills this idea. But so you think it doesn’t happen.
I think there’s a non-trivial possibility that it does in some form. And I agree with you, not selling the contraband they’ve already seized seems like an easy win. But if it happens, boys and girls listening, buckle up, because I don’t know what would happen. Toby doesn’t know what will happen. Toby’s much cleverer than me, so we really don’t know what the implications of this thing would be so, you know, good luck to everybody.
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We’re gonna be back in a sec with Long/Short.
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Alrighty. Now it’s time for Long/Short, that part of the show where we go long a thing we love or short a thing we hate. Toby, I know you were very well-prepared for this part of the show. What you got?
Toby Nangle
So I was tempted to go short news on like a mean reversion trade, but we all know . . .
Katie Martin
There’s too much news. We just spread news out a bit more evenly.
Toby Nangle
There’s too much news. Yeah, but like, you know, momentum tends to beat mean reversion trade so I’m not gonna do that. So I’m gonna go long Christmas stuffing.
Katie Martin
Oh, cool.
Toby Nangle
Best part of the meal.
Katie Martin
Is it, do you think?
Toby Nangle
Absolutely.
Katie Martin
Do you put it like in the turkey or would you have like sort of . . .
Toby Nangle
The goose. Yes.
Katie Martin
Oh, it’s a goose.
Toby Nangle
Yeah. With sausage meat and prunes and stuff. Delicious. Chestnuts.
Katie Martin
The whole nine yards. Are you still eating this stuff come like, New Year’s Eve?
Toby Nangle
Yeah. I hope so.
Katie Martin
Cool. I am long dinosaurs.
Toby Nangle
Dinosaurs?
Katie Martin
So Christie’s is apparently selling them now for like millions and millions of pounds. They’re like the ultimate, like, super-rich Bond villain kind of ornament of choice and I want one, so . . .
Toby Nangle
So Mr Martin, that’s top of Katie’s Christmas list.
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Katie Martin
They’re pretty cool. And I want to look like a Bond villain in my house so that’s what I would like. I’m long dinosaurs. Listeners, thanks so much for coming along for the ride. We will be back in your feed next week.
Unhedged is produced by Jake Harper and edited by Bryant Urstadt. Our executive producer is Jacob Goldstein. We had additional help from Topher Forhecz. Cheryl Brumley is the FT’s global head of audio. Special thanks to Laura Clarke, Alastair Mackie, Gretta Cohn and Natalie Sadler.
FT premium subscribers can get the Unhedged newsletter for free. A 30-day free trial is available to everyone else. Just go to ft.com/unhedgedoffer.
I’m Katie Martin. Thanks for listening.
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The US government owns many billions of dollars worth of bitcoin, confiscated from bad actors such as the Silk Road marketplace. Donald Trump said on the campaign trail that he would not be selling it. Senator Cynthia Lummis has introduced a bill suggesting the government buy more and create a national strategic reserve of crypto currency. Today on the show, Katie Martin asks FT contributor Toby Nangle if any of this makes any sense at all. Also, we go long Christmas stuffing and long dinosaurs.
For a free 30-day trial to the Unhedged newsletter go to: http://www.acphonor.com/interactive/https://www.ft.com/unhedgedoffer.
You can email Robert Armstrong and Katie Martin at [email protected].