The Coming Bitcoin “Arms Race”

First off—happy Thanksgiving! Here in Lisbon, I’m busy preparing the turkey… My Crimean wife, Yulia, is eager to try a real American Thanksgiving meal.

I hope you’re enjoying the holiday with family and good friends, wherever you are.

In today’s Field Notes, however, we’re once again contemplating bitcoin and DJ Trump…

Will Señor Trump successfully establish a strategic bitcoin reserve for Uncle Sam—as he plans?

It’s one of the reasons bitcoin is flirting with $100,000…

There are lots of moving parts, by which I mean lots of disagreeable voices in academia and in government and throughout its bureaucracy who will argue against putting Sammy’s bank account in bitcoin.

Then again, DJT has the benefit of GOP control over both chambers of Congress. A significant number of those voices are so pro-Trump that I don’t see them saying no to him.

So my bet is that we will see a US Bitcoin Reserve Fund created in 2025.

What happens after that is the real subject our dispatch today…

If America builds a strategic bitcoin reserve, we’d almost certainly see a bitcoin “arms race” among other nations that would feel compelled (let’s call it “pressured”) to build their own bitcoin reserve.

It’s not that they’d do so to compete with Uncle Sam.

They’d do so to protect their own economies and currencies.

And as if written by a Hollywood screenwriter, as I was banging out this column, a story popped up on my phone with this headline: “UK Urged to Consider Bitcoin Reserve as Trump Leads Crypto Revolution.”

Soon enough, you’ll be a seeing a flood of similar headlines out of Germany, France, Canada, Australia, China, Japan, and many others.

The back-office story here is potentially problematic for the dollar specifically and Western currencies more generally.

First, how would other countries fund their run on bitcoin?

Those that could, would print cash to buy bitcoin—a “cash for crypto” program. All that extra fiat money sloshing about would rekindle global inflation that isn’t quite dead yet.

Some, meanwhile, would trade other assets for bitcoin. Most notable on that list would be US Treasury debt that so many countries own. It’s a great plan from a foreign country’s point of view: Dump a depreciating asset—US paper—in exchange for an appreciating asset, bitcoin.

Of course, that hits the dollar hard since an increased supply of greenbacks on the global market pushes down the dollar’s price.

But… A bitcoin reserve would ultimately allow America to effectively manage, maybe even extinguish its debts.

Bitcoin, like its real-world shadow, gold, is an anti-dollar asset at its core. Actually, let me rephrase that: It’s an anti-fiat currency asset at its core.

Indeed, Satoshi Nakamoto, the anonymous creator of bitcoin, included a message with the very first bitcoin ever mined:

The Times 03/Jan/2009 Chancellor on brink of second bailout for banks

That’s a reference to the sorry state of UK/Western finances as the world grappled with the Global Financial Crisis.

As the dollar’s value declines—or said a different way: As hyperinflation takes root in America—bitcoin’s price would surge higher. That surge would be on top of the wave of sovereign buying as national governments build out their BTC reserves.

In that scenario, America could trade bitcoin for bundles of bucks that it could then use to repay the now-deflated debt.

And just like that, no more debt woes in America.

Bitcoin will have helped America “flip a uey” on its debt.

Granted, the population of fiat-currency savers would be wiped out by this—not just in America but across the world. The financial pain at the household and individual level would be immensely greater than during the Global Financial Crisis.

On the flip side, the population of crypto hoarders/investors benefit immensely as the value of their digital assets soars to such a degree that the price of bitcoin (and other crypto) easily offsets the dollar’s loss in purchasing power.

If you’ve been a Field Notes reader for a few years now, you might remember me writing that bitcoin will very likely save a dollar in distress. This is the path by which that probably happens:

• DJT launches a BTC reserve fund;
• Much of the rest of the world follows suit;
• The dollar continues to lose ground and ultimately falls into a hyperinflationary spiral because of falling demand for greenbacks due to escalating demand for digital assets, all at a moment when US interest payments are surging toward $1 trillion annually.

But do I think this will really happen?

My heartfelt answer is….

Affirmative.

Yes, I do think this is very much a potential destination.

Trump is adamant on wanting a bitcoin reserve.

If he gets it, at that point, it’s only a matter of time before other countries start their own… and the monetary world changes.

Honestly, if you don’t own bitcoin right now, you’re risking your financial future.