President Trump held a summit on Friday with crypto-currency enthusiasts where he touted his plan to establish national stockpiles for bitcoin and other crypto tokens. What could go wrong?
Mr. Trump’s new executive order issued Thursday directs the Treasury Department to take custody and preserve government holdings of bitcoin and other crypto-currencies that agencies seize as part of investigations into wrongdoing.
His stated goal is to create a crypto version of Fort Knox, which is where America’s gold reserves are stored.
David Sacks, the White House cryptocurrency czar, says the U.S. government has sold about 195,000 bitcoin over the last decade for $366 million, which would be worth about $17 billion today. He estimates that federal agencies now hold some 200,000 bitcoins — worth $16.7 billion at the current price — but says “there has never been a complete audit.”
Mr. Trump’s order requires such an audit. Treasury would then manage the government’s bitcoin stash as reserve assets, similar to gold and foreign currencies. Treasury would separately determine “responsible stewardship” for other tokens like Ripple and Ethereum.
U.S. dollar reserves provide liquidity and facilitate payments with the rest of the world. Bitcoin doesn’t. While Mr. Trump describes bitcoin as “digital gold,” many countries don’t recognize or accept it as legal tender. While gold has been used as a store of wealth for centuries, bitcoin has been around for all of 16 years.
Its price is also highly volatile. Investors sold off bitcoin last week as they have other risky assets amid growing trade uncertainty. The prices of bitcoin and other tokens on Thursday fell after Mr. Trump issued his executive order, apparently because crypto investors were hoping he’d do more to bolster their speculative crypto bets.
His order directs Treasury and the Commerce Department to “develop strategies” for acquiring more bitcoin that are “budget neutral and do not impose incremental costs on United States taxpayers.” This ostensibly means Treasury won’t issue debt to buy bitcoin, but the order still invites government mischief.
Assets seized in civil and criminal forfeitures are typically returned to victims or sold with the proceeds remitted to Treasury to reduce the budget deficit. The Trump plan is to keep confiscated tokens as investments, which might later be sold to finance a President’s spending prerogatives. Future presidents of both parties could raid the stockpile to bypass Congress on spending.
Establishing national crypto reserves also invites government abuse. The Institute for Justice has chronicled how local law enforcement has abused civil forfeiture laws to seize assets even when there’s been no wrongdoing.
What’s to stop the Justice Department from doing the same with crypto-currencies to bolster Treasury’s stockpile? Treasury might even buy tokens backed by the ruling party’s political donors to drive up their price.
A government crypto reserve serves no good purpose while creating an opportunity for political bad behavior. Let private investors speculate all they want without the government having a stake in crypto-currency prices.
