What if, instead of funding crèches, roads or digital education projects, we used taxpayer money to buy--wait for it--bitcoin? Let’s mobilise budget surpluses, recover unused luncheon vouchers, introduce a small solidarity levy on electric SUVs--let’s get creative!

…in order to buy a few hundred bitcoins, carefully store them in an official wallet protected by three passwords and two unions. Of course, we’ll set up a governance committee chaired by a senior civil servant who has worked for the BCL, assisted by a 22-year-old Web3 consultant who has returned from Portugal to serve his country. Meanwhile, the communications department will do an announcement video with drones in Kirchberg and a deep voice-over: “Luxembourg is investing in the future. In code. In scarcity.” Obviously, the markets would react. Young people would think it was great. Pensioners much less so. And in parliament, some would ask whether this reserve could be used to pay pensions, or to repay the debt of [name of adventurous company here].

Ecstatic in the supercharged atmosphere of Nexus, I was dreaming about transferring my own bitcoins into such a national reserve--which I had already dubbed “Mir wëlle bitcoin wat mir sinn,” just to be a model citizen--when I pulled out my phone and read up on the subject. On the plans of US President Donald Trump--although it was actually --to introduce a “Bitcoin” law, which stands for “Boosting Innovation, Technology, and Competitiveness through Optimized Investment Nationwide.”

The American SPR already used 26 times since 1970

Let’s look at the reality of this American reserve. It’s neither a classic public investment nor a massive purchase of bitcoin with taxpayer money; it’s a reserve mainly fed by bitcoins seized by the authorities in criminal cases (e.g. cybercrime or trafficking on the dark web). Until now, these bitcoins were sold at auction. From now on, the federal government will keep them in a digital safe, like a gold reserve. The aim is to treat bitcoin as a rare strategic asset to be held for the long term. It will not be sold unless legally required to do so. Other crypto-currencies (such as ether or XRP), which have also been seized, are placed in a separate stockpile, which can be resold more freely. There is talk of a figure of 200,000 bitcoins held today (equivalent to $17-25bn) for this presidential project, where the senator wanted to hold one million bitcoins, or 5% of the global total, “reflecting the size and scope of the gold reserves held by the United States.”

What is a strategic reserve? A stock of a systemically important input that can be released to manage serious supply disruptions. The best-known example, the , was created in response to the Arab oil embargo of 1973-74, as well as to meet the reserve obligations of the international energy programme.

Since the 1970s, the SPR has been called upon more than 20 times for a variety of reasons: from providing essential oil supplies after natural disasters to recently reducing inflationary pressures on energy prices after . Moreover, if managed well, drawdowns from the reserve can occur when the US is able to sell crude oil at high prices and buy it back when prices are low, according to an analysis from the Atlantic Council two years ago.

Advantages and disadvantages

This debate is divisive in the countries where it has been conducted, willingly or unwillingly. For the most positive, such a reserve has five advantages:

—transparency: unlike opaque financial assets, bitcoins can be traced on the blockchain. The government promises auditable public accounts.

—financial sovereignty: holding bitcoin, an asset not controlled by a central bank, would be a way of protecting the state against the risks of currency or geopolitical crises.

—fiscal responsibility: the reserve is said to be “fiscally neutral” because it uses confiscated assets, at no direct cost to citizens.

—public innovation: this shows that the state can modernise its asset management, instead of selling off assets that could increase in value at a low price.

—institutionalisation of the debate: the fact that a state is taking a serious interest in bitcoin forces democracies to debate what a store of value is, who controls it and why.

Others in the US have seen about the same number of dangers in it:

—absence of parliamentary debate: the reserve was created by presidential decree, without a vote in congress, on an economically and symbolically very strong subject.

—risky speculative gambling: entrusting the state with the management of such a volatile asset could create losses to the detriment of the general interest.

—conflicts of interest: as Trump and those close to him are linked to the crypto industry, some suspect that this decision could benefit certain private interests.

—political instrumentalisation: using bitcoin as an electoral communication tool diverts the debate from real budgetary or social priorities.

—fragilisation of the national currency: encouraging an asset designed to compete with the dollar could damage monetary stability and the credibility of public institutions.

Analogous to gold, bitcoin provides a means of diversifying government-held assets: euros, dollars, gold and now a digital asset class independent of central banks. Thanks to its fixed supply (21m BTC), bitcoin is often presented as a protection against inflation and currency devaluation. Unlike gold or certain currencies, bitcoin can be traded instantly, anywhere, at any time. Every transaction can be publicly audited via the blockchain. That kind of transparency is unattainable for gold or traditional currencies.

So… I’ve just looked up the assets of Luxembourg’s relatively new Asset Management Office (Bureau de Gestion des Avoirs or BGA). At the end of 2023, the BGA had 1,743 credit balances, 113 securities accounts, 384 cash sums, two virtual assets, seven receivables, 99 real estate assets, 22 vehicles and 1,836 other assets worth, in total, more than €1bn (less contributions to the Fund for Combating Certain Forms of Crime, or €5,325.39, and the state budget, or €328,004.76). The BGA had also, at the time, destroyed more than 42 tonnes of property confiscated or forfeited to the state, most of it likely drugs.

If this strategy were aligned with gold reserves, Luxembourg would apparently hold 2.24 tonnes of gold, or in the region of €230m at €100 a gram. The BGA’s €1bn should be more than enough. Even if there are 100 years to go until the last bitcoin is discovered, aka mined--even if the end is scheduled for around 2140, so more like 115 years from now--.

And then the days would be over when you can moan that the whole economy has switched to digital currencies and we don’t have any…

This article in French.