Gold revaluation and the “strategic Bitcoin reserve”

There are hints that at least a few within the federal government are toying with the idea of revaluing U.S. gold reserves.

The 261.5 million ounces of gold reportedly owned by the U.S. Treasury have been held on the books at just $42.22/oz since the last time the value was adjusted in 1973. That gold represents only about $11 billion on the U.S. balance sheet.

The U.S. Treasury could theoretically reap a cash windfall of upwards of $700 billion by assigning the current value to the reserves.

Upon revaluation, the Treasury Department would go to the Federal Reserve Bank and request a credit against the Fed’s gold certificates for the difference between the old value and the new value in U.S. dollars.

Another plan currently in front of Congress is called the Bitcoin Act of 2025. It calls for the gold revaluation windfall to be used to buy Bitcoin and create a “Strategic Bitcoin Reserve.” That would be a dangerous way to use the funds.

First off, it should be understood that revaluation is likely to be highly inflationary. The Fed could create up to three-quarters of a trillion dollars with a few strokes on a keyboard.

Dumping that largesse into the crypto markets will drive BTC higher. Then price inflation will ripple out into the broader markets and economy as some holders cash in on BTC gains and buy other assets, goods, and services. That will be bad news for the vast majority of citizens who do not hold Bitcoin.

It will be difficult to avoid inflationary effects unless the Treasury revalues the gold without asking the Fed to credit it with new dollars.

In any event, the Treasury has no business speculating in crypto or any other markets. There is zero assurance that Bitcoin will succeed and gain widespread adoption and use as anything other than a speculative asset...

It is a technology and, therefore, prone to replacement by something users like better. The technology sector is littered with companies that succeeded for a time, gained huge value, and were ultimately replaced. Yahoo!, Blackberry, and Myspace are good examples. Bitcoin’s value may go higher, but it can also go to zero.

Gold is tangible in nature and a reserve asset held by central banks indirectly to back their currencies. Holders of the currency could redeem their dollars, pounds, etc, for gold from treasury reserves.

The Bitcoin Act provides for a “Strategic Bitcoin Reserve,” but that is simply clever marketing. The bill does not contemplate making dollars redeemable for Bitcoin. Citizens won’t know the purpose for federal ownership of all that crypto.

There is no mention in the bill about the strategy behind the “strategic” reserve. Based on the name, perhaps they want people to daydream about Bitcoin going to millions of dollars each, at which point officials will put it to some beneficial use related to sound money or eliminating debt.

While it is fun to imagine prices that high, it won’t turn out well for most people if the plan is to pay off debt.

The few holders of Bitcoin will prosper as the government builds the reserve, bidding up the price. The fun will be over when officials try to sell $40 trillion worth for the dollars needed to retire the mountain of debt.

In any event, expecting officials to use the “reserve” to reinstitute some form of honest money or pay off debt is a pipe dream. Governments and bankers hate honest money, and they love debt.

After all, officials don’t need to establish a Bitcoin reserve to tackle those problems.

The U.S. already has the largest gold reserves in the world. Those reserves will work perfectly if they want to switch from fiat currency back to a gold-backed dollar or pay off some debt.

If Congress wants to revalue gold and print roughly $750 billion for use in building reserves, the funds should be used to buy more gold. Gold isn’t as risky, and it is well established as a reserve asset. They should leave Bitcoin to the speculators.

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