WEEKLY, Nov 23 - A US Strategic Bitcoin Reserve is unlikely
...and why BTC ETF options matter
Hi everyone, I hope you’re all doing well!
You’re reading the free weekly version of Crypto is Macro Now, where I reshare/update a couple of articles from the past few days.
This past week I did a lot of talking (other than the audio for premium subscribers!):
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In this newsletter:
The US is unlikely to get a huge Strategic Bitcoin Reserve
BTC ETF options: why they matter
Some of the topics discussed this week:
Macro clouds to keep an eye on
Why the US won’t get a huge Strategic Bitcoin Reserve (but it is likely to get a small one)
Risk sentiment lights a fire
BTC ETF options launch is here
Global crypto adoption: some surprising moves
An update on the BTC spot ETF options launch
The risks of tokenization, according to the BIS
The crypto bull run: What’s going on? (**OPEN TO READ**)
BTC: Rarefied air
Ouch, that DXY move
Podcasts and politics: it’s about more than the content
The US is unlikely to get a huge Strategic Bitcoin Reserve
…but it could get a small one
Last week, Senator Cynthia Lummis (R-WY) submitted the Bitcoin Act of 2024, which proposes the establishment of a Strategic Bitcoin Reserve (SBR) for the US government. The idea is that the reserve accumulate 5% of the BTC supply, to hedge against debasement of the USD, strengthen the US balance sheet and support future debt issuance.
The bill – cleverly named the Boosting Innovation, Technology, and Competitiveness through Optimized Investment Nationwide Act of 2024 (with the initials spelling BITCOIN, geddit?) – proposes the purchase of 200,000 BTC per year over five years. These will be held in distributed custody for a minimum of 20 years. The only accepted reason for sale during this period would be to retire US debt. After the holding period expires, Treasury could sell up to a maximum of 10% of the reserve in any two-year period.
How will this be paid for? The proposal details two channels:
Remittances from federal reserve banks to the Treasury department (these are unlikely to be significant in coming years as a significant negative balance has built up).
The exchange of gold certificates held by US central banks (with book value of roughly $42/oz) for market value equivalents (the current gold price is roughly $2,700/oz) – the difference would be handed over to Treasury.
The benefit to the US would be an asset whose appreciation will offset dollar debasement, strengthening global investor confidence in the government’s ability to service and issue more debt.
The negatives? Well, none that I can think of, other than short-term volatility, and the usual custody issues. It’s a good idea. And BTC holders are understandably excited about the possibility of the world’s largest institution accumulating a significant amount of an asset that has a provably fixed supply.
What’s more, prediction markets are warming to the idea: at one stage last week, the Polymarket odds surged to almost 50% – now they are back to a more realistic 32%.
(chart via Polymarket)
I still think that’s way too high, and if I were a betting person – I’m not – I’d be happily taking the other side of that.
Here’s why:
1) It will be colossally hard to get enough representatives on board with such a significant investment when most still don’t understand Bitcoin. (Heck, many probably don’t even understand the gold certificate discount.) Of course, work needs to be done to correct that – and, with time, it will change. But for now, most politicians will see BTC as more volatile than gold, making it hard to justify a reserve rotation.
2) Meanwhile, the BTC price will continue climbing, pushing up the cost of the bill. By the time the bill even gets to a vote, BTC’s price could be at least double what it is now, making it a huge ask, at a time defence spending and other fiscal initiatives are vying for importance.
3) The window of enthusiasm is probably narrow. The new Congress will kick off full of energy to enact change, but there is much to be done on issues that are easy to understand – they will get more attention.
4) I don’t see Trump going for it. Apparently he could, in a pinch, authorize the accumulation of BTC without permission from Congress via Executive Order. I doubt, however, that he’d want to expend a lot of political capital on this, and that will influence just how much time the more “mainstream” Republicans in Congress want to spend on the issue.
Trump is pro-crypto, sure, but there’s not much evidence he fully understands the value of Bitcoin (remember how he said he’d make sure all BTC was “minted” in the US?). And I can’t see him getting excited about swapping US dollars or gold for an asset whose price appreciation would benefit holders in “unfriendly” nations, or those who don’t have faith in the dollar, or governments that want to hedge against dollar weaponization, or even US-based investors who want to hedge against dollar debasement. BTC, let’s face it, is not an “America first” asset. Good for America, yes – but a hard sell.
5) Another reason why Trump may not love the idea: the international image. Detractors at home and abroad could paint approval of the SBR as admission that the dollar is in trouble.
For these reasons and others, we should be realistic around our hopes for positive crypto legislation in the first year. We’re not going to get everything we hope for, unfortunately, politics doesn’t work like that. A stablecoin bill would be a relatively easy win. A crypto bill that establishes security token definitions, reasonable DeFi-friendly registration requirements and support for self-custody will be more difficult, but not as tough as a Bitcoin bill, and arguably better for the whole ecosystem. Building brings even more longer-term innovation benefit than does a higher BTC price.
And deep institutional concentration does bring risks. Even in the unlikely event Congress agrees to a 20-year holding period, what’s to stop a new Administration pushing for a repeal of the law and flooding the market, triggering a crash that would impact the savings of millions around the world who were relying on it as a debasement hedge?
There’s a big “however” here: Trump may not get worked up about the Bitcoin Act, but he has said that the US government will hold on to its current BTC stash, essentially making this a small Bitcoin Reserve. The amount is considerable, over 210,000 BTC according to the latest information, which at current prices is worth around $19 billion. Just confirming the removal of that potential sell pressure would be a market boost. It’s not quite the 1 million BTC that Senator Lummis envisions, but it’s not nothing.
BTC ETF options: why they matter
Finally, after a long wait, options on the BlackRock and Bitwise BTC spot ETFs started trading on Nasdaq this week. This is a big deal.
I wrote about this back in August when the options were first approved by the SEC, but here’s a summary of the key points.
BTC has a lively derivatives market, but in the US it is still tiny compared to other asset classes, and is largely limited to institutional players.
A deeper onshore derivatives market will enhance the growing market sophistication. This will reinforce investor confidence in the asset, bringing in new cohorts while enabling a greater variety of investment and trading strategies.
Institutions will be attracted to the greater flexibility and access to high-volume exposure. Put differently, options offer deeper granularity in expressing an investment opinion, and can boost exposure relative to outlay, making them especially attractive to large players.
The listing brings BTC options within reach of retail investors, who so far have not had access to a liquid, traditional venue on which to access BTC leverage. The CME trades options, but it is more focused on institutions. Technically the Nasdaq options are on the IBIT and BITB ETFs, not BTC, but the two assets trade in sync (except on weekends!).
Plus, the convenience of having the underlying ETF and its options on the same exchange facilitates the crafting of strategies for all investors, potentially bringing in even more interest from both institutions and retail.
The availability of options should further boost investment interest by offering additional income streams for long investors through call writing (issuing call options backed by the underlying BTC ETF holding and collecting the premium). This essentially turns BTC ETFs into yield-bearing instruments for those that follow this strategy.
Options offer a cheaper and more flexible hedging tool than do futures, boosting the case for greater participation from traditional market makers. This would be good for overall market liquidity, which in turn is likely to attract more institutional investment, more market maker participation, and so on in a virtuous spiral.
Plus, greater sophistication should, all else being equal, dampen both volatility and downside, further enhancing BTC’s appeal for mainstream investors.
This week was a significant step for a young asset in a huge market. It’s about offering investors of all types a greater range of investment strategies. It’s about encouraging more market makers to become active in the US crypto markets. And it’s about pulling BTC even further into the ranks of “investable assets” for all types of portfolios.
See also:
HAVE A GREAT WEEKEND!
(in this section, I share stuff that has NOTHING to do with macro or crypto, ‘cos it’s the weekend and life is interesting)
Regular readers will know that I love photography, especially of animals, and even more so of dogs. But here’s a twist:
This week, I came across an article about Craig Turner-Bullock, a photographer who takes portraits of dogs in their ancestral habitat. A Scottish terrier in Scotland, a German shepherd in Germany, an Alaskan malamute in Alaska, that sort of thing. These are being compiled into a book that can be pre-purchased on Kickstarter, and the project has already blown past its original goal.
I don’t yet have the book, but the images I’ve seen reproduced online are both striking and moving – a tribute to the diversity and the origins of our canine friends. Here are just a few:
A Spanish Water Dog in Spain
A French Bulldog in Paris
A Lagotto Romagnolo in Venice
American Hairless Terriers in Nevada
DISCLAIMER: I never give trading ideas, and NOTHING I say is investment advice! I hold some BTC, ETH and a tiny amount of some smaller tokens, but they’re all long-term holdings – I don’t trade.
"Trump is pro-crypto"
Trump is pro-crypto donors, which is a different kettle of fish, if you ask me.