The Strategic Bitcoin Reserve is a double-edged sword we can't afford to fumble

What the Bitcoin Reserve means for the U.S. Dollar and your investments

Mar 17, 2025

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In the late 1500s, the most dominant European power wasn’t Britain or the Netherlands—it was Spain. With one of the largest militaries in the world, Spain controlled a large portion of South America and changed the global financial system by flooding it with silver. How? The Spanish currency was backed by silver, nourished by the two largest silver reserves in the world in South America, Potosí in Bolivia and Zacatecas in Mexico. Potosí produced about 60% of the world’s silver supply over the next two centuries.

Spanish and Portuguese Empires in 1790 (much after its peak)

Several other countries, like Britain, Netherlands, and the Ming Empire in China were using gold and silver as a standard. Spanish silver could be used to cheaply import goods from these countries. However, Spain neglected to grow its local economy at the same pace. Most of its wealth was used to finance grand architectural projects and military expansion. Eventually, all the money pumped into the system led to rapid inflation and a price revolution.

Meanwhile, other countries invested this silver locally to strengthen their economies. By the late 1600s, China had one of the largest global silver reserves. The British and Dutch economies overtook Spain, and began financing business ventures to expand their colonies. By then, the Spanish Monarchy had gone bankrupt three times.

Why is this story important? Currencies aren’t backed by precious metals anymore, but reserves still define global power. Stockpiling resources gives nations leverage in crises—it happened with gold, oil, and now, Bitcoin. Bitcoin might become as powerful as Spanish silver was in the 1500s. The U.S. can’t afford to fumble the ball—if we don’t take the lead, someone else will. But if we mismanage it, we risk Spain’s fate.

Let’s break down what the Strategic Bitcoin Reserve means for the U.S. dollar, the markets, and your investments.

Trump’s Bitcoin Reserve: A Game Changer or Just Talk?

President Trump signed an executive order for a Strategic Bitcoin Reserve that promised to make the US the “Crypto Capital” of the world.

While some celebrated this as a sure thing, a major move like this has to go through Congress, and it could run into some pushback:

Unlike food, oil, defense equipment, or semiconductors, Bitcoin isn’t a consumable. It doesn’t actually do anything. It’s not exactly clear how this is going to help the economy.
If the government’s reserves are tied to a highly volatile asset like Bitcoin, they might be expected to intervene when the price goes down – using taxpayer funds.
It’s vulnerable to hacks and exploits.
It might erode the power of the US dollar in the long run.

Many lawmakers still see crypto as speculative and risky. Some have called it a financial scam, while others fear its volatility would make government reserves unstable. Some others are upset that Bitcoin isn’t the only currency being included in the reserve. Crypto like Cardano might be included because they’re US based cryptocurrencies and including them will foster US innovation. Then why not just add some S&P 500 to the strategic reserve as well?

Now, in the current version of the order, the reserve won’t be purchasing assets on the open market – instead, it will take custody of crypto forfeited in criminal and civil cases. The US government is estimated to own about 200,000 bitcoin, and it may consider other strategies to acquire crypto that have “no incremental costs on American taxpayers.”

But how does this actually play out in the long run?

The big picture: A system without the dollar

The dollar is still the world’s reserve currency. Its real value has risen in the last decade, its purchasing power is strong, and other countries are hoarding it. But the reason for this isn’t necessarily that America is flourishing… It might just be that other countries are lagging behind.

From an inflation perspective, the US dollar’s value keeps dropping, partly due to Fed monetary policy. Holding Bitcoin as a reserve risks eroding the dominance of the dollar, but it also gives the Fed a counterincentive to be more careful about their monetary policy so that people don’t switch to a different reserve.

Globally, America is late to the game.

Other countries like El Salvador and the Central African Republic have approved Bitcoin as legal tender.
Institutional investors have seen billions in inflows into Bitcoin ETFs.
170 entities in the world have started to accumulate Bitcoin, with 12 countries on the list. One of them, surprisingly, is China which has banned Bitcoin. Why are countries beginning to hoard Bitcoin?

Bitcoin is sometimes called “Digital gold,” so understanding the persistence of gold might give us hints about Bitcoin’s rise. Gold is a historic relic and the US even went off the gold standard in 1971. Yet almost every country holds billions of dollars worth of gold as a reserve. Why? Gold is a backup for the worst case scenario. If the global financial system breaks down, gold can still be a medium of exchange. It’s hard to mine, easy to understand, and there's a finite amount of it – and it’s been around for millennia. According to the Lindy Effect, anything that’s lasted for a long time has a high chance of lasting longer. Seen that way, gold is one of the most durable assets.

Bitcoin hasn't been around as long, but it was the first cryptocurrency. Like gold, it's hard to mine, and there will only be 21 million Bitcoin ever (Blockworks says that this is an overestimation as millions of Bitcoin are permanently out of circulation). It’s also easy to transfer, has lower transaction costs, and lacks oversight. This lets countries operate on a parallel network that the US doesn't control.

A parallel network is handy in times of war. The US isn’t proactive with military intervention, but it can still exert enormous pressure through sanctions and tariffs. When Russia invaded Ukraine, the US imposed sanctions on Russia – they stopped buying oil and also pressured their allies to cap the price of oil at $60 per barrel. The US was able to do this because of their influence in:

The global oil industry
The Western banking and financial system

America could pressure other countries into accepting their demands by threatening to cut them out of the banking system. But if China and other countries were to move toward a parallel system based on Bitcoin or a central digital currency, the US would have a hard time catching up and controlling them.

The US controls oil prices by adjusting the supply and demand of oil, because we're the largest producer of oil in terms of barrels per day. The strategic Bitcoin reserve could also set up the US to be a leader of similar power:

By holding reserves, they could adjust the supply to influence the price of Bitcoin
They could pioneer the new digital economy by setting the tone for it and encouraging innovation
They could pressure other countries into accepting their regulations (custodial oversight, taxation, etc.) to be a part of this new banking system

As a result, other countries would eventually have to adopt bitcoin, making it mainstream and maybe stabilizing its price.

I’m a fan of the idea of a strategic reserve. But here's what I think will realistically happen. There are multiple important resources in the world – oil, uranium, rare metals, semiconductor chips, gold, US dollars – and the US doesn't lead all of them. For example, China controls 70% of rare metal production. But the US doesn't need to be a leader in everything. It just needs to have table stakes in each resource area and dominate the few areas that matter, like oil and US dollars. So if the US starts holding cryptocurrencies, I think it's a good move to gain bargaining power.

And like Spain with its silver, it’s not enough to just hold Bitcoin – unless the US finds a way to nurture an ecosystem that makes use of it locally, that Bitcoin reserve might end up as an albatross around its neck.

However, it’s going to take a long time for crypto to actually take on a significant role in the financial ecosystem and have a role comparable to the dollar, where it affects asset prices and stock markets. So my advice is to still invest long term in assets that build value over the long term, which are tied to the US dollar. I invest a very small part of my portfolio in alternative assets like crypto knowing that I might completely lose them. But they can act as a hedge against the future in an emerging economy that I might regret missing out on.

That’s it for today! If you read this far, drop a comment to let me know what you think and hit the like button. I read every comment.

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I’ll see you next week. Cheers. (And do check out today’s sponsor if you haven’t already!)