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In an attempt to strengthen the dollar, the US is considering using Bitcoin as a store of value. Understand the proposal for “digital gold” and the challenges surrounding this ambitious strategy.
In recent years, Bitcoin has been gaining more and more attention, moving from the niche of technology enthusiasts to gaining ground in financial and even political discussions. Dubbed “digital gold,” the cryptocurrency is seen by some as a potential tool to strengthen economies, including that of the United States, a country where debates over the future of the dollar and economic stability are always in the spotlight.
One of the boldest ideas that has emerged in this context is the proposal for the US government to create a strategic reserve of Bitcoin as a way to boost the strength of the dollar. But does this idea make sense? The answer, as we will see, is not so simple — and may be more problematic than it seems! Recently, an article published by the Cato Institute shed light on this issue. Keep reading to understand everything about the use of the new “digital gold” as a store of value.
Bitcoin as the new “digital gold”? Not so much!
The comparison between Bitcoin and gold is not new. After all, both are seen as valuable assets, something to be used as protection in times of economic uncertainty. But there is a big difference between the two: gold is a stable and widely accepted store of value, while Bitcoin is extremely volatile. Anyone who has invested in the cryptocurrency knows that the price can rise or fall in a matter of hours.
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And this is a big problem when the idea is to use Bitcoin as a basis to strengthen the dollar. The author George Selgin of the Cato Institute, argues that this strategy simply doesn’t work. The reason? Bitcoin’s volatility makes it too unstable an asset to serve as the backbone of something as important as a national currency.
The “strategic Bitcoin stockpile” proposal
Among the defenders of this idea is none other than Donald Trump. The former president suggested that the US leverage Bitcoins already held by the government — most of which were obtained through legal transactions — to create a “Strategic National Bitcoin Stockpile”. The idea would be for this stock to function as a kind of financial backup, a protection for the American economy.
At first glance, this might sound interesting. After all, Bitcoin is limited (only 21 million can be mined), and this could be seen as an advantage over the dollar, which can be printed by the government as needed. But in practice, this view ignores Bitcoin’s real problems, such as its lack of universal acceptance and high price volatility.
The dollar now dominates — without help from Bitcoin
One thing that has been forgotten throughout this debate is that the dollar is already the dominant currency in the global financial system. It is used in international transactions, foreign exchange reserves, and as a benchmark for commodity prices, such as oil. This position did not come out of nowhere: it is the result of decades of international confidence and the economic strength of the United States. For Selgin, Bitcoin could not contribute to strengthening this position. On the contrary, betting on such a volatile asset could even undermine confidence in the American financial system.
This is not to say that Bitcoin is bad. It has its place in the market, mainly as an alternative for those looking to diversify investments or escape centralized financial systems. But turning it into the basis of a strategic reserve in the US, or in any other country, seems to be more of a dream than a practical solution.
The concept of “digital gold” may be appealing, but it is still far from becoming a reality. Unlike gold, which has enjoyed centuries of acceptance and stability, Bitcoin is still in its infancy, both in terms of adoption and regulation. It has also faced criticism for its environmental impact and the lack of security on some trading platforms.
Does the dollar really need “digital gold”?
The idea of using Bitcoin to save or strengthen the US dollar is controversial, to say the least. As Selgin points out, the dollar is already strong enough thanks to global confidence and US economic stability. Betting on an asset as volatile as Bitcoin could actually cause more problems than it solves.
In the end, Bitcoin may continue to be the darling of many investors and technology enthusiasts. But, at least for now, it is still far from being the “digital gold” that will change the rules of the global economic game.
What do you think? Could Bitcoin one day reach the level of gold as a store of value? Or is this idea of “digital gold” just another exaggeration in the world of cryptocurrencies? Leave your opinion in the comments, we want to know what you think!
This article was prepared based on the text published by the Cato Institute, written by George Selgin, and does not necessarily reflect the opinion of the author. The full article can be accessed directly at Cato Institute website.
