US - Bitcoinization of the US Dollar in the Trump 2.0 Era
Lots of people argue that Bitcoin is technically like digital gold. In international politics, it will probably behave more like digital oil.
On 12 December, Trump said that the US was going to do “something great” with crypto. “...Because we don’t want China or anybody else (to get ahead of us)... Others are embracing it and we want to be ahead.” The connection to economic and technological competition with China makes it official: Bitcoin is now a geopolitical thing.
What remains to be seen is how a Trump Bitcoin Policy actually takes shape. Trump’s Bitcoin Policy is likely to simultaneously invite opposition at home and have ripple effects across the global economy. And, at a time when China and other BRICS Plus countries are testing blockchain technology for cross-border transactions, Bitcoin could be the technology that forces Trump to betray his isolationist stance and instead posture aggressively toward adversaries in the international community who he thinks might threaten dollar hegemony.
Strategic Bitcoin Reserve
There are two starting points for Bitcoin Policy. The idea for a Strategic Bitcoin Reserve could begin with a congressional bill sponsored by Senator Lummis (R-WY) and her republican constituents. But the Lummis bill will be hard to get through congress because it proposes a reform to the Federal Reserve. That means Trump could instead resort to an executive order that converts criminally seized holdings of BTC at Treasury into a fund with a condition that the BTC is held for a certain period of time.
What Lummis proposes is more ambitious. Lummis proposes a purchasing program over a set period of time where the US Federal Reserve comes to control 5% of the total outstanding supply of BTC on the market by converting gold certificates at the central bank to BTC. Another idea being discussed is that the Treasury would establish a network of secure vaults for storing the private keys belonging to the US government. The bill also proposes to avoid any infringement of individual, private holdings of BTC in the construction of the fund. Additionally, there is speculation that Trump 2.0 would drop regulatory restrictions by replacing SEC commissioner Gary Gensler, and accelerate stablecoin regulations (namely FIT21).
Whether in congress or the executive, a Republican-led Bitcoin Policy is likely to be attacked by the opposition. For instance, Barbara Goodstein’s commentary on 11 November on how UHNWI are able to buy BTC directly and therefore “avoid paying tax” is the exact sort of commentary to come under severe fire from Alexandria Ocasio-Cortez’s Tax The Rich constituency. It is only a matter of time before Trump’s Bitcoin Policy sees litigation or some other act of antagonism.
A blockchain for the BRICS?
How Trump 2.0’s Bitcoin Policy takes shape will respond to cross-border experiments already underway, especially those involving China and other BRICS Plus countries.
In October, Augstin Carstens said that the BIS-led mBRIDGE is now a minimum viable product and that the partners involved will be able to take the baton from the BIS. China, Hong Kong, Thailand and the UAE are involved. Saudi Arabia joined in June. Carstens insists that mBRIDGE is not the BRICS bridge for CBDCs. But of course, there is still skepticism in the marketplace over how it will be used and by whom.
The other financial infrastructure to watch is Drex, the Brazilian CBDC experiment built on Ethereum. Drex is slated to move into a pilot phase in early 2025. It has invited criticism by Jair Bolsonaro, Brazil’s former president and sitting president Lula da Silva’s greatest adversary. While Bolsonaro will not be eligible to run for president in 2026, any organized opposition would likely come from his proxies in congress or a more popular base of antagonism toward the BCB’s rollout of Drex.
Since Drex is likely to be used for large, wholesale transactions (e.g. commodity transactions, bonds, real estate, etc.), it would not be surprising to see the BCB promote some kind of integration with China’s digital yuan and/or mBRIDGE.
It is possible that Jair Bolsonaro uses the issue to leverage support from the incoming Trump administration. In any case, both mBridge and Drex will undoubtedly magnetize attention within the Trump administration going forward.
Bitcoinization of the US Dollar
A Bitcoin Policy for the US should be taken seriously. Trump has named David O. Sacks as the White House Crypto Czar, an advisory position where Sacks will advise Trump on a legal strategy for implementing a policy related to crypto (read Bitcoin).
It would be unsurprising to see Sacks persuade Trump to Bitcoinize the US Dollar. Many have argued that Bitcoin could replace the US Dollar. But Bitcoin as a technology is more likely to transform the US Dollar.
Lightning Labs, founded by Elizabeth Stark, has built a protocol that allows assets like the dollar and stablecoins to be issued on the Bitcoin blockchain.
One example of how this could play out is the digital dollar issued on the Bitcoin blockchain scenario. In fact, US Bitcoin technology firm Lightning Labs already wants to issue stablecoins and other tokenized assets on the Bitcoin blockchain. A digital dollar stablecoin issued on Bitcoin’s protocol would fit that objective. The firm’s backers - among them David O. Sacks - have explicitly stated that this is why they are investing in the founder Elizabeth Stark’s project: to Bitcoinize the US Dollar.
The Churchill Parallel
The Bitcoin network is not a geopolitical domain in the sense that land, the sea and space - and arguably cyberspace - are geopolitical domains. Instead, the Bitcoin Network is sensitive to geopolitics much in the same way that strategic commodities like oil were sensitive to geopolitics in the 20th century. As oil’s use case transformed in step with other technologies, nation states competed over oil strategy.
A good parallel to think about is Great Britain’s dilemma over how to fuel its naval fleet during the early 1900s. Parliament at the time was filled with skepticism toward a notion that the Royal Navy should switch over its fleet from coal-fired steam engines to fuel oil-powered combustion engines. When Admiral Winston Churchill ordered the transition to petroleum-based naval vessels in 1914, what followed was the Royal Navy’s acquisition of a majority stake in the Anglo-Persian Oil Company (now British Petroleum) and a 24-year contract for fuel purchases.
All of this happened in response to geo-strategic competition between a rising Germany and an incumbent Britain. Germany was experimenting with fuel oil-powered ships in the run up to World War I. What Churchill wanted then was what Trump wants today: to be ahead.
A Cold War-like technology race is already on. Members of the US Government’s intelligence community are probably assessing Vladimir Putin’s words earlier this month when he rhetorically asked an audience in Russia, “Who can ban Bitcoin? Nobody.”
Trump might not get Bitcoin as a technology, but if he thinks it can be leveraged to tame Putin and constrain Xi, he will follow Churchill and commission the technology in a bid to stay ahead of Russia, China and the BRICS.
Barracuda Insight is a regular analysis of Bitcoin Geopolitics.