So listeners, just so you know, we recorded this a couple of weeks ago because we were being organised for holiday season, so we're going to hope that nothing massive changes between now and the time you hear this. Pushkins.
Donald Trump has a very crypto-friendly set of people around him, and there's even apparently serious talk that the federal government should establish a National Strategic Reserve of Bitcoin. Now, if you're listening carefully there, you might be able to hear me rolling my eyes, but you can also hear me standing back in admiration that the explosive jump in Bitcoin prices since Trump's reelection. The price has more than doubled this year to about $100,000.
So today on the show we're asking, what is this all about? Why would Uncle Sam buy Bitcoin and what would that all mean? This is Unhedged, the markets and finance show from the Financial Times and Pushkin. I'm Katie Martin, a SAB, no coiner and a markets columnist at the FT in London. And I'm joined by one of the brainiest people I know, former fund manager and now FT contributing editor Toby Nangle. If anyone can solve these mysteries, it's Toby.
No pressure, Toby. But Toby, tell me, in the great pantheon of unconventional policy proposals, where would a strategic national Bitcoin reserve rank? Oh, it's going to be up there, isn't it? I mean, there was some chat with your former colleague, Philip Corgan, about the South Sea bubble back in the 18th century, which almost bankrupted the UK state because everyone piled into that as a way to make lots of money. So we're in South Sea bubble territory here.
Well, you know, we could be. We could be. We have to see how we go. So look, let's really, really quickly go back to the beginning and explain what Bitcoin is. Because listeners to the show, like my friend Layla, Hi Layla, feel like they still just don't get it. And I would argue that there's not that much to get. But how does this stuff work? Like really, really, you know, top level.
Okay, really top level and there's going to be a lot of people who get crossed with this being so top level.
So there's some really complex mathematical puzzles that need to be solved. And solving those puzzles, computers win prizes. And those prizes are Bitcoin. And there can be a maximum of 21 million prizes ever won in the entirety of the universe. And so if you want to buy one of these Bitcoins, there's someone else's mind by solving these puzzles, you can go and buy it on an exchange. That's what a Bitcoin is.
And this process of mining, right? So it's not people going down underground and finding a thing. It is this process of computers shouting at each other until they solve puzzles. And that process uses a lot of energy. It uses like as much electricity as Egypt. But the point is, if they win the prize, those prizes are worth $100,000 each. And so this isn't like a physical coin or anything. And it's not a currency that you can like go to the shop and buy your groceries with.
It's too volatile, and it's not like a bond or a stock that's linked to something underlying. It's not linked to a business or to a state as such. So you can argue about a lot of things to do with crypto, like what it's for, what it does. One thing you can't argue with is the price, right? Just $100,000 is $100,000. It's up by, I think, about 130% so far this year.
Does it deserve to be $100,000, do you think? Oh, I don't know. I mean, you can argue with the price, but you can go out and you can sell these things on the basis that they're going to be worth less than that until recently people have lost a lot of money doing that, though. So it hasn't paid to argue with the price recently. People have had fun staying poor. But so you have these lines of code that have a certain value attached to them. They have no intrinsic value, really, but they have a price that's attached to them.
Why would a national government, why would Donald Trump or anyone else want a national reserve of these things? People get really angry when you say there's no utility value to Bitcoin because they say it's like digital gold. You can't destroy it. You can lose it in a landfill as a British guy famously has lost hundreds of millions of pounds of Bitcoin sitting in some landfill in Wales. But you can't destroy it.
And so the folks on the crypto side will say, well, it's a bit like fiat currency, except it's limited in supply that you can make as much fiat currency as you want. You can make as many dollars as you want, but you can't make as many Bitcoin as you as you want. And so it's got a little bit of value on that. But you're right. I mean, basically value to get all high fluting is plutacratically defined. That is to say, you get... I told you it was clever.
If you have one person saying, no, this banana I'm going to put on a wall is worth $7 million. It's not worth $7 million. If you get two people willing to buy it, then it is worth $7 million. And that's what you've got with Bitcoin or meme stocks or all these sorts of things. Their value is exactly what more than one person can agree
they're going to buy it for. So there we go. That's that's market. And so you'd want a strategic national reserve of these things so that you have a pot of things that's worth more and more money over time. Yeah. So I mean, I guess for a lot of people, the utility value of Bitcoin has been that the numbers gone up, right? Right. And so if you have an absolute belief, I mean, if you know it in your core that these things are going to go up in value, why wouldn't you have more of them? Yeah. I think that's basic. I mean, I don't think it's getting really more complicated than that.
There is a sort of school of thought that the US is already absolutely central to global finance. The dollar is the world's currency. It should be similarly dominant in crypto as part of how this argument runs. It's still not obvious to me what it would do with this stuff.
Yeah, I mean, I think that the idea of a strategic Bitcoin fund, I mean, it's obviously something that's hugely popular from folks who have held Bitcoin because it means that, well, hey, you know, you've got the government printing dollars to maybe get in on the action, propping up the price of your Bitcoin.
But if you're going to have a strategic fund, then that's going to be used for something. So as I say, the government will want to sell it at some point. That's going to upset a lot of people. If you're holding this stuff and the whole point of it is to go up and suddenly you've got the government selling loads of this stuff. That's not going to win crypto votes. And let's set aside the irony that supposedly the whole point of Bitcoin and crypto is this thing that lives outside of official channels, lives outside of governments.
now all of a sudden what the crypto crowd wants to happen is that the government buys it. Let's set all of that aside and let's actually answer that little question, which is, would a strategic fund mean the federal government going out buying Bitcoin necessarily?
Yeah, well, I mean, it's not, but it wouldn't have to because actually, you know, the US federal government is sitting on a big pile of Bitcoin as it is. They've got about 200,000 bitcoins worth about $20 billion already. Where do you find them? Down the back of the sofa? A lot of them came from, I don't, I mean, older listeners will remember.
The Silk Road, that dark place where you could pick up drugs and contraband and was run by this guy who called himself the Dread Pirate Roberts in a lovely homage to the Princess Bride, great film. But they transacted exclusively in Bitcoin. And when that whole thing was shut down in a huge FBI sting, they seized massive amounts of Bitcoin and kept on the computer and sold some of it off, but not all of it. And then they've seized other, you know,
bits of bits of illegal kind of Bitcoin hoards from other criminals. So in total, they've got about $20 billion worth. And so the commitment that Trump made on the campaign trail was basically not to sell this stuff. That was the first thing. It was like, don't sell this stuff. Because some people have been worried that they would accelerate sales and arguably they would have done under account, Harris. Yeah. I mean, you know, they've got $20 billion worth of little shiny pixels. People really want this stuff. You know, why not sell it?
So they wouldn't necessarily have to buy it, but to the extent that they are sitting on a pot of money that is growing, I know you were writing about this recently, one idea that's kicking around is that the government could use this pile of Bitcoin to pay down national debt. Now talk me through this, how does this make sense?
Yes. So Trump back in August gave his interview on Fox Business, who says like, you know, maybe we'll hand them a little Bitcoin, wipe out $35 trillion of debt. And then you'd kind of go, okay, well, you might need a few more Bitcoin than all the Bitcoin that currently exist. Or the price has to go up a lot. So without buying any more Bitcoin, the price of a Bitcoin has to go up to about $173 million per Bitcoin.
Pay off the national there and you have to find people who are happy to to give that money. Yes, it's it needs not only to sort of sit there on a computer. It also has to be like offloaded, you know, it's the opposite of hodling right you just dumping this stuff into the model. Hoddle boys and girls is so I don't I don't quite know where this came from and frankly I don't care but the whole idea of like by and hold H.O.L.D. became hoddle in crypto speak and
But that's the whole thing, right? You buy this stuff and you hold on to it. Well, I mean, as in, I've seen it referred to as hold on for dear life, but then I've also saw that it was first using some Reddit board where, where people were like typing, like, hold, hold, and then did a, like a typo for, for, for HODL. And then, and then people were like, yeah, HODL, HODL.
But either way, you'll see it all over the internet, hodl, hodl, hodl. So in the event that you do have a government acting as hodler in chief, then what happens? So one of the other things that's happened separately from the presidential election campaign is that there's a senator from Wyoming, Cynthia Loomis, who's talked about introducing a bill demanding the creation of this effectively like a strategic national fund.
How would it work? Where would the money come from to buy these things? Looking through the legislation. So first of all, they want to not sell this 200,000 Bitcoin that they've already had, which seems fairly straightforward, right? Then it requires them buying another 200,000 Bitcoin every year for five years. And basically, it's going to come from a federal reserve in some shape or form. They've got like three different ways in which you get this money, some of it's by decapitalizing the Fed.
some of it's by moving seniorage, which would go towards paying down QT deferred assets, that goes instead to going by. Seniorage being what? So that's like the profits made from like being in control of the currency and minting dollars. And then the third one, which is the really big one, right, is that right now, all the government gold is valued at only $42.22 per ounce, right? Rather than like, you know,
two and a half thousand or two thousand seven dollars an ounce. So, on balance sheet, it's only marked down as eleven billion dollars. So, yeah, Senator Loomis says, hey, you know, why not just like, revalue it all up onto market prices and then tell Fed to just remit the difference. So, that'll be like six hundred and forty billion dollars and that can be used.
And it's not really clear to me whether that's saying the Fed's got to dump its gold into the market. I mean, that would be a big deal for the gold market, right? Yes. Or whether it's saying, hey, let's just imagine that we've got all this extra money so we can use this new dollars to buy Bitcoin in law, be collateralized by gold. I don't know. It's just really, really unclear right now. This is pretty whack-a-doodle stuff, but like,
In your considered opinion, would it be a good idea to require banks to remit whatever it is? $640 billion to the Treasury? Does it strike? He was an obviously good idea. It doesn't strike me as like, you know, it's like genius idea that solves all our problems. No, absolutely. I mean, I think it looks pretty crazy, to be honest.
Mm-hmm. So, partly just sort of for sport, and because I'm sad like that, sometimes I ask portfolio managers or bankers, okay. Let's imagine this strategic reserve thing actually happens.
Then what are the implications then for stuff that normies care about like me? What are the implications for the dollar? What are the implications for US government bonds? And they generally look at me blankly and say, oh, no comments, or just pretend that I haven't asked. Do you have any, you're not allowed to say, oh, no comment. Do you have any sense what this would mean for normal assets?
I really struggle. I tried to work out what it would mean if you pushed up the price to $173 million for a Bitcoin. And it basically shrinks down the portion of assets which are non-Bitcoin to almost nothing. So all the world's bonds, all the world's stocks are worth pretty much nothing in that universe.
And so you have to think, right, if you're going down this route, if the idea is to pay off that, it sort of sounds like you kind of want to get rid of the dollar along the way, which, as you know, crypto fix, I'm never very keen about the currency. It's not like the number one love.
And I don't think that that's really been relayed to President-elect Trump yet. I ended up watching a bunch of speeches he made to people, which is... You know how to enjoy a speech. You enjoy a speech. Watching Donald Trump talking about crypto. And he kind of, you know, he meanders a little bit. And part of his crypto meander, he then sometimes he sort of meanders off to talk about the dollar.
and having sort of spent sort of love on crypto. He then gets a little bit upset that this might roll the dollar, and so rose back a little bit. And there was one speech I watched where he said if the dollar's hegemony was upset, I don't think he's the word hegemony, then that would be like a war. It would be like World War Three.
So i think he doesn't want to undermine the global state of the dollar but the most obvious thing that comes to mind is that you know if you if you move bitcoin into the system and then move treasuries out and you pump up dollars and you create as many dollars as you need in order to achieve this end then that does do something bad for the dollar i think it feels like it has to right given that this would be a massive experiment like a kind of
like operation on the heart of the US financial system with no anaesthetic and with no clarity on what the implications would be. Do you think this is going to happen? I think that that 200,000 Bitcoin have seized contraband. I see it's a pretty easy win to not sell that. And then you can say, look, we did it. Yeah, absolutely. Do I think that they're going to
sell $640 billion of gold and send Bitcoin even further to the moon. I don't really think they're going to do that. Maybe they can use a bit of exchange stabilization funds to pump it up a little bit further. But if this is all for the government and they're looking to sell it again, that doesn't sound great.
And maybe there's a world where his nomination for Treasury in the form of Scott Besson, he's a kind of quite stabilizing force within the administration. Maybe he's the man to sit Donald Trump down and say, do you know what? This is a potential risk to stuff that Donald Trump cares about, right? So the dollar and stocks. And maybe that kills this idea. But so you think it doesn't happen?
I think there's a non-trivial possibility that it does in some form. And I agree with you, not selling the contraband they've already seized. Seems like an easy win. But if it happens, boys and girls listening buckle up because I don't know what would happen. Toby doesn't know what would happen. Toby's much cleverer than me. So we really don't know what the implications of this thing would be. So, you know, good luck to everybody. We're going to be back in a sec with Longshore.
Alrighty, now it's time for Long Short, that part of the show where we go long, a thing we love, or short, a thing we hate. Toby, I know you were very well prepared for this part of the show. What you got? So, I was tempted to go short news on like a mean reversion trade, but we all know that... There's too much news. There's too much news. We just spread news out a bit more, really. But like, you know, momentum tends to beat mean reversion trade, so I'm not going to do that. So, I'm going to go long Christmas stuffing.
The best part of the meal. Is it, do you think? Absolutely, absolutely. Do you put it like in the turkey? Would you have like sort of... The goose. Oh, it's a goose. It's a goose. Yeah, with sausage meat and prunes and stuff. Delicious chestnuts. The whole nine years. Are you still eating this stuff? Come like New Year's Eve. Yeah, I hope so. Cool. I am long dinosaurs.
So Christie is apparently selling them now for like millions and millions pounds. They're like the ultimate like super rich Bond villain kind of ornament of choice and I want one. So it's so Mr. Martin, that's top of Katie's Christmas list.
They're pretty cool and I want to look like a Bond villain in my house. So that's what I would like. I'm long dinosaurs listeners. Thanks so much for coming along for the ride. We will be back in your feed next week.
Unhedged is produced by Jake Harper and edited by Brian Erstadt. Our executive producer is Jacob Goldstein. We had additional help from Topher4Hes. Cheryl Bromley is the FT's global head of audio. Special thanks to Laura Clark, Alastomaki, Greta Cone and Natalie Sadler. FT Premium subscribers can get the Unhedged newsletter for free. A 30-day free trial is available to everyone else. Just go to ft.com. I'm Katie Martin. Thanks for listening.
