Senator Cynthia Lummis has unveiled a controversial proposal to establish a strategic Bitcoin reserve, ostensibly to strengthen the US dollar and maintain American financial dominance. The plan, announced at Bitcoin 2024, calls for the government to acquire roughly 5% of the total Bitcoin supply using funds from the Federal Reserve and Treasury.

While Lummis claims this would secure the dollar’s status as the world’s reserve currency and spur financial innovation, critics view the proposal as little more than political pandering to the cryptocurrency community.

Former President Donald Trump, who also spoke at the event, endorsed the idea as “a permanent national asset to benefit all Americans.” Given the current political climate and regulatory concerns surrounding cryptocurrencies, this may be more of a campaign talking point than a serious policy initiative. The likelihood of such a proposal becoming law is also extremely low.

Economist and Bloomberg columnist Tyler Cowen warns that government purchases of volatile assets like Bitcoin could expose taxpayers to significant risk. While some local governments and pension funds have dabbled in cryptocurrency investments, these moves have been met with considerable skepticism from economists and regulators alike.

Cowen argues that the proposal ignores the fundamental purpose of government reserves, which is to stabilize the economy and provide a safety net, not to speculate on high-risk assets. Plus, tying government finances to Bitcoin could lead to dangerous politicization of crypto markets.

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