While the head of a US nonprofit think tank believes a Bitcoin reserve won’t fix the US debt crisis, VanEck sees it as a savior.
The U.S. debt ceiling has steadily risen due to growing federal spending, economic changes, and accumulating debt. With a national debt of $36.13 trillion, VanEck suggests that a Bitcoin reserve could reduce the debt crisis by 35% by 2049.
In a report released by VanEck, the financial institution said that the U.S. government could benefit greatly if it invests in Bitcoin as per the recent conversations around a BITCOIN Act for the nation. The BITCOIN Act of 2024, introduced by U.S. Senator Cynthia Lummis, is a proposed legislation aiming to establish a Strategic Bitcoin Reserve as part of the United States’ financial framework.
The act suggests the U.S. government acquire up to one million Bitcoin over five years, with a maximum of 200,000 Bitcoin purchased annually. These holdings are intended to be stored securely across decentralized storage facilities in the country and held for at least twenty years.
According to VanEck, if the US buys 1 million Bitcoin by 2049, and Bitcoin’s value grows significantly, this reserve could help offset a big chunk of the national debt by 2049—around 35% of it, or about $42 trillion.
It assumes the national debt grows at 5% yearly, and Bitcoin’s price grows much faster at 25% yearly, starting from $200,000 in 2025 and reaching over $42 million per Bitcoin by 2049. It added that in this case, Bitcoin would also become a major part of the global financial system, making up 18% of all global financial assets by 2049.
For VanEck, this is an optimistic scenario that depends on both Bitcoin’s price and the U.S. government’s strategy.
Massive US debt
The growth of the U.S. national debt over the years can be understood through several key phases. After World War II, the debt was quite high, exceeding 100% of GDP in the mid-1940s due to war-related expenses. However, strong economic growth in the following decades helped stabilize or reduce the debt-to-GDP ratio.
In the 1980s, the debt began to rise significantly, driven by tax cuts, increased military spending, and slower economic growth. By the end of that decade, the debt had tripled, growing from around $900 billion in 1980 to over $2.7 trillion.
During the 1990s, there was a temporary slowdown in debt growth as economic growth, spending controls, and tax increases led to reduced budget deficits and even surpluses by the late 1990s.
The early 2000s marked a return to deficits due to tax cuts, the wars in Iraq and Afghanistan, and increased domestic spending. The 2008 financial crisis accelerated this trend as the government borrowed heavily to rescue financial institutions and stimulate the economy.
By 2010, the debt had grown significantly and continued to rise throughout the decade due to ongoing deficits and increasing costs for programs like Social Security, Medicare, and Medicaid. Thirteen years later, the debt had climbed to over $33 trillion.
Additionally, the CBO said that the Federal debt is expected to rise from 78% of GDP in 2019 to 92% percent in 2029 and 144% in 2049. “That level of debt would be the highest in the nation’s history by far, and it would be on track to increase more.”
For VanEck, this path to heightened debt can be altered by the once ignored and dismissed cryptocurrency, Bitcoin. It explained that there is now more acceptance towards Bitcoin especially this year than any other time.
Acceptance of Bitcoin
Recently, both corporations and governments around the world have been showing increasing interest in Bitcoin. In Suriname, a presidential candidate, Maya Prabhoe, announced plans to replace the national currency with Bitcoin and to issue Bitcoin-backed bonds. In the United Kingdom, a pension fund, guided by the firm Cartwright, decided to invest 3% of its assets in Bitcoin, marking the first such move in the country.
Poland’s presidential candidate, Slawomir Mentzen, proposed creating a national Bitcoin reserve and expressed his desire to make the country a hub for cryptocurrency if elected while a Japanese lawmaker raised the idea of converting some of the nation’s foreign exchange reserves into Bitcoin, noting the global trend of Bitcoin adoption. Meanwhile, Vancouver, Canada, passed a motion to promote Bitcoin as a reserve asset and allow its use for tax payments.
Australia’s AMP retirement fund recently purchased $27 million worth of Bitcoin, becoming the first major pension fund in the country to do so. In France, a member of the European Parliament, Sarah Knafo, voiced support for a national Bitcoin reserve while criticizing the European Central Bank’s digital euro project.
According to VanEck, this growing interest is part of a larger global trend where companies and governments are buying Bitcoin to diversify their reserves. As of mid-December 2024, 69 public companies hold Bitcoin on their balance sheets, with this number expected to exceed 100 by 2025.
It affirmed that it was unnecessary for the US to repeat the error made by Germany when it sold. Germany sold around 50,000 Bitcoins between June and July 2024, which were seized in connection with the “movie2k” case. This sale generated approximately $2.88 billion in proceeds.
However, the sale was conducted at an average price of about $57,900 per Bitcoin, missing out on a potential profit, as Bitcoin’s value rose significantly afterward. If Germany had sold at higher prices, it could have made up to $1.7 billion more. By the time of the sale, the government was left with fewer than 14,000 Bitcoins.
Will Trump execute a Bitcoin strategy?
Looking at the political landscape of the US which is made up of Democrats and Republicans, VanEck noted that “even without legislation, there are several steps Trump could take via executive action to initiate” a Bitcoin Reserve.
Donald Trump has expressed strong support for Bitcoin, especially in the context of its potential role as a strategic reserve asset for the United States. At the Bitcoin 2024 Conference, he proposed that if re-elected, he would ensure that all Bitcoin the U.S. government currently holds, or acquires in the future, would be kept as part of a national Bitcoin stockpile.
Trump emphasized that Bitcoin could play a key role in enhancing America’s financial sovereignty and economic resilience. This shift marks a significant change from his previous stance, which was not supportive of cryptocurrencies.
Trump further discussed how the U.S. could become a leader in the crypto space, positioning itself as a global powerhouse in Bitcoin mining. He also proposed replacing the current anti-crypto policies under the Biden administration, calling them “un-American” and committing to halt operations that suppress crypto innovation.
VanEck suggested that Trump could integrate Bitcoin into the U.S. economy by stopping the sale of Bitcoin held in the country’s asset forfeiture reserve, which contains about 198,000 BTC. The firm also pointed out that Trump could update the value of gold certificates—currently valued at 1970s levels—to reflect today’s market price, which could unlock approximately $693 billion in untapped capital.
Additionally, VanEck proposed that Trump could use the $49.7 billion Exchange Stabilization Fund (ESF), a fund managed by the Treasury Secretary, to further support this initiative.
But Bitcoin won’t fix the US debt
While VanEck sees light with a Bitcoin Reserve, Avik Roy, who leads a nonprofit think tank, criticized the idea proposed by Senator Cynthia Lummis that Bitcoin could eliminate the U.S. federal debt. He described it as an unrealistic view of Bitcoin’s potential. While acknowledging that Bitcoin could be a useful asset for diversifying reserves, Roy argued that it is far from a solution to the U.S. debt crisis.
Roy pointed out that the U.S. national debt, which now exceeds $35 trillion, is growing rapidly, and relying on Bitcoin alone would not solve this issue. He mentioned that while Bitcoin’s value could appreciate and help ease some financial pressures, such as stabilizing bond markets, the country’s budget deficits, which are around $2 trillion annually, need structural reforms to address the root cause of the debt.
Furthermore, Roy raised concerns about the volatility of Bitcoin. A sudden drop in its value could result in significant losses, similar to the depletion of U.S. gold reserves in the past. He emphasized that any solution to the U.S. debt crisis requires broader, well-planned economic reforms, not just reliance on a speculative asset like Bitcoin.
