Senator Cynthia Lummis announced forthcoming legislation that would direct the Treasury to buy 1 million Bitcoin, roughly 5% of the global stock, over five years. The cost of this would be between $60 billion and $70 billion. Lummis claimed that this would make the federal government “debt-free because of Bitcoin.” However, there are mathematical and conceptual problems with this proposal. The U.S. national debt stands at nearly $28 trillion, while the total market capitalization of Bitcoin today is only around $1.3 trillion. Buying 5% of Bitcoin would not be enough to cover the federal government’s deficits.
When the government acquires an asset like Bitcoin, it reallocates wealth rather than creating it. The increase in demand caused by the government’s investment could lead to higher prices for Bitcoin, benefiting current owners of the asset. This increase in demand could also lead to a rise in Bitcoin mining, which is an energy-intensive process that could drive up the prices of GPUs. This could have negative impacts on the development of artificial intelligence, which also relies on GPUs to function.
It is argued that the federal government should not take actions that push the price of Bitcoin or any other cryptocurrency above the level set by the free market. Instead of the proposed Bitcoin purchases, mechanisms like an increase in capital gains taxes could be more effective in capturing value for deficit reduction. Policymakers must make hard choices about cutting spending and raising taxes to tackle the national debt, as quick fixes are not viable.
Senator Lummis has previously supported efforts to advance serious solutions for stabilizing the national debt, including voting in favor of a congressional budget resolution based on bipartisan recommendations and cosponsoring a bill to establish a fiscal commission. It is suggested that Lummis focus on advancing these serious efforts rather than distracting from them with alternative schemes like the Bitcoin proposal, which could enrich cryptocurrency investors at taxpayer expense. Ultimately, it is crucial for policymakers to accept tradeoffs and make tough decisions to bring revenues and spending into alignment to address the nation’s fiscal challenges.
