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Donald Trump may have sought a strategic Bitcoin sanctuary, but while the US president grabs headlines, other sovereigns are quietly gathering their own kittens. Bhutan, the small kingdom is very esoteric, with more humble counties measuring happiness in a way that measures economic production, holding the fifth largest national Bitcoin stash.
Countries come in a variety of ways with tokens. Crime kickstarted Washington’s booty. US federal law enforcement seized Bitcoin when defeating the Silk Road online marketplace. The assets in this case are Bitcoin buyers used to purchase drugs, weapons and other contraband on the dark web. The confiscation from the crime also explained the UK’s 61,000-ODD Bitcoin as of the end of December.
Bhutan’s transport comes from a healthier source. The Himalayas mine their own coins and use the rivers to power computers. There is a great cycle to this. Hydroelectric exports are expensive and inevitably require new infrastructure, not all of which are aesthetically pleasing. Instead, Bhutan monetizes energy by mining bitcoin at home – turning gigawatts into money. It is useful in countries where wealth-generating levers are free to use. It imports almost everything and is a non-starter manufacturing industry.
The UK’s holdings are about five times larger than Bhutan’s size, but they are much smaller than the economy. Even at Bitcoin’s peak, it doesn’t cover two weeks of funding for health services.
The Sovereigns talk about this “digital gold” aspect of inflation hedging. Like gold, its rarity value theoretically protects it from inflationary pressure, but in reality, Bitcoin has proven too volatile to claim.
However, there is a clear risk for states that hold chunks of highly unstable assets supported by lines of code. The size of kittens today may not be enough to raise the hackle, but the last few months have once again highlighted how wild this ride is. Trump’s bump pushed Bitcoin over $105,000 in January, but like any other assets, it lost the ground and is now over $83,000.
Buyers are triggered by the rise of cards in coins. El Salvador, unbound by strings attached to pending IMF relief, continued to buy Bitcoin last month.
China may or may not be that good for Washington kittens. For a country that diversifies away from the dollar and is keen to comfortably stock up everything from pork to important minerals, strategic Bitcoin reserves may not seem dim. Certainly, tokens are prohibited in the People’s Republic, but exceptions can be made at any time.
The sovereign Bitcoin reserve is a relatively small phenomenon, but it will likely remain here. One reason is that older school currency reserves are also increasingly risky. See, for example, speculation that the US may pursue a so-called Mar-a-Lago agreement to weaken the dollar. If a new currency system is born, it may just create space for alternatives like Bitcoin.
louise.lucas@ft.com
