The Federal Reserve acquiring bitcoin would be a hedge against themselves, diversify holdings and safeguard against inflation, says Gabor Gurbacs, former VanEck advisor.
Speaking at the Bitcoin 2024 Nashville conference, U.S. Senator Cynthia Lummis made clear plans to convert excess reserves at twelve Federal Reserve banks into bitcoin over five years.
Lummis, a lawmaker, revealed that she is drafting a bill to instruct the government to build a stockpile of 1 million BTC over a five-year period. The government would have to hold bitcoin for a minimum of 20 years. The bitcoin held during that time could only be used to pay down the US national debt.
We will convert excess reserves at our 12 Federal Reserve banks into #bitcoin over five years. We have the money now! pic.twitter.com/fGtYQ15jQJ
— Senator Cynthia Lummis (@SenLummis) July 27, 2024
This triggered a discussion on the social media platform X, with former Wall Street Journal reporter and author Paul Vigna questioning the logic behind the Fed acquiring bitcoin.
“She [Lummis] wants to transfer money the Fed holds out of the safest asset in the world, Treasuries, into the most volatile. What benefit does that provide to the Fed or federal government? I’m honestly asking,” said Vigna using platform X.
Fed Acquiring BTC Is Hard Asset Acquisition Strategy
Gurbacs responded that the logic behind the Fed acquiring bitcoin instead of U.S. treasuries is predicated on the fundamental difference between the two assets: one can be printed and the other cannot.
The logic behind the Fed acquiring Bitcoin instead of U.S. treasuries is predicated on the fundamental difference between the two assets: one can be printed and the other cannot.
This is essentially a hard asset acquisition strategy, similar to what central banks do with gold.… https://t.co/7ntgPJPmvc
— Gabor Gurbacs (@gaborgurbacs) July 28, 2024
“This is essentially a hard asset acquisition strategy, similar to what central banks do with gold. By transferring from Treasuries, which can be printed at will, to bitcoin, which has a fixed supply, the Fed aims to diversify its holdings and potentially safeguard against inflation and monetary instability.
Essentially it’s a hedge against themselves, which most central banks do, largely with gold today. Bitcoin is increasingly added to the central bank portfolio hedge mix,” said Gurbacs.
What is Hedging?
Hedging is a strategy that involves reducing or mitigating the risk of adverse price movements in an asset. This involves taking an offsetting position in a related security to protect against potential losses.
During the Bitcoin 2024 Nashville former President Donald Trump took to the stage and burnished his credentials as Bitcoin’s fan with a series of major announcements, including adding crypto to the government’s reserves.
Trump also said the Fed would be forbidden from creating a central bank digital currency (CBDC), in a move that aligns with Republican activity at the state level to pass laws banning the use of a CBDC on privacy grounds.