Cryptocurrency candidates

"My job will be to set you free." Thus did Donald Trump solicit the votes in the upcoming Presidential election of as many as 93 million Americans - the number of people believed to own various forms of cryptocurrency - in his speech to the Bitcoin 2024 conference at Nashville, Tennessee last Saturday. "On day one [if he becomes the next President] I will fire Gary Gensler" he added, Gensler being chair of the US Securities and Exchange Commission (SEC), which has vigorously pursued legal actions against cryptocurrency companies and exchanges. Trump's election campaign has reportedly raised more than $25 million from crypto donors and his choice of vice-president, J.D. Vance, has owned as much as $250,000 in Bitcoin.

Just five years ago Trump said he thought Bitcoin and other cryptocurrencies were "not money", with a "highly volatile" value and were based on "thin air". But this is less of a U-turn than might be imagined. In May this year Trump addressed the Libertarian National Convention, where his appeal for votes in November received a mixed response. Then he promised strong support to cryptocurrency and pledged to commute the life sentence imposed on Ross Ulbricht in 2015; Ulbricht founded Silk Road, the online black marketplace where various illegal drugs could be purchased.

Three years ago Trump called Bitcoin a "scam". So what's changed his mind?

Money talks

The cynical view is that Trump has become a cryptocurrency evangelist because he wants to boost his election coffers. Some estimates suggest the cryptocurrency industry has so far collected more than $180 million to fund Presidential election campaigns. A number of cryptocurrency backers - so-called 'whales' because they hold big amounts of cryptocurrency - have pledged support for Trump. He's also won the endorsement of Elon Musk, currently worth £240 billion, and who has also called the choice of J. D. Vance as Trump's running mate "excellent".

Coinciding with Trump's new-found adoration of cryptocurrency, price predictions for Bitcoin have soared. One of the most ardent fans of Bitcoin, Michael Saylor, the billionaire executive chairman of MicroStrategy, anticipated at the same Nashville conference that individual Bitcoins will be worth $13 million by 2045, an annual return of 29%.

As yet it's unclear what stance on cryptocurrency the likely Democrat contender for the Presidency, Kamala Harris, will take, although her team has reportedly approached some leading cryptocurrency companies to seek a "reset" of relations. The cryptocurrency world has long regarded President Biden (and by extension Kamala Harris) as an enemy. One thing Harris and Trump share is that they have a cryptocurrency named for them, the TrumpCoin and the 'Kamala Horris' coin, just two of the more than 23,000 cryptocurrencies that exist today.

Asset maybe, money not

Anything that a person owns which is of value to another person can be considered an asset. If someone wants to buy my cat then the cat is an asset. If anyone wants to buy one of the 23,000 cryptocurrencies - and they seem to want to - then they must be considered assets. But are cryptocurrencies - even the granddaddy of them all, Bitcoin - money? It's not a unit of account - cryptocurrency markets talk of their size in US Dollars. It's not an effective medium of exchange - prices are almost always set in Dollars and payments using cryptocurrencies are instantly converted to fiat currency. And cryptocurrencies are poor stores of value, they are too volatile. The final drawback which nails Bitcoin is the lengthy transaction time. Whereas cash fiat money transactions are instant - as are those in gold if you are using Glint - Bitcoin takes longer, in some cases much longer.

Stockpile

Perhaps the most astonishing proposal from the Trump camp is that under his Presidency the US would create a national Bitcoin 'stockpile'. The US currently holds some 210,000 Bitcoin, valued at the moment at around $14 billion, seized from various criminal enterprises. A Republican US senator, Cynthia Lummis, has proposed a Bill that would require the federal government to buy "over a set period of time" 1 million Bitcoins, which would be paid for by "diversifying existing funds within the Federal Reserve System and Treasury Department". Over five years this stockpile would be bought and held for 20 years and only sold off to pay the national debt, currently around $35 trillion. The stockpile would be paid for in part by revaluing the gold held by federal reserve banks; the Federal Reserve Bank of New York currently values the gold it holds at $42.22/ounce - some 50 times less than the current market price of gold futures.

There are many imponderables about this proposal. Bitcoin (and other cryptocurrencies) was developed in part to escape government control of money; this proposal would re-assert government control of an asset that would like to be seen as money. Wouldn't that irritate some crypto fans? The fact that the US government might build a stockpile would certainly push Bitcoin prices higher, and gold prices would benefit too from any official revaluation. But how far could a Trump government be trusted to not sell some Bitcoin for reasons other than paying down the national debt? And, unlike other commodities (such as oil) what would be the point of holding a stockpile of such a volatile asset? Then again, it might well be another nail in the coffin of the Dollar as an international reserve currency, as it would imply a lack of confidence in the Dollar. Perhaps the Trump camp contains some serious strategists who are closely watching what Russia is up to. The lower house of the Duma, Russia's Parliament, has just passed a new law that is due to take effect in September, legalizing the use of cryptocurrencies for international trade - thus by-passing sanctions. If the Bitcoin stockpile were a cunning mechanism to counterbalance Russia, that really would be clever.

At Glint, we make every effort to demonstrate a balanced conversation between gold, crypto and fiat currencies when it comes to purchasing power and, while we strongly believe that gold is the fairest and most reliable currency on the planet, we need to point out that it isn’t 100% risk free. While we have seen a steady increase over time, the value of gold can fall, which means that its purchasing power can also decline.