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Get Ready For The Fort Knox Of Bitcoin – Paid For With Real Gold

Donald Trump’s favorable view of Bitcoin is not the only good news for the Bitcoin crowd these days. Tennessee Senator Cynthia Lummis has just introduced legislation in Congress that would make Bitcoin the equivalent of gold. Here’s how the plan would work.

The United States would establish a “Bitcoin Reserve” that would perform the same function as the gold reserve in vaults at Fort Knox and West Point. Her plan would establish a reserve of 200,000 Bitcoin acquired in stages over five years. At today’s price of about $60,000 per coin, that reserve would be worth $12 billion dollars.

How would that purchase be financed? Under Lummis’s plan, the Federal Reserve would revalue its own gold certificate from $42.00 per ounce of gold (the price at the time the certificate was acquired kept constant under historic cost accounting) to $2,500 per ounce (the current gold price).

The resulting profit of $2,458 per ounce applied to 8,100 metric tonnes in the U.S. gold hoard would produce an instant profit of $640 billion for the Fed. That book profit could then be monetized and the funds remitted to the U.S. Treasury. That would be far more than enough to pay for the $12 billion in new Bitcoin.

Of course, any move to buy 200,000 Bitcoin (out of a maximum of 21 million Bitcoin that can be created under the original algorithm) and keep them out of circulation would produce profits for the sellers and help to prop up the price by taking a large quantity of Bitcoin off the market.

I’m not a big fan of Bitcoin. My view is that there’s no use case for Bitcoin apart from criminality, tax evasion and money laundering. It is really a form of entertainment similar to gambling. Bitcoin is hallucinogenic in the sense that everyone can see what they want to see in it.

What I find interesting is that even the most devoted followers of Bitcoin such as Senator Lummis cannot quite escape the lure of gold. The fact that you have to reprice paper gold to produce dollars to buy Bitcoin suggests that maybe the best path is just to own gold.

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