Trump wants to settle US Debt of $35 Trillion with Bitcoin, How practical is this?

Trump on US Debt of $35 Trillion & Bitcoin?

Donald Trump has always been a polarizing figure, and his latest suggestion to use Bitcoin to pay off the U.S.’s staggering $35 trillion debt is no exception. Once a vocal critic of crypto currencies, Trump has done an about-face, embracing Bitcoin with enthusiasm, predicting its market cap could surpass gold’s $16 trillion and even proposing the creation of a "strategic national Bitcoin reserve." While his bold statements have spurred excitement in the crypto world, they raise critical questions about the feasibility and practicality of such a radical move.

Bitcoin as a Debt Settlement Tool: Theoretical Appeal

Trump’s proposal to “hand them a little Bitcoin” as a settlement for the national debt seems audacious, if not visionary. Bitcoin, with its capped supply of 21 million coins, has been hailed by its proponents as "digital gold," offering a hedge against inflation and fiat currency devaluation. The suggestion to use Bitcoin could stem from its rising adoption, potential for appreciation, and the desire to shift the U.S. financial system into the forefront of the global digital economy.

Trump’s framing also resonates with his America-first rhetoric, claiming that if the U.S. does not embrace Bitcoin, other countries—like China—will take the lead.

Practical Challenges to Paying Off U.S. Debt with Bitcoin

While the idea of settling the U.S. debt with Bitcoin might capture imaginations, several practical and economic barriers make it highly improbable:

1.????? Scarcity and Market Impact: With only 21 million Bitcoin ever to exist, nearly 19 million already mined, the sheer scale of acquiring enough Bitcoin to settle $35 trillion is nearly impossible. The current total market cap of Bitcoin is approximately $1 trillion. Acquiring $35 trillion worth of Bitcoin would send its price skyrocketing, creating an unsustainable bubble and destabilizing the crypto currency market.

2.?????? Bitcoin’s Volatility: The value of Bitcoin is notoriously volatile. Its price can swing dramatically within hours, let alone over the timeframe needed to accumulate a strategic reserve. Relying on such a volatile asset for debt repayment could lead to immense financial uncertainty.

3.?????? Global Trust and Credibility: U.S. Treasury bonds are currently considered one of the safest investments globally, underpinning the financial stability of the U.S. and the world economy. Switching to Bitcoin, a speculative and relatively nascent asset, would likely erode confidence in the U.S. financial system. The resulting global financial instability could be catastrophic.

4.?????? Regulatory and Political Resistance: Trump’s newfound embrace of Bitcoin puts him at odds with the Biden administration’s cautious and sometimes adversarial stance on crypto currencies. Regulatory challenges and political divisions would make implementing such a plan extremely difficult.

5.?????? Energy and Environmental Concerns: Bitcoin mining consumes enormous amounts of energy, comparable to the energy consumption of entire nations. Transitioning to Bitcoin as a primary asset for national debt would exacerbate environmental concerns and run counter to global decarbonization efforts.

Broader Implications

While settling U.S. debt with Bitcoin is impractical, Trump’s statements highlight a growing recognition of the role digital currencies could play in the global economy. Central Bank Digital Currencies (CBDCs), like the digital Yuan, and stable coins backed by traditional currencies, offer more stable and practical pathways for integrating digital assets into financial systems.

The proposal also raises a critical question: How should the U.S. address its unsustainable debt trajectory? Traditional methods—such as fiscal discipline, reduced spending, and economic growth—remain the most viable solutions. Bitcoin, while innovative, is not a silver bullet for systemic financial challenges.

Conclusion: Trump’s bold Bitcoin vision is more rhetoric than a realistic plan for addressing the U.S.’s $35 trillion debt. However, it underscores the importance of the ongoing crypto revolution and the need for the U.S. to engage with this emerging asset class thoughtfully. While Bitcoin’s role in the future of finance is far from certain, its potential to reshape aspects of the global economy cannot be ignored. For now, though, solving America’s debt crisis will require solutions far more grounded in economic reality.

Bitcoin Tops $100,000: Supporters Predict Unstoppable Momentum

Bitcoin has surged past the $100,000 milestone, a pivotal moment for crypto currency supporters who believe this is just the beginning.

The U.S. Securities and Exchange Commission (SEC) played a significant role in Bitcoin's ascent by approving Bitcoin Exchange-Traded Funds (ETFs) in January. This landmark decision gave investors seamless access to Bitcoin on the stock exchange, amplifying its appeal as a mainstream financial asset.

In an October report, the U.S. Department of the Treasury referred to Bitcoin as “digital gold,” highlighting its growing reputation as a secure store of value. Globally, countries like El Salvador and the Central African Republic have embraced Bitcoin as legal tender. El Salvador alone has accumulated $600 million in Bitcoin reserves, while countries like the U.S. and the U.K. hold substantial Bitcoin amounts through asset seizures linked to criminal activity.

A Pro-Crypto Administration

Donald Trump's reemergence as a Bitcoin advocate has created waves in the crypto community. Once a critic who dismissed Bitcoin as a “scam,” Trump has pivoted to become one of its most powerful allies. Promising to make the U.S. the “crypto capital of the planet,” Trump’s administration is poised to include prominent crypto supporters like David Sacks as the crypto Tsar and Paul Atkins as SEC Chair.

Senator Cynthia Lummis of Wyoming has also joined the cause, introducing the BITCOIN Act of 2024. This bill aims to classify Bitcoin alongside gold and oil as a long-term store of value. Under her plan, the U.S. government would purchase 200,000 Bitcoins annually for five years and hold the assets as a hedge against inflation.

“If we allocated 5% of all Bitcoin—about one million coins—we could cut our debt in half within 20 years,” Lummis stated.

Wall Street’s Shift in Tone

Bitcoin’s acceptance has gained traction on Wall Street. BlackRock CEO Larry Fink, who once derided Bitcoin as an “index of money laundering,” now describes it as a secure asset class comparable to gold.

The Case for Bitcoin’s Continued Growth

Bitcoin’s unique advantage lies in its decentralized nature and capped supply of 21 million coins. Unlike fiat currencies, Bitcoin cannot be printed or inflated by central banks. This finite supply, coupled with its Blockchain technology, ensures its rarity and appeal.

As Max Keiser, senior Bitcoin adviser to El Salvador’s President Nayib Bukele, explains: “This is the first time in history that money exists without a central authority. Bitcoin’s separation of money and state makes it revolutionary.”

Tech investor Armando Pantoja predicts Bitcoin’s value will continue to climb indefinitely, comparing it to Manhattan real estate. The halving process—where Bitcoin’s mining rewards are reduced every four years—ensures that its supply tightens over time, driving its value higher.

Bullish Predictions amid Volatility

Bitcoin’s price has already risen more than 50% since Trump’s election. Analysts like Gerald Celente predict further rallies, driven by economic instability and inflation.

Max Keiser projects Bitcoin could hit $1 million per coin within the next three to four years, rivaling gold’s $20 trillion market cap.

Skepticism Remains

Despite its success, Bitcoin’s volatility remains a concern. The price recently plunged from $107,000 to below $97,000 within days. Critics like Peter Schiff argue that Bitcoin diverts resources from essential industries, potentially weakening the U.S. economy.

Even El Salvador, a pioneer in adopting Bitcoin, has scaled back its crypto initiatives as part of an agreement with the International Monetary Fund (IMF).

Future of Bitcoin: As Bitcoin gains mainstream legitimacy, its supporters see it as a transformative force in global finance. While challenges persist, the crypto currency’s ascent has solidified its position as a serious contender in the financial world, with many believing its best days are yet to come.

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Brutal truth about Bitcoin

Bitcoin, the original crypto currency, has been on a wild ride since its creation in 2009. Earlier this year, the price of one Bitcoin surged to over $60,000, an eightfold increase in 12 months. Then it fell to half that value in just a few weeks. Values of other crypto currencies such as Dogecoin have risen and fallen even more sharply, often based just on Elon Musk’s tweets. Even after the recent fall in their prices, the total market value of all crypto currencies now exceeds $1.5 trillion, a staggering amount for virtual objects that are nothing more than computer code.

Are crypto currencies the wave of the future and should you be using and investing in them? And do the massive swings in their prices—nearly $1 trillion was wiped off their total value in May—portend trouble for the financial system?

Bitcoin was created (by a person or group that remains unidentified to this day) as a way to conduct transactions without the intervention of a trusted third party, such as a central bank or financial institution. Its emergence amid the global financial crisis, which shook trust in banks and even governments, was perfectly timed. Bitcoin enabled transactions using only digital identities, granting users some degree of anonymity. This made Bitcoin the preferred currency for illicit activities, including recent ransom ware attacks. It powered the shadowy dark net of illegal online commerce much like PayPal helped the rise of eBay by making payments easier.

While Bitcoin’s roller-coaster prices garner attention, of far more consequence is the revolution in money and finance it has set off that will ultimately affect every one of us, for better and worse.

As it grew in popularity, Bitcoin became cumbersome, slow, and expensive to use. It takes about 10 minutes to validate most transactions using the crypto currency and the transaction fee has been at a median of about $20 this year. Bitcoin’s unstable value has also made it an unviable medium of exchange. It is as though your $10 bill could buy you a beer on one day and a bottle of fine wine on another.

Moreover, it has become clear that Bitcoin does not offer true anonymity. The government’s success in tracking and retrieving part of the Bitcoin ransom paid to the hacking collective Dark Side in the Colonial Pipeline ransom ware attack has heightened doubts about the security and non-traceability of Bitcoin transactions.

While Bitcoin has failed in its stated objectives, it has become a speculative investment. This is puzzling. It has no intrinsic value and is not backed by anything. Bitcoin devotees will tell you that, like gold, its value comes from its scarcity—Bitcoin’s computer algorithm mandates a fixed cap of 21 million digital coins (nearly 19 million have been created so far). But scarcity by itself can hardly be a source of value. Bitcoin investors seem to be relying on the greater fool theory—all you need to profit from an investment is to find someone willing to buy the asset at an even higher price.

Despite their high valuations on paper, a collapse of Bitcoin and other crypto currencies is unlikely to rattle the financial system. Banks have mostly stayed on the sidelines. As with any speculative bubble, naive investors who come to the party late are at greatest risk of losses. The government should certainly caution retail investors that, much like in the GameStop saga, they act at their own peril. Securities that enable speculation on Bitcoin prices are already regulated, but there is not much more the government can or ought to do.

Bitcoin is not innocuous. Transactions are processed by “miners” using massive amounts of computing power in return for rewards in the form of Bitcoin. By some estimates, the Bitcoin network consumes as much energy as entire countries like Argentina and Norway, not to mention the mountains of electronic waste from specialized machines used for such mining operations that burn out rapidly.

Whatever Bitcoin’s eventual fate, its Blockchain technology is truly ingenious and groundbreaking. Bitcoin has shown how programs running on networks of computers can be harnessed to securely conduct payments, within and between countries, without relying on avaricious financial institutions that charge high fees. For migrant workers sending remittances back to their home countries, for instance, such fees are a major burden. Technologies that make payments cheaper, quicker and easier to track would benefit consumers and businesses, facilitating both domestic and international commerce.

The technology is not without risks. Facebook plans to issue its own crypto currency called Diem intended to make digital payments easier. Unlike Bitcoin, Diem would be fully backed by reserves of U.S. dollars or other major currencies, ensuring stable value. But, as with its other ostensibly high-minded initiatives, Facebook can hardly be trusted to put the public’s welfare above its own. The prospect of multinational corporations one day issuing their own unbacked crypto currencies worldwide is deeply disquieting. Such currencies won’t threaten the U.S. dollar, but could wipe out the currencies of smaller and less developed countries.

Do Bitcoins Have Intrinsic Value?

The question of whether Bitcoin has intrinsic value has long been a topic of debate. While some argue that Bitcoin possesses intrinsic value, others maintain that it does not. Despite existing solely within computer networks, Bitcoin has appreciated in price at a rate surpassing even the most sought-after technology stocks. This paradox raises the question: what underpins Bitcoin's valuation?

Arguments for Bitcoin's Intrinsic Value

Expected Value

Some proponents liken Bitcoin to stocks or bonds, where its valuation can be modeled based on expected value. Expected value refers to the discounted present value of future payoffs. Although Bitcoin does not generate dividends or interest, its value may stem from the belief in its underlying technology and its potential to revolutionize industries.

Supply and Demand

Scarcity is often cited as a fundamental driver of Bitcoin's value. The interplay of supply and demand dictates its market price. With a finite supply capped at 21 million Bitcoins—a limit expected to be reached by 2140—demand exceeding the available supply can drive prices higher. Unlike securities or commodities where supply can be adjusted, Bitcoin's fixed supply is maintained by its decentralized protocol, akin to the scarcity of precious metals like gold.

Network Effects

Bitcoin's value can also be attributed to network effects. Viewing Bitcoin as a network rather than an asset, its valuation could rise as its user base expands. Metcalfe's Law, which posits that a network's value is proportional to the square of its users, supports this perspective. The robustness, size, and growth of the Bitcoin network contribute to its perceived value.

Cost of Production

Bitcoin production, or mining, resembles the creation of commodities like oil or silver. In economic theory, the marginal cost of production—the cost to produce an additional unit—often influences prices. Although demand cannot drive an increase in Bitcoin’s production due to its fixed mining schedule, higher prices may incentivize more miners to join, reinforcing its cost dynamics.

Utility as a Store of Value

Bitcoin is frequently lauded as a store of value. During the COVID-19 pandemic, Bitcoin’s price surged as investors sought alternatives amidst economic uncertainty. Recent developments, such as the approval of Bitcoin Spot ETPs, have further bolstered its utility as a long-term investment, with significant returns reported by early adopters.

Arguments against Bitcoin's Intrinsic Value

Bitcoin Is a Convertible Currency

Critics argue that Bitcoin lacks intrinsic value because it is not directly used to value goods, services, or wages. Instead, Bitcoin must be converted into fiat currencies for practical use, diminishing its fundamental worth.

Nothing Has a Fundamental Value

The subjective theory of value posits that value is determined by perception, context, and utility rather than inherent properties. By this logic, Bitcoin’s value is entirely dependent on market participants' willingness to buy and use it, negating the concept of intrinsic value.

A Bitcoin Collapse Will Not Shake the Economy

Skeptics highlight Bitcoin’s limited integration into global financial systems as evidence against its intrinsic value. They argue that Bitcoin’s failure would not significantly impact economies or financial institutions, underscoring its lack of foundational importance.

Bitcoin Is Not a Company

Unlike stocks or bonds, Bitcoin does not represent ownership, generate profits, or pay interest. Its sole function is to facilitate digital value transfers, and critics argue that this absence of tangible backing or financial yield negates any intrinsic value.

Conclusion

The debate over Bitcoin’s intrinsic value encapsulates diverse perspectives. Proponents highlight its scarcity, network effects, production costs, and potential as a store of value, while critics question its lack of integration into traditional financial systems and its dependence on market sentiment. Ultimately, Bitcoin’s value remains a reflection of collective belief and usage within its ecosystem.

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Bitcoin has proven to be one of the best-performing assets in modern history.

The value of the crypto currency has increased some 1,000 times over the past decade, far outpacing US stocks and real estate.

Buoyed by United States President-elect Donald Trump’s crypto-friendly stance, Bitcoin’s record rally hit a new high of $107,000 on Monday after the Republican reiterated his intention to create a Bitcoin strategic reserve.

Bitcoin, the first decentralised digital currency, was invented by the pseudonymous figure Satoshi Nakamoto in the wake of the 2007-2008 global financial crisis.

Once widely derided as a speculative asset with no intrinsic value, Bitcoin is being taken increasingly seriously by governments, financial institutions and investors alike.

The IMF has put very firm anti-crypto political guidelines into place when negotiating with countries that might require its own assistance. It’s gone from being an academic question to a practical, real one and one that central banks are taking very seriously now.