The notion of the U.S. government establishing a Bitcoin reserve has sparked intense debate. Advocates are arguing it could boost the economy and critics are warning of devastating consequences. Financial commentator Peter Schiff recently took to X, offering a doomsday scenario for what he believes would happen if the U.S. purchased a significant Bitcoin reserve, a concept suggested by Donald Trump and Robert F. Kennedy Jr. Here are seven potential pitfalls Schiff identified, warning that a U.S. Bitcoin reserve could lead to economic catastrophe.
1. HODLers Cashing Out Profits After Bitcoin Reserve’s Creation
Schiff suggests that if the U.S. were to buy a massive amount of Bitcoin, potentially a million tokens, prices would skyrocket. Many long-term Bitcoin holders—often referred to as “HODLers”—might cash out at the new highs, he predicts. “Many HODLers, then worth millions or billions, would finally begin cashing out,” Schiff argued. This cash-out could create an imbalance in supply and demand, causing market turbulence.
2. Continuous Purchasing Cycle
If the U.S. government actually established a #Bitcoin reserve and bought 1 million Bitcoin, it might end up buying millions more. Since the U.S. government’s purchase of 1 million Bitcoin would drive the price so high, many HODLers, then worth millions or billions, would finally…
— Peter Schiff (@PeterSchiff) November 11, 2024
To stabilize Bitcoin price after such a massive buy, Schiff believes the government would need to keep purchasing more Bitcoin. “The U.S. government would be forced to keep buying, destroying the value of the dollar in the process,” he warned. He argued that this would be an endless cycle, ultimately driving BTC price higher and requiring even more dollar printing.
3. Diminishing Value of the Dollar
Schiff’s argument hinges on what he sees as a critical flaw: the potential devaluation of the dollar. If the government prints more dollars to sustain Bitcoin purchases, it could cause significant inflation. The cycle would continue, he remarked, until “the U.S. would experience hyperinflation, rendering the dollar completely worthless.”
4. Risk of Hyperinflation
Schiff suggests that this scenario would lead to a point where “so many dollars would be printed to buy Bitcoin that the U.S. would experience hyperinflation.” For Schiff, the threat of hyperinflation is a genuine risk to the stability of the economy, potentially undermining the value of both the dollar and Bitcoin.
5. Forced Bitcoin Liquidation
As inflation skyrockets, Schiff predicts, the U.S. would eventually be unable to keep buying Bitcoin and would have to sell its holdings to cover its financial needs, triggering a market collapse. “In the end, Bitcoin would have succeeded in destroying the dollar. But the victory would be short-lived, as Bitcoin would be destroyed along with it,” he said.
6. Wealth Disparity Among Bitcoin Holders
Schiff claims that while some BTC holders would be enriched by selling to the government, those who held onto their Bitcoin or savings in dollars could be “completely wiped out.” This, he argues, would create economic disparity among those who cashed out and those left with devalued assets.
7. Lack of Intrinsic Value
Finally, Schiff underscores his belief that BTC lacks intrinsic value. “Gold has real value; Bitcoin has none,” he asserted, drawing a sharp contrast between Bitcoin and gold, which he argues is more stable.
America has a gold reserve and rather than destroy the dollar it strengthened the dollar and the us economy. Bitcoin price soaring is going to super charge the us economy and consumer confidence.
This is happening. Join us pic.twitter.com/Xixovb0CDS
— David Bailey🇵🇷 $0.85mm/btc is the floor (@DavidFBailey) November 11, 2024
However, Bitcoin proponents disagree. David Bailey, CEO of Bitcoin Magazine, responded on X, saying, “Bitcoin price soaring is going to supercharge the U.S. economy and consumer confidence. This is happening. Join us.” But with this economic experiment, there’s no guarantee of success. Moreover, MicroStrategy’s Michael Saylor jokingly remarked, “You finally made me laugh, Peter.”
