The Accounting Podcast

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Blake Oliver: The United States is no stranger to strategic reserves. We've got Fort Knox's gold vaults. We've got the Gulf Coast petroleum stockpiles. Now, there's a proposal that aims to add Bitcoin to this list. It's called the Strategic Bitcoin Reserve, and it's outlined in Senator Cynthia Lummis Bitcoin Act. It calls [00:00:30] for the US Treasury to acquire 1 million Bitcoin over five years to hedge against inflation, reduce the national debt and secure America's position in the digital economy. Supporters argue that Bitcoin's fixed supply and blockchain transparency could modernize fiscal strategy, but critics are warning that its volatility and speculative nature pose unprecedented risks to taxpayers. The idea gained momentum after President Trump endorsed it at the 2024 Bitcoin conference, which triggered a 35% [00:01:00] price surge Post-election. Joining me today to discuss this is doctor Jack Kasanga, a CPA and associate professor at Hofstra University. Welcome, Jack.

Jack Castonguay: Thank you, and thanks for having me back.

Blake Oliver: Blake, you wrote an opinion piece in accounting today. The headline is taxpayers should oppose a strategic Bitcoin Reserve. So I guess we know where you stand on this.

Jack Castonguay: I didn't really hide it.

Blake Oliver: Give me your number one argument. Tell me why taxpayers [00:01:30] should oppose a strategic Bitcoin reserve.

Jack Castonguay: The short answer is it's, um, it's high risk. It doesn't have a use case currently. It's still trying to find its use case. And we're also if we were to be doing it, we'd be doing it at an all time high. If you look at most of the things we have strategic reserves for largely foreign currencies and oil being the two biggest, they have governmental use cases, right? Most of our vehicles run on oil. Most [00:02:00] of our cars run on oil. Most of the military vehicles we need run on some form of oil. So those we need the currency reserves we need because we transact with some of the larger companies, like two of our largest reserves are in the yen and Chinese one. Those make sense. Bitcoin. We don't transact in it. It's a store of value, but it's a store of value strictly because people want to store it. And then because it's already held by so many institutions and people, if you were to take the government money, [00:02:30] you'd be propping up those people at the expense of other taxpayers. So to me, it would be a regressive tax on existing taxpayers.

Blake Oliver: Okay. So high risk. There's not a use case. You compare that to our petroleum reserves. There's a use case for that. The currency reserves, those use case for that because we we we transact with these countries. And then you mentioned the high price. Okay. Let's dig into these one by one. Let's do.

Jack Castonguay: It.

Blake Oliver: Let's talk about the high risk. When I talk to supporters of Bitcoin about [00:03:00] this they will say, well you look at the history and Bitcoin has outperformed every other asset in the world over the last ten years. So what's the risk to taxpayers? I mean, couldn't we make a lot of money on this?

Jack Castonguay: We could make a lot of money. I mean, don't get me wrong, Bitcoin in the next ten years could double or more, right? So I'm not I'm not saying that's not possible, but it could just as easily go to zero. It has it has the opportunity to go either direction. If you look at the historical run. You know, [00:03:30] it's like some people are still investing in Nvidia right now, right? One of the best performing stocks in the last 2 or 3 years. But that can also collapse tomorrow. Like do you want to be typically the old adage in economics is buy low, sell high. Right now given we're at historical highs. Our risk is that we're buying high. And then if it collapses or even has a normal what we would consider correction. You're now losing taxpayer money. You're essentially using taxpayer money to bet on the price going up. We didn't bet on the stock [00:04:00] of Apple or Microsoft, and those for the longest time were some of the best performing. So why are we betting on an asset class that's not widely held and that has a long list of fraud, money laundering and all these other things? Like the risk to me just greatly outweighs the upside potential, which I will admit, there is upside potential, but I just don't think the US government should be in the job of betting on upside potential of something that's already in existence.

Blake Oliver: The government [00:04:30] should not be speculating with taxpayer dollars.

Jack Castonguay: If you want to speculate on something, right. I think places to speculate are what we've seen with Operation Warp Speed in the first Trump administration, put money into vaccine development, put money into new technologies, right. Chips, things like that make sense. Some of those companies may go bust, but if they hit, they're going to do really well and they're going to be beneficial to us as a country. The only benefit we would get from a Bitcoin reserve would be the price goes up. So [00:05:00] why wouldn't we put that into something else that would be more diversified and would have benefits to the country as a whole other than purely price speculation.

Blake Oliver: What about the use case for this? You mentioned already that we we use other currencies and that's why we hold them. We hold Japanese yen, Chinese yuan. It makes sense for us to hold these currencies because we have an economic relationship with these countries. One of the arguments in favor [00:05:30] of Bitcoin is that it is becoming a currency. It is becoming a way to transact across borders globally without government interference. Shouldn't the US government protect itself and hold some Bitcoin?

Jack Castonguay: I would actually argue it's becoming less of a accepted currency. If you read the white paper. In its original design, it was designed as a peer to peer currency. It was designed as Venmo without needing Venmo or Zelle without needing Bank of America. But [00:06:00] as soon as the prices started to rise, people stopped using it as a transactional currency. They strictly started using it as a speculative store of value. Even the companies who originally took it as payment, they did what they do with highly volatile foreign currencies. They would take it from you to buy a car and then immediately sold it, right, because they didn't want to hold the risk. So I would argue it's actually now almost no one ever uses it to buy things unless you're in a dissident country with control of the banks. We saw some [00:06:30] of money going early into Ukraine when Russia was trying to cut them off from the banking systems, but in the same way, we've also seen Bitcoin use in places with groups like Hamas to fund their operations. Right. And if you really want to look at bad New York Times headlines, can you imagine US funds Hamas if that money ends up going the way that it does go sometimes. Again, that's just another high risk thing because no one's using it as a currency except dissidents and illegal actors.

Blake Oliver: So you're [00:07:00] saying that the use of Bitcoin as a currency has actually decreased over time?

Jack Castonguay: I think it's gone down almost every year since the currency was first introduced.

Blake Oliver: So like what is the what is the function then of Bitcoin when it was originally when I first heard about it, that was the dream, right? Was that we would all be able to have wallets of of Bitcoin and crypto and we would use it to pay and we would bypass the traditional banking system and save a lot of money.

Jack Castonguay: In theory, I think that was a great use case. [00:07:30] I read the white paper. I'm a I was a big fan of that approach. Right. Because it just gave people another option. But it hasn't been that. And I don't see when you have something that's valued at a $100,000 and you're thinking, if you're a proponent, your thought is it can go to 2 or 300,000. So now anytime I transact with it, I'm putting risk into that transaction, because now I'm going to have buyer's remorse in a month when it doubles. And now I essentially, you know, paid double for something that I shouldn't have.

Blake Oliver: The last point you mentioned was [00:08:00] the high price. Yeah. What does that have to do with it?

Jack Castonguay: Well, because one again, you were buying at a high, so you'd be taking taxpayer money to invest in something at an all time high. Now some things hit their all time high and keep running. A lot of things hit their all time high. And then they. And then they level off. So you'd be buying at a high. So now your risk in theory is largely to the downside. So you'd then be using taxpayers dollars to speculate and then not only speculate. The odds are you're going to lose money on this transaction. Now initially the price would run up [00:08:30] because now you are creating artificial demand. So that is going to drive the price up just monotonically. It works that way. The problem is the reason a lot of the crypto proponents, in my opinion, want the government in is they're running out of people to invest. They are running out of the word, you know, in economics is dumb money, but they're even running out of retail investors to find it, right?

Blake Oliver: Um, right.

Jack Castonguay: I live in New York. I saw on a bodega that says you can buy Bitcoin at the bodega at their [00:09:00] machine. By the time we're at that point, it's too late. We've already missed it. I think all the money that's in there and now people are saying, well, the only way we can get it to go up, because it has no value, it has no intrinsic. There's no.

Blake Oliver: Intrinsic value.

Jack Castonguay: Yeah. It has no stream of cash flows. Right. They're going to say, hey, if these facts change, it'll make it worth more. The only thing that makes it worth more is someone else wants to buy it. So what would be the best thing if you were a current crypto holder to happen? The US government come in with $76 billion and say, let's go.

Blake Oliver: Well, and then promise to buy more every year [00:09:30] forever and to never sell it.

Jack Castonguay: You're putting against so much taxpayer risk into an asset class that's new, volatile, has a large history of frauds. It's just it's to me it's almost all risk. And the reward is price gain. But what does that do. Again if we're thinking about values and what the government should be doing, do I want the government speculating again on an asset class that doesn't provide back to the state? The answer to me is no.

Blake Oliver: Well, then, if the idea is that the government will never sell its bitcoin, [00:10:00] that destroys the argument that it will help pay off the national debt.

Jack Castonguay: Right. Yeah. It's those those work in conflict. And even in her proposal, it looks like they're they're assuming almost like mortgage backed securities before zero eight. They're assuming the price of houses will always go up in that proposal. They're saying it'll help pay down the debt, which is assuming that price will continue to go up. Right. Because. Right.

Blake Oliver: Bitcoin will go up forever. Yeah.

Jack Castonguay: It doesn't pay interest. It doesn't pay dividends. And it's actually transaction costs are high. So you're getting no [00:10:30] stream of cash flows. You're only betting on it going up. And if it stops going up you're you're out of luck. And not only will it not help the debt if it falls, you're now actually going to lose money and you're going to have to take out more money. So you're actually going to make the debt and the deficit worse in that case.

Blake Oliver: So I think you said it, you said as much earlier this is a ploy by the by the crypto lobby to push up the price of Bitcoin further because there aren't enough [00:11:00] retail investors who want to buy Bitcoin. There are institutional investors that want to buy bitcoin that have been prevented from doing so. That also concerns me the idea of people's retirement money going into Bitcoin and crypto. And it reminds me, like you said, of the mortgage crisis, the financial crisis, when you had all this quote unquote dumb money coming in at the height of the market to buy mortgage backed securities. And [00:11:30] then when the market tanked, these retirement plans lost a ton of money.

Jack Castonguay: I see similar parallels to that. And because I think a lot of people don't understand what it is, how it works, and they're still investing in it because it's the shiny thing in the news. And the crypto industry is lobbying is great. They have pushed through bills, they've moved people on positions. But that doesn't mean that it's right for the average investor. I mean, because if you're an average investor, you're already exposed [00:12:00] because you have companies like MicroStrategy that are probably in your portfolio that hold it. You have some of the cryptocurrency exchanges that are in your portfolio. You already have exposure. Do you really want to double down on that exposure in a risky asset class. I personally don't think so.

Blake Oliver: My other concern with the strategic reserve or the government buying Bitcoin is that we don't know who controls it. It's so anonymous that the people who control the mechanism, the [00:12:30] algorithm, it requires 51% of the nodes on the chain to agree on a change. And we don't even know who those people are. I know it's kind of nuts.

Jack Castonguay: Yeah, again, that's kind of what I looked at it like when I said the New York Times headline, do you want to have the US government saying they ended up funding a criminal or terrorist group? No, because we don't know who the other side is. I mean, even in theory, if the US is buying, they don't know who they're buying [00:13:00] from, right?

Blake Oliver: Right. We don't like who are we paying? Who are we exchanging dollars for Bitcoin with? We don't know.

Jack Castonguay: Buying from the worst actors on the planet. And it's what 36 digit code that we don't know who they are. And they could be honestly people that we are actively like in war with. So now we could be in a war against ourselves.

Blake Oliver: We could be buying from Russia, we could be buying from China, we could be buying from Hamas, we could be buying from North Korea.

Jack Castonguay: And we'd have no way of knowing it at the time.

Blake Oliver: What do you think the odds are of this [00:13:30] happening?

Jack Castonguay: I'm gonna go low. Could I see the bill kind of getting through? I think they're going to struggle with the funding. Just kind of like we're having the funding fights right now. I'm gonna hope cooler heads are going to prevail. You know, I could see if it gets delayed. You would probably see crypto fall, because right now, that's already baked into the price, right? That the government may do this.

Blake Oliver: Because.It went up 35% after Trump supported the idea.

Jack Castonguay: So then you could see if there's a hold that price falling, and then you could [00:14:00] then see some risky senators or House members start to say, you know what, maybe this isn't the best idea.

Blake Oliver: Right? Because if the price falls ten, 20, 30%, what's going to be the appetite of the Senate and Congress to start buying Bitcoin on behalf of the American people? Yep. Just after that happens.

Jack Castonguay: Yeah. I mean.

Blake Oliver: Timing is really important here.

Jack Castonguay: Timing is hugely important. And that's even before you get into the second order conditions, which I largely left out. But you take places like Texas and North Dakota [00:14:30] that have Bitcoin mines, where in places like Texas, they were using some of the energy that was needed when they had blackouts. There's so many other second and third order conditions that this bill is nice and shiny, but the more you run down the rabbit hole, I think the more flaws that come out.

Blake Oliver: And you mentioned the states. There are quite a few states that have strategic Bitcoin reserve bills in the legislature. 13 according to my count, that includes Texas, Utah and Arizona. Arizona. My state. [00:15:00] There's a bill, SB 1025, that would allow 10% of public funds to be allocated to Bitcoin, 10% Utah. The bill authorizes 5% of state funds for Bitcoin and select stablecoins.

Jack Castonguay: I mean can you imagine going to your constituents and saying, hey, we have our budget and I'm going to take 10% of the services we normally provide to you and put it into a betting asset class, the same way a trader at JP Morgan would do.

Blake Oliver: When [00:15:30] you put it that way.

Blake Oliver: Yeah, it,it it would be wild if this happened. But I guess like I have difficulty imagining that this happens at the federal level. But I could see at least one of these states doing it.

Jack Castonguay: Yeah. I mean, I think if they do, I think those headlines are going to write themselves.

Blake Oliver: Yeah.

Blake Oliver: Well, Jack, thanks for joining me, as always. Anything you'd like to add? Anything you'd like to add before I close out?

Jack Castonguay: I will say I have been wrong on bitcoin for a while, [00:16:00] right? I was wrong at 20,030 thousand. I'm definitely still wrong at 100,000. I think I'm going to be right.

Jack Castonguay: The risk is so high to me. But I mean, I happily admit I have been wrong on Bitcoin so far.

Blake Oliver: This is my sort of science fiction theory about crypto. But you know, cryptocurrency like it all relies on cryptography. That's in the it's in the name. Right. So it's just like RSA encryption I don't know the details, but um, if anyone were to ever figure out how to hack this type of encryption, [00:16:30] they could steal private keys and they could move money and the whole system would fall apart.

Jack Castonguay: Yep.

Blake Oliver: And so the more I think about it like that is what ultimately could cause a crash in the crypto markets is if people lost confidence. Yep.

Jack Castonguay: I mean, because you look at where we store our money for the US government, right. That's stored in vaults at the fed, 50 floors underground. That's pretty hard to hack. And if you actually relevant, you just brought this up today. Microsoft just announced they have a chip, um, that uses [00:17:00] a new form of matter that we didn't know existed. So it's not gas. It's not liquid. Um, it's not a solid. And they think the chip will be able to do in five seconds what current chips can't do in ten septillion years.

Blake Oliver: Well, that would enable them to crack the current encryption on Bitcoin. We're only a few years away from general artificial intelligence, according to Sam Altman and other AI researchers. So what if somebody creates a superintelligence that then figures out [00:17:30] how to create a computer that can hack Bitcoin encryption? That's the end of it, right?

Jack Castonguay: That's ball game.

Blake Oliver: That to me, just that possibility alone, which actually isn't that far out there at this point, is why I wouldn't invest a lot of money in the long term in Bitcoin because it's it could all fall apart.

Jack Castonguay: Yep.

Blake Oliver: Well Jack, thanks for joining me. This was great to chat with you. If our listeners want to get in touch with you, where can they find you online?

Jack Castonguay: Uh, I'm on Bluesky as professor [00:18:00] Jack. See, you can also find me on LinkedIn or Instagram with the same handle.

Blake Oliver: Thanks, Jack. Hope to talk to you again soon.

Jack Castonguay: Absolutely. Thanks for having me, Blake. Hey, hey.