Head of Research, Bitwise: A sober reflection on the over-optimism of the US Bitcoin strategic reserve

Author: Jeff Park

Compilation: Deep Tide TechFlow

Since last November, I have been one of the few voices to be cautious about SBR (Strategic Bitcoin Reserve). So it’s not surprising to me to see that we’re currently experiencing one of the fastest declines in Bitcoin history.

However, for those with a vision, now is a rare opportunity. Next, I will share with you the specifics of this opportunity. But before we can do that, we need to figure out the root cause of the problem before we can get the right solution.

SBR’s failure is that its hastily launched announcement did not pave the way for Bitcoin to become the eventual adoption of a global store of value (SoV).

This is because an SBR in the true sense of the word must rely on multilateral cooperation. And it is this lack of cooperation that has led to a sell-off in the market led by Japan today.

Japan, as an important part of the global financial system, must not be left behind in the new era of Bretton Woods 2.0. In this new system, the entire arbitrage-dependent global financial structure needs to be realigned.

However, it is clear that the current conditions do not allow this to be achieved, so I prefer to stop efforts to make SBR the ultimate goal. Once it became clear that the SBR project was entirely political, it lost the “decentralized” and “non-political” nature of Bitcoin. At the same time, we run the risk of angering Japan, which has financed the United States through its own financial repression for decades.

A suitable strategic reserve should have the following qualities:

Legislative support: Legislation must be passed to ensure the long-term stability of policies. Looking back at the example of ESG (environmental, social, and governance) policies that quickly unraveled after a new president took office, we can see the limits of the executive order. That’s why I call the current SBR a BITO (Bitcoin Options ETF) moment, not an IBIT (Bitcoin Spot ETF) moment. This transition, while not perfect, is part of progress.

Programmatic solutions: Collective programmatic mechanisms must be used, not discretionary policies. This avoids concentrating the risk on public officials. After all, no one wants to take a risk when Bitcoin is high, especially when that risk can lead to personal losses for the benefit of the public.

Global Collaboration: Multilateral collaboration on a global scale must be required to ensure that our allies are not left behind as they explore new areas outside the Bretton Woods system (see my Venn diagram).

At present, Japan is rejecting the global arbitrage system in its entirety. Just as the United States cannot tolerate long-term interest rates above 4.5%, Japan cannot afford long-term interest rates above 1.5%.

When Trump threatened to impose tariffs on Japan, which could lead to a rise in Japan’s long-term interest rates, it adversely affected the U.S. stock market. But the impact on the cryptocurrency market is even more severe. The reason for this is that when stocks become incredibly cheap, the cost of capital for institutional investors increases, making it more difficult to invest in Bitcoin.

For example, Tesla’s (TSLA) share price has fallen by more than 50% from its all-time high, which means that Bitcoin’s attractiveness needs to compete with Elon Musk’s capital, which is clearly an undesirable situation.

Trump knows this, which is why he mockingly said at the end of the White House crypto summit: “Who knows” and ridiculed the motto of the Strategic Reserve: “Never sell your bitcoins”.

His real purpose is not to promote Bitcoin, but to achieve his political goals by creating market volatility. And the drama of all this also allowed me to foresee the market falling.

However, there is good news. Eventually, market liquidity will return. We know that Trump will do whatever it takes to drive the economy, and the global M2 liquidity gauge has already started to rise. Once the market is able to rationally accept a lower 10-year interest rate, Bitcoin will be the fastest “tax-free horse race”. While we don’t know exactly when that moment will come, the good news is that we don’t really need to. Why? Because the answer has long been written in my article:

"The launch of Bitcoin ETF options marks the first time in the financial world that regulated leveraged trading has been enabled on a truly scarce and permanent commodity. Options do not create ‘value in money’, but rather ‘liquidity in money’, and the multiplier effect of delta can be extremely beneficial to those who bet on ‘highly unlikely long-term events’. ”

Formula:

lim (x→∞) ((x+0)/2) = ∞ (and the price of x has just dropped significantly)

Deep Tide Note: This formula expresses the potential appreciation of Bitcoin’s price. The “x” in the formula represents the current price of Bitcoin, while the “lim (x→∞)” indicates the likelihood that the price will tend to grow indefinitely over time.

In other words, the current market correction has made the price of Bitcoin cheaper, providing long-term investors with a low-cost opportunity to enter the market. The implication of the formula is to emphasize that the long-term value of Bitcoin may far outweigh the current market volatility.