The Strategic Bitcoin Reserve: A Hedge Against Inflation or Digital Mirage?

Abstract

This paper critically examines the economic and policy risks of President Trump's Strategic Bitcoin Reserve, arguing that it represents a speculative and structurally flawed initiative. While proponents claim Bitcoin's fixed supply makes it an ideal hedge against inflation, this analysis challenges that assumption by assessing its extreme volatility, shifting correlations, and speculative price behavior. Empirical comparisons against traditional store-of-value assets such as gold, as well as equities (S&P 500) and Ethereum, reveal Bitcoin's inconsistent risk-return profile across key market events. Beyond financial risks, this paper explores the geopolitical and macroeconomic consequences of incorporating Bitcoin into U.S. reserves, including regulatory uncertainty, cybersecurity threats, and market manipulation. Additionally, the initiative contradicts Bitcoin's foundational ethos of decentralization, raising concerns about government intervention in the cryptocurrency market. By integrating empirical data with a broader policy critique, this study informs ongoing debates on Bitcoin's legitimacy as a reserve asset and its implications for financial stability.

Keywords: Bitcoin, Strategic Reserves, Cryptocurrency Policy, Financial Stability, Speculation, Inflation Hedge, Geopolitical Risk

JEL Classification: E44, E58, F31, G12, G18, G28, O33