The sovereign fund of Trump will buy Bitcoin?

Yesterday, Trump initiated the procedure that should lead to the creation of a US sovereign fund, which could purchase Bitcoin. 

The sovereign fund of Trump: possible purchase of Bitcoin

For now, Donald Trump has limited himself to signing an executive order that provides for the creation of a sovereign fund in the USA.

A sovereign fund is a public investment tool owned by a State. 

Usually, sovereign funds are created to manage budget surpluses, currency reserves, or proceeds from the sale of natural resources, with the goal of generating long-term returns for the country.

Once created, they invest in a variety of assets, such as stocks, bonds, real estate, or commodities, with the goal of maximizing returns while adhering to their mandates. Their management is usually entrusted to teams of experts. 

By now, sovereign funds have become important players in the global financial landscape, with a total wealth of many thousands of billions of dollars, so much so that sometimes their investment decisions can even have significant impacts on financial markets and the global economy.

Will Bitcoin be included in Trump’s sovereign fund?

Although the sovereign fund of the USA has not yet been established, there are already questions about what it will invest in, and in particular if it will also invest in Bitcoin.

The fact is that Trump promised during the election campaign to establish a strategic reserve in BTC for the USA, and a sovereign fund could be an ideal tool to do it.

As of today, there are already sovereign funds investing in Bitcoin, although often only indirectly. Certainly, there is El Salvador that is buying and accumulating BTC directly, but also the sovereign funds of Norway and Bhutan are exposed, even if in the case of the Norwegian fund the investment was in MicroStrategy stocks, while in the case of the Asian country, the BTC were accumulated through mining.

Therefore, it is not at all absurd to imagine that, once created, the US sovereign fund could decide to purchase Bitcoin. 

The objectives

Generally, the objectives of a sovereign fund are revenue stabilization, saving for future generations, and strategic investments. 

By revenue stabilization, we mean the use of sovereign funds to offset the price fluctuations of commodities exported in large quantities by some states, such as oil, to ensure greater economic stability for the country that controls them.

Instead, with savings for future generations, the goal is to accumulate wealth in the portfolio of sovereign funds for future generations, for example, to finance the pension system or long-term development projects.

In the case of Bitcoin in the USA, it would be a strategic investment, even if usually for sovereign funds these are investments in key sectors for the country’s economy, such as energy, infrastructure, or technology.

Trump has in fact not revealed what the real objective is of establishing a strategic reserve in BTC in the USA, and in light of the description just provided of the objectives of a sovereign fund, in the end, he might also opt for a different instrument to create the reserve in Bitcoin. 

It is therefore not to be excluded the hypothesis that the sovereign fund of the USA might ultimately not invest in Bitcoin, leaving the strategic reserve in BTC to some other entity. However, it should be added that the central bank has already stated that it is not made for this type of initiative, so as of today the sovereign fund seems to be the main hypothesis. 

The doubts about feasibility

The first doubt regarding the hypothesis that a sovereign fund is creating and managing the strategic BTC reserve of the USA comes from the fact that these funds often operate with different levels of transparency and governance. 

In fact, if some are subject to greater controls and reporting, others are less so, and there is doubt that Trump’s might not be among the most transparent. 

Furthermore, in general, the use of sovereign funds for strategic investments can also give rise to political and economic controversies, such as the risk of government interference in the free market. 

But in the specific case of the USA, the main doubts are different. 

The first is the possible direct involvement of the government in the economy, so much so that some speculate that if a similar measure had been undertaken by a democratic president, the republicans would most likely have accused him of being socialist. Instead, the republicans seem to agree with a similar measure introduced by their president Trump.

The other accusation is that a sovereign fund could be used by the government to reward political allies, or to put pressure on opponents, as well as to further concentrate power on a narrow elite. 

If then the fund were to have minimal supervision, it would easily lend itself to phenomena of corruption, and would easily allow the creation of an oligarchic system in which the interests of the government and large companies are closely intertwined.