Why Bitcoin Can't Fix America's National Debt: A Deep Dive

Introduction

There is a growing debate regarding Bitcoin's potential to address the federal government's budget issues. Recently, Senator Cynthia Lummis proposed legislation that would instruct the Treasury to purchase 1 million Bitcoin, claiming this could lead to a debt-free government. However, both mathematical and conceptual flaws exist in this approach.

The Math Doesn't Add Up

Currently, the U.S. national debt stands at nearly $28 trillion. This year alone, the government has spent about $2 trillion more than its revenue, which is covered by borrowing. In contrast, the total market capitalization of Bitcoin is around $1.3 trillion, insufficient to cover even a single year’s budget deficit. For Lummis's plan to work, Bitcoin's value would need to soar to levels that far exceed the entire global economic output.

Conceptual Flaws in the Proposal

Acquiring Bitcoin does not create wealth; it reallocates existing wealth. By purchasing a significant amount of Bitcoin, the government would reduce the available supply on the market, likely causing prices to rise. This would primarily benefit current Bitcoin holders, including Lummis herself, rather than addressing the national debt. Such price increases could also lead to a surge in Bitcoin mining, which is energy-intensive and could negatively impact the supply of essential technology, like GPUs used in artificial intelligence and other fields.

Economic Displacement and Investment Risks

If Bitcoin prices rise, productive investments in the economy could be displaced. Instead of focusing on enhancing the economy through AI and other technologies, resources might be diverted to Bitcoin mining, which could increase costs across various sectors.

Alternative Solutions for National Debt

Rather than investing in Bitcoin, the government should consider raising capital gains taxes to capture a fair share of profits from cryptocurrency investments. This approach avoids market distortions and protects taxpayers from the risks associated with Bitcoin's volatility.

Conclusion

To genuinely address the national debt, policymakers must focus on spending cuts and tax increases. Quick fixes like investing in Bitcoin will not solve the underlying issues. Instead, serious proposals aimed at aligning revenues with spending should be prioritized, as evidenced by various think tanks that have put forward their plans without resorting to risky investments in cryptocurrencies.