Why U.S. Bitcoin Strategic Reserves Are Critical to Defending China

Finance is increasingly becoming a weapon of war. U.S. policymakers and their allies are too narrowly focused on promoting the dollar as a reserve currency when modern front lines and macroeconomic tools like sanctions are evolving. Today, the real battle is taking place in smartphones and global currency markets.

China is drawing up a decades-long plan to replace the dollar as America’s biggest asset. As the global reserve currency, the dollar is critical to America’s economic and geopolitical power. Otherwise, our influence will weaken and our debt will become a bigger problem. This is exactly what the Chinese Communist Party and the Kremlin want.

China and Russia have increased their gold reserves while also writing off billions of dollars worth of U.S. Treasury bonds. Our sanctions, designed to separate countries from “Western” economic systems, are no longer sufficient to control financial activity within their borders and deter those who can project their power outward.

Authoritarian adversaries, including China, Iran, and Russia, are actively building parallel border economic systems that will attract not only their neighbors, but also allies with whom they trade heavily, into their orbit.

For example, more than half of Japanese businesses accept Alipay, and more than a third accept WeChat Pay. This distribution gives the two Chinese companies unprecedented visibility into the individual market transactions of Japanese consumers and businesses. If tensions rise, such as a potential conflict over Taiwan, China could wreak havoc on Japan’s economy.

How can the United States respond?

China views financial technology and cryptocurrencies as tools to expand financial power and surveillance globally. The United States must respond in two ways. That means exporting financial technologies and systems around the world and embracing Bitcoin as a strategic reserve asset rather than stifling innovation.

Lawmakers and politicians on both sides of the aisle, especially President-elect Donald Trump, recognize the power of holding Bitcoin on national balance sheets as a hedge against inflation. This direction will also strengthen America’s resilience to the economic challenges posed by China’s financial strategy.

The Federal Reserve, like many central banks, holds a diverse portfolio of reserve assets. As of 2024, this includes approximately $35 billion in foreign currency and $11 billion in gold stocks. These holdings demonstrate America’s economic strength and provide liquidity during times of financial stress. However, in a rapidly digitizing world, the absence of native digital assets in this portfolio is becoming increasingly noticeable.

Bitcoin, with its growing global influence and adoption, is an ideal candidate to fill this gap. Bitcoin, often called “digital gold,” is a scarce commodity. The United States is the country with the largest Bitcoin holdings, with 210,000 coins seized from illegal actors. This could give America a first-mover advantage and secure our economic future.

Critics may argue that Bitcoin’s volatility makes it unsuitable as a reserve asset. However, as adoption increases and the market matures, this volatility is likely to decrease. In 2021, El Salvador recognized Bitcoin as legal tender and began purchasing it as a national treasury reserve asset. They have seen a 100% increase in value and have no intention of selling.

multi-front war

The United States must recognize that we are already engaged in a multifaceted war with China. One of these fronts is financial services, and cryptocurrencies are a weapon in our arsenal. Losing this battle means that global financial services and personal finance activities will be dominated by hostile states focused on control, surveillance, dominance, and continued attacks on our currency.

Trump understands this, telling Bloomberg in July, “If we don’t do it, China will pick up (Bitcoin).”

Projecting America’s financial power requires the government to empower, enable, and encourage the private economic sector to interact with competitive economies across the Indo-Pacific and beyond. Expanding payment systems, banking and the use of the dollar, even when controversial, is essential.

Right now our opponents are winning because we aren’t even playing. They are exporting systems, institutions, and surveillance tools globally. Meanwhile, we have done almost nothing as TikTok, a serious threat to our national security, has captivated an entire generation of Americans. We should do the same with financial technology, because nothing could be more confusing to our adversaries.

The United States must more explicitly weaponize financial technology and cryptocurrencies. For example, we must approve decentralized finance technologies that allow citizens of hostile governments like Iran to access USD-based stablecoins and payment services using their smartphones. This should begin to separate their economic activities from government control. At its core, power is about control over resources and the economy, as well as police and national security.

The world stands at a financial crossroads. The question is not whether digital currencies will shape the future, but how we will adapt to this new reality. The United States can shape this future by embracing Bitcoin as a reserve asset. This is a time for bold action, and the benefits to global financial stability and innovation can be enormous.