A new proposal submitted to the U.S. Securities and Exchange Commission’s (SEC) newly-established Crypto Task Force by a Maximilian Staudinger makes the case for XRP as a “strategic financial asset” for the United States (using some very questionable math and logic).
I’m here to tell you that XRP is not a strategic asset and that the logic in this proposal is dubious at best.
In the proposal, Staudinger states that $5 trillion is locked up in U.S. Nostro accounts (accounts that banks use for cross-border payments). And he claims that if certain regulatory conditions were created — including the SEC classifying XRP as a payment network, the U.S. Department of Justice (DoJ) providing legal clearance for banks to use XRP, and the Federal Reserve mandating that banks use XRP as a liquidity solution — then 30% of this capital ($1.5 trillion) would be freed up for the U.S. government to buy 25 million bitcoin at $60,000 per bitcoin.
So, let’s break down why this makes little sense.
First, Nostro accounts are simply bank accounts that U.S. banks hold in foreign countries. I’m not sure what sort of logic includes these domestic banks turning over the U.S. dollars that XRP would theoretically replace to the Federal government so that these dollars could then be used to acquire bitcoin on behalf of the government.
Second, the proposal doesn’t offer details on how these domestic banks would obtain the XRP that would replace the dollars. It only seems logical that they’d have to purchase the XRP, leading to XRP absorbing this $1.5 trillion, not bitcoin. Even if Ripple, XRP’s issuer, wanted to simply give these banks XRP to use, this still wouldn’t work, as it only holds about $100 billion in XRP — far short of $1.5 trillion.
Third, even if bitcoin’s price were to dip to $60,000, the price would begin increasing immediately as the U.S. government began purchasing the 25 million bitcoin.
Lastly, there’s a hard cap of 21 million bitcoin (and approximately 4 million have been lost), which is a well-known fact in the Bitcoin or crypto space. Therefore, it’s quite silly to suggest that the U.S. government could buy 25 million bitcoin. If the author were even a half-serious person, he might have suggested that the government buy 15 million bitcoin at $100,000 per bitcoin (though the math still wouldn’t work out).
Given how faulty the logic behind this proposal is, it’s difficult to consider XRP a strategic asset. Plus, why would the U.S. government do so when two thirds of the supply is still in the hands of the organization that issued the asset? It doesn’t make much sense.
Bitcoin, on the other hand, is a globally distributed asset that many around the world use as both money and a store of value. Plus, the Bitcoin network is governed by tens of thousands of nodes and is virtually impenetrable, thanks to the approximately 0.4% of the world’s energy that protects it. (The XRP network is governed by 828 nodes and isn’t protected by any amount of energy.) Theses factors make bitcoin a logical reserve asset, which is how the U.S. government now officially classifies it.
So, hopefully, the SEC already understands what I’ve outlined in this piece and doesn’t spend much time even considering Mr. Staudinger’s proposal.
This article is a Take. Opinions expressed are entirely the author’s and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.