Alternatives | Fate of Digital Gold in the Hands of Physical Gold
Will creative accounting at the Treasury create funds for a Strategic Bitcoin Reserve?
Chief Investment Office28 Feb 2025
  • An accounting gimmick related to gold enables US to create Strategic Bitcoin Reserve
  • Marking gold prices to market from current USD42.22/troy oz creates same amount in UST deposits
  • BITCOIN Act utilises this mechanism to create a Bitcoin purchase programme for said reserve
  • For all competitive narratives betw. physical & digital gold, their fates now seem to be tied at hip
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Fed’s money printer #2. We recently opined that the US lacks the sovereign wealth required to build a “Strategic Bitcoin Reserve”. Turns out, that is not entirely accurate. If one digs deep enough, you might find an obscure clause (2.10) in the Financial Accounting Manual for Federal Reserve Banks that provides for the “magical” creation of deposits in the Treasury general account with the New York Fed, based off some form of accounting hocus-pocus related to the gold reserve holdings in the US. Snippets of the clause are extracted for your reference:

Figure 1: The manual on how to create money out of thin air

Source: Financial Accounting Manual for Federal Reserve Banks, DBS

Checking what’s in the bank. This implies that for a nation mired in debt, the key to alleviating some of that burden – and beyond that – even the quick creation of sovereign “wealth”, suddenly lies in the price of a shiny yellow metal. The recent visit by President Trump and Elon Musk to Fort Knox (the famous home of the United States’ gold stock) to “make sure the gold is still there” may be more than just a publicity stunt. By the above accounting gimmick, based on the c.8,000 tonnes that the US reportedly has in gold reserves, every USD3.50 rise in the price of gold adds a billion dollars to the Treasury general account. The very act of making sure the gold reserves are physically present is an implicit assessment of how much sovereign wealth the US can obtain by “marking to market” from the current statutory price of USD42.22 per troy ounce.

Fact, not fiction. While this sounds like some far-fetched reality, the contents of the BITCOIN Act of 2024 – a bill proposed by Senator Cynthia Loomis – describes this exact means of establishing a Strategic Bitcoin Reserve, on top of offsetting costs of “utilising certain resources of the Federal Reserve System”, and other purposes.

Fates are tied. Certainly, this bill is far from approved and must pass the trials of US Congressional approval to begin implementation, but we think that this is a development worth ruminating on. For all the talk that digital gold would one day displace its physical counterpart, it is curious that their fates are now somewhat tied at the hip – the ability for the US to establish a Bitcoin purchase program lies firmly with the capacity for the Treasury to spend, which in turn would be solely dependent on the price of physical gold – if the bill has any weight to it.

For investors, there are a couple of implications. Firstly, this is clearly a tailwind for gold, given a recognition that accounting provisions allow the creation of Treasury deposits with a simple upward mark-to-market in gold prices. More than a Bitcoin reserve, this could also prevent many future ills around budget constraints and debt ceilings. Our gold price target remains at USD3,330/oz.

Secondly, those who consider the Strategic Bitcoin Reserve to be a Bitcoin catalyst now cannot ignore the developments around gold and the Treasury accounting system. Without that pre-requisite, we believe that Bitcoin is more subject to the influences of global liquidity (QE, tax cuts, etc.) and the potential for profit taking given expectations of a cycle peak within the next six months.


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