@ Alejandro
2023-07-24 04:30:59
> The Kennedy administration will begin to back the US dollar with real, finite assets such as gold, silver, platinum and Bitcoin, which is the world's hardest liquid asset, to strengthen the US dollar and guarantee its continued success as the global reserve currency.
>— Robert F. Kennedy Jr.
*Welcome to the latest issue of the Bitcoin For Families newsletter. This issue covers the potential implications of a Bitcoin backed US dollar.*
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# What are the implications of a Bitcoin backed US dollar?
On July 19th, presidential candidate Robert Kennedy Jr gave a speech at a PAC event where he declared the plans of his administration to, at least partially, back the US dollar with gold, silver, platinum and Bitcoin.
You can watch the whole 10 minutes speech here:
[](https://cdn.jwplayer.com/previews/5S9igNBe)
What could happen if RFK Jr. does get elected and goes forward with this promise? Let’s look at some scenarios.
## What will the RFK administration do?
RFK Jr. said he would back 1% of the treasury bills (T-Bills) issued by the treasury with gold, silver, platinum and Bitcoin.
T-Bills are short-term securities issued by the government with a maturity rate of 4, 8,13, 17, 26 or 52 weeks. The interest rate is set based on the offers done by those bidding on the auction. For example, a recent auction of 26 week T-Bills closed with an interest rate of 5.25%.
Let’s assume that Bitcoin is priced at $32,000 US dollars and that you buy a 26 weeks T-Bill worth $100 and backed by Bitcoin. This would mean that the US government must have possession of 312,500 satoshi (0.00312500 BTC) to back this T-Bill and you should have the option to exchange the T-Bill for that amount of Bitcoin at the end of the 26 weeks.
What would happen if after 26 weeks, **the US dollar became weaker than Bitcoin** and the exchange rate is now $34,000? Now you only need 294,118 satoshis to back the $100 T-Bill and since the US government had set aside 312,500 satoshi, then all is good.
What would happen if after 26 weeks, **the US dollar became stronger than Bitcoin** and the exchange rate is now $28,000? Now you need 357,143 satoshi to back the T-Bill and since the US government had set aside 312,500 satoshi, they would need to purchase 44,643 more satoshi to continue to back the T-Bill.
>I doubt the US government will be willing to take this exchange rate risk with its debt obligations.
Therefore, the most likely scenario is that the US government sets a fixed exchange rate for the maturity life of the T-Bill. Maybe equal to the exchange rate at the time of the auction.
This means that after 26 weeks you could exchange your T-Bill for 312,500 satoshi no matter what the actual exchange rate is at that point.
## What will this do to the price of Bitcoin or the US dollar?
1. The US dollar will get stronger when compared against other fiat currencies not backed by anything:
The US government will send a very strong signal to the world that Bitcoin is the new gold and a very valid store of value. The world’s hardest liquid asset.
Therefore, backing the US dollar with Bitcoin will make the US dollar stronger when compared with other fiat currencies.
2. The US dollar will get weaker when compared against Bitcoin:
The demand for Bitcoin by the US government will put upward pressure on the exchange rate for Bitcoin against all fiat currencies, including the US dollar.
3. A continued policy of expanding the amount of T-Bills backed by Bitcoin will only exacerbate this process, making the US dollar stronger against other countries currencies and driving the price of Bitcoin up both against the US dollar and by extension other fiat currencies (which by definition are now weaker than the US dollar).
## What will investors do?
Investors will demand either the same or maybe even lower interest rates for Bitcoin backed T-Bills with the assumption that the Bitcoin amount backing the T-Bill will be worth more after 26 weeks.
The scenario where investors demand higher interest rates because they believe that Bitcoin will get weaker is unlikely since, even if this happens, the T-Bills are denominated in US dollars and investors won’t be forced to redeem the T-Bill for Bitcoin at the end of the 26 weeks.
## What will other countries do?
At first, other countries will just watch and see.
But the upward pressure on the price of Bitcoin will make a US T-Bill more attractive than its European Central Bank equivalent causing the Euro to lose value compared against the US dollar.
The same applies to any other fiat currency (not backed by anything).
Other countries will be forced to back some of their short-term debt with Bitcoin to avoid having to pay higher interest rates to counteract the higher attractiveness of the US T-Bill.
## The consolidation of Bitcoin as store of value
If all countries start using Bitcoin to back their debt, that will consolidate Bitcoin as the best store of value.
Bitcoin has to first settle as a store of value before it can be used as a medium of exchange and unit of account (what is commonly known as hyperbitcoinization). This possible action by the US government might well be the linchpin that triggers the hyperbitcoinization.
If the other countries do nothing, the US dollar will cement itself as the global reserve currency and the hyperbitcoinization will still happen, just a bit slower since there will be no demand from other treasuries.
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# Notable notes
nostr:note1dgh2ga7q397huzfcf9ah06ptvcxxwcmfx5yhctw0rh4t6ylvud4s0nrn75
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# Recommendations
## Max DeMarco
Max is the creator of a great documentary about social media and why we need Nostr.
Watch the documentary here:
[](https://youtu.be/aA-jiiepOrE?utm_source=newsletter.bitcoinforfamilies.com&utm_medium=newsletter&utm_campaign=what-will-happen-with-a-bitcoin-backed-us-dollar)
You can follow Max [here](nostr:npub1lelkh3hhxw9hdwlcpk6q9t0xt9f7yze0y0nxazvzqjmre3p98x3sthkvyz).
## Bitcoin Therapy 🧠
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See you again next week!
— Alejandro
This newsletter is for educational purposes. It does not represent financial advice. Do your own research before buying Bitcoin.