Bitwise Research Head: A Sober Reflection on Over-Optimism Regarding the U.S. Bitcoin Strategic Reserve

Author: Jeff Park

Translation: TechFlow

Since last November, I’ve been one of the few voices expressing caution toward SBR (Strategic Bitcoin Reserve). Therefore, witnessing what is now one of the fastest declines in Bitcoin’s history doesn’t surprise me.

However, for those with foresight, this moment presents a rare opportunity. I will share the specifics of this opportunity shortly. But first, we must understand the root of the problem to properly address it.

The failure of SBR lies in the fact that its hastily announced launch did not pave the way for Bitcoin's ultimate adoption as global store of value (SoV).

This is because a truly meaningful SBR must rely on multilateral cooperation. The absence of such collaboration is precisely why we’re seeing market sell-offs led by Japan today.

Japan, as a critical player in the global financial system, cannot be left behind in the new era of Bretton Woods 2.0—a system requiring a complete restructuring of the global arbitrage-based financial framework.

Yet current conditions clearly fall short of achieving this goal. Thus, I believe we should stop treating SBR as an endgame. Once it becomes evident that the SBR initiative is entirely politically motivated, it loses the essential Bitcoin principles of “decentralization” and “non-political nature.” At the same time, we risk alienating Japan, which has funded the U.S. for decades through its own financial repression.

A proper strategic reserve should possess the following characteristics:

• Legislative Backing: It must be established through legislation to ensure long-term policy stability. Reflecting on how ESG (Environmental, Social, and Governance) policies quickly unraveled after a new administration took office, we see the limitations of executive orders. This is why I describe the current SBR moment as akin to the BITO (Bitcoin Options ETF) era rather than the IBIT (Bitcoin Spot ETF) era. While imperfect, this transition remains part of progress.

• Programmatic Mechanism: It must adopt collective, rules-based programs instead of discretionary policies. This avoids placing undue risk on public officials. After all, no individual wants to bear personal risk during Bitcoin peaks—especially when such risks result in personal loss while benefiting the public.

• Global Collaboration: It must require broad multilateral coordination, ensuring our allies aren’t left behind as we explore new ground beyond the Bretton Woods framework (see my Venn diagram).

Currently, Japan is fully rejecting the global arbitrage system. Just as the U.S. cannot tolerate long-term interest rates above 4.5%, Japan cannot sustain rates over 1.5%.

When Trump threatened tariffs on Japan—which could push Japanese long-term yields higher—it negatively impacted U.S. equities. But the blow to crypto markets was even more severe. When stocks become unusually cheap, institutional capital costs rise, making Bitcoin investments significantly harder.

For example, Tesla (TSLA) has dropped over 50% from its all-time high, meaning Bitcoin now competes with Elon Musk’s capital allocation priorities—an unfavorable situation.

Trump understands this well, which is why at the end of the White House Crypto Summit, he sarcastically said, “Who knows?” and mocked the SBR slogan: “Never sell your Bitcoin.”

His real aim isn’t to promote Bitcoin, but to create market volatility in service of political goals. This dramatic maneuvering is exactly what led me to anticipate the current market downturn.

Still, there’s good news. Eventually, market liquidity will return. We know Trump will do whatever it takes to boost the economy, and global M2 liquidity indicators are already beginning to rise. Once markets can rationally accept lower 10-year yields, Bitcoin will become the fastest “tax-free racehorse.” While we don’t know exactly when this will happen, the good news is: we don’t need to. Why? Because the answer has already been written in my previous work:

“The launch of Bitcoin ETF options marks the first time regulated leverage trading has been enabled on a truly scarce, perpetual asset. Options do not create ‘value of money,’ but they create ‘liquidity of money,’ and the delta multiplier effect could be extremely favorable for those betting on ‘extremely unlikely long-term events.’”

Formula:

lim (x→∞) ((x+0)/2) = ∞ (and the price of x has just dropped sharply)

TechFlow Note: This formula illustrates Bitcoin’s potential for value appreciation. Here, “x” represents Bitcoin’s current price, while “lim (x→∞)” signifies the possibility of price growing toward infinity over time.

In other words, the current market correction has made Bitcoin cheaper, offering long-term investors a low-cost entry point. The formula emphasizes that Bitcoin’s long-term value may vastly exceed its current market fluctuations.