Editorial note: I know I said I was going to write about other things, but the following point just occurred to me.
The Fed is currently committed to purchasing $88 billion USD per month in assets.
Regardless of whether you agree with their policy, they should set aside a million dollars per month from that amount (which is so small that it couldn’t be represented in the error bars of their purchase) and use it to purchase BitCoins, on a cost-averaged basis, at whatever the exchange rate happens to be on that day. There’s basically no risk for them at all at that small volume, even if those BitCoins wind up being worthless.
Why, you might ask.
Sounds like a silly (even childish) endeavour for so serious an institution as the US Federal Reserve Bank. After all, the entire BitCoin economy is only a billion and a half dollars.
Here’s the thing: at least some BitCoin enthusiasts believe fervently that BTC is going to be a multi-trillion dollar economy some time soon, and will in the process displace fiat currencies. I would be overjoyed if that were to be the case, but I’ll reserve judgement for now.
At the very least, BTC is a very interesting beasty, and it has some exceedingly useful properties in terms of what the Fed claims to be trying to accomplish.
- It would provide a floor for the BitCoin market, in addition to lots of liquidity.
- It would ipso facto allow BitCoin to grow into what it theoretically can become. With major involvement, other big parties would feel more comfortable jumping in, more eyes would be on the markets (theoretically driving out the crooked players), and there would be impetus to build scalable exchanges (and to regulate away the pump and dump nonsense)
- Key issue, from the Fed’s perspective: It would provide a highly effective trickle down effect to places the current stimulus doesn’t reach – many ordinary people on the street mine BitCoin, which would be made more valuable by the purchase; this would also trickle up to a wide variety of hardware manufacturers (some of them niche) as well.
- If (or when) BitCoin finally does become a global reserve currency of sorts, the Fed would have enough of a stake in the market to allow the US economy to still be relevant.
A similar argument applies to all other world economies.