The US and Germany just sold nearly 5,000 bitcoins: they were supposed to add them to foreign reserves

Bitcoin holders, disheartened by the currency’s latest collapse, have found a new target to blame: national governments dumping large amounts onto the market. They might be right. In the last week alone, the US government moved to sell 3,940 Bitcoins (worth around $240 million) seized from a drug trafficker in 2014, while the German government dumped 900 Bitcoins, fueling fears that Berlin could sell entire stock of over 45,000.

These government treasures together are worth billions of dollars. Even though Bitcoin is highly liquid and widely distributed, it is still subject to the law of supply and demand, and large-scale sell-offs will inevitably cause prices to fall. This is hardly the first time, however, that government sell-offs have put a strain on Bitcoin prices. In the case of Uncle Sam, the United States Marshall Service auctioned off seized Bitcoin reserves by the FBI, IRS, DEA and other agencies for over a decade now.

In the early days of Bitcoin, when its staying power was in question, it made sense for the US government to promptly sell off the seized currency. Today this “sell everything” mentality makes less sense. Whether you like the currency or not, the reality is that people in every country in the world hold Bitcoin and it has been one of the highest performing assets of the last decade. So why doesn’t Uncle Sam stick around for the long haul?

I’m no expert on foreign reserves, but the broad strokes are that central banks hold other countries’ currencies to cushion the shock if their currency falls into crisis. The most popular choices include the euro, yen, pound and, of course, the dollar. In the case of the United States, the need to hold foreign reserves is less urgent given that the dollar is the main reserve currency for the entire world. Anyway, government relationships show that the United States holds at least $35 billion in euros and yen.

Given inflation and geopolitical concerns, is it safe to say that the yen and euro—not to mention the pound and Swiss franc—are more durable than Bitcoin? It would seem prudent for governments to allocate a small portion of their reserves (perhaps 2% to 5%) to the most popular decentralized currency. Indeed, they have held another non-government-backed asset, gold, as part of their currency reserves for centuries.

This is already a live problem in Switzerland, where Bitcoin supporters are pushing for a law change to allow the Swiss central bank to hold it. The bank’s president rejected the suggestion, arguing that Bitcoin is neither liquid nor sustainable. I’d be curious to know how many young Swiss people think the same way: it’s a safe bet that many wouldn’t agree.

Dr. Jeff John Roberts
jeff.roberts@fortune.com
@jeffjohnroberts

DECENTRALIZED NEWS

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Loss surpassed Coinbase in March to become the world’s second-largest cryptocurrency exchange, behind only Binance.Bloomberg)

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