The Breakdown - Is the US Sovereign Wealth Fund a Sneaky Proxy for a Bitcoin Strategic Reserve?

Episode Date: February 5, 2025

.....or is that just insane wishful thinking? NLW explores the latest Trump executive action. Once again, mainstream economic wisdom is skeptical, but should we reserve judgement until we see the specific proposal? Sponsored by: Ledger Ledger, the world leader in digital asset security, proudly sponsors The Breakdown podcast. Celebrating 10 years of protecting over 20% of the world’s crypto, Ledger ensures the security of your assets. For the best self-custody solution in the space, buy a LEDGER™ device and secure your crypto today.Buy now on Ledger.com. Enjoying this content? SUBSCRIBE to the Podcast: https://pod.link/1438693620 Watch on YouTube: https://www.youtube.com/nathanielwhittemorecrypto Subscribe to the newsletter: https://breakdown.beehiiv.com/ Join the discussion: https://discord.gg/VrKRrfKCz8 Follow on Twitter: NLW: https://twitter.com/nlw Breakdown: https://twitter.com/BreakdownNLW

Welcome back to The Breakdown with me, NLW. It's a daily podcast on macro, Bitcoin, and the Big Picture Power Shifts remaking our world. What's going on, guys? It is Tuesday, February 4th, and today we're talking about a U.S. sovereign wealth fund. Before we get into that, however, if you are enjoying the breakdown, please go subscribe to it, give it a rating, give it a review, or if you want to dive deeper into the conversation, come join us on the Breakers Discord. You can find a link in the show notes or go to bit.ly slash breakdown pod. All right, friends, obviously we have to start with a quick update on the tariffs. After an angst-ridden weekend, President Trump has backed away from tariffs at the last moment. Separate deals were reached with Canada and Mexico to delay tariffs for one month

after each pledge to spend over a billion dollars on border control. Perhaps this was the tactic all along, but in any case, it turns out that Trump was much more open to negotiate than he had initially let on. Going somewhat under the radar is that the tariff increases on China will still go ahead. This includes removing the de minimis import tax exemption, which would impact Chinese e-commerce entering the country. Still, we got into all of that before, so now we are moving on to the next big Trump headline, which is the signing of an executive order to establish a sovereign wealth fund. The executive order tasks Treasury Secretary Scott Besson and Commerce Secretary Howard

Lutnik with presenting a plan for the fund within 90 days. This includes a funding mechanism, investment strategies, and a governance model, meaning in other words that all of those details are still up in the air at this particular stage. All we really have is a stated goal. To quote, promote fiscal sustainability, lessen the burden of taxes on American families and small businesses, establish economic security for future generations, and promote United States economic and strategic leadership internationally. As for speculation on what the fund might invest in, we have a few brief remarks from administration officials. Besson said, invidia to the moon. Actually, what he said was, we're going to monetize the asset side of the U.S. balance sheet for the

American people. There will be a combination of liquid assets, assets that we have in this country as we work to bring them out for the American people. Which honestly, Nvidia to the moon would have been more instructive than that. Although the policy is vague, Besson considers the fund an issue of, quote, great strategic importance. Both Trump and Lutniks seem focused on the idea of using the fund to purchase TikTok, although they didn't elaborate on the details. Lettnick said, the extraordinary size and scale of the U.S. government and the business it does with companies could create value for American citizens. If we're going to buy two billion COVID vaccines, maybe we should have some warrants and some equity in these companies, and have that grow for the help of the

American people. Sovereign wealth funds are, of course, a well-established institution for some countries. The most successful examples are the government pension fund of Norway and the public investment fund of Saudi Arabia. Both are vehicles for reinvesting excess profits from oil sales for the benefit of the public. This highlights one of the peculiarities of a U.S. sovereign wealth fund. In a macroeconomic framework, a sovereign wealth fund really only makes sense for absorbing excess government revenue. Tax cuts and social welfare payments have diminishing returns at a certain point, so the theory is that it's better to invest surpluses in productive assets. Having a ton of oil money sloshing around in an economy is also a great way to drive up inflation. Viewed through

that very traditional lens, a U.S. sovereign wealth fund doesn't make sense. Hedge fund manager Clifford Asnus wrote, apparently we're running a surplus now as a country, right? I mean, no sane country would raise taxes or borrow money just to speculate on stuff, right? Economist John Cochran commented, borrow short treasury rate, make risky bets, charge high fees. She'd call it a sovereign hedge fund. Wealth fund needs wealth. Former hedge funder at MMT academic Morin Mosler wrote, These make no sense with local currency, as would be the case for the U.S. There's also a concern that this could be a repeat of the one MBD scandal. Political analyst Gavin Bina wrote,

Remember when Malaysia created a sovereign wealth fund, and their head of government and his businessman friends stole 4.5 billion from it to fund political campaigns and extravagant parties? Because they ended any regulatory bureaucracy that would stop them? just wondering. Now, one MDB also did fund films including The Wolf of Wall Street and Devon Number 2, so let's agree to call it a mixed bag. Closer to home, though, there are a few models that make a little more sense. 20 different U.S. states currently have sovereign wealth funds. The largest is the Alaskan Permanent Fund, which has been in operation since 1972, and is funded by oil revenues. The fund issues annual dividends to residents, typically around

$1,500 per year. More recent examples include the North Dakota Legacy Fund and the Permanent Wyoming Mineral Trust Fund, both funded by resource extraction royalties. both use returns to fund government spending and infrastructure projects, decreasing the tax burden for residents. Wyoming Senator Cynthia Lummis wrote, Wyoming's sovereign wealth fund is a boon for our economy and helps Wyoming keep taxes low. Interesting come-off state investments is the second largest source of funding for state government. As ever, the states are the incubator of great ideas. So what could a U.S. sovereign wealth fund do? Trump actually discussed this proposal on the campaign trail. He said it would be funded using tariffs and other intelligent things. Among the stated uses,

were funding infrastructure, manufacturing hubs, defense capabilities, and medical research. I feel like I don't even have to tell you that over on the Bitcoin side of Twitter, folks are looking at this as the de facto Bitcoin Strategic Reserve coming together. Bitcoin historian Pete Rizzo wrote, President Trump signed the executive order to create the first U.S. sovereign wealth fund. It will be run by two Bitcoin hoddlers. Cynthia Lummis hinted at this, tweeting this is a big deal with the Bitcoin B.

Investor Mason Ford tweeted, Bitcoin Strategic Reserve was a misstep in branding. Sovereign wealth fund, on the other hand, fits neatly within the Overton window, making it far less controversial. A smart move in my opinion. Hello friends, I am thrilled to share that Ledger is once again partnering and sponsoring with the breakdown. Many of you know, but for those of you who don't, Ledger is the most secure hardware wallet for your crypto and logins. It's trusted by 7 million users and secures 20% of the world's digital assets. What's more, Ledger is a lot more than wallets. Over the recent years, they've built a comprehensive ecosystem of products and services, all of which are designed to make digital ownership more secure and accessible. You can buy your

Bitcoin with Ledger and Ledger Live and so much more. Basically, not only did they want to keep your assets secure, they want you to be able to do more with them. Ledger's newest devices, the Ledger Stacks and Ledger Flex introduced the world's first secure touchscreens, making it easier and safer to manage your transactions and assets. Alongside Ledger Stacks and Ledger Flex, the company also launched the Ledger Security Key app, offering a safer alternative to traditional passwords and enhancing your digital security. If you are in this space, you owe it to yourself to at least check out Ledger and their ecosystem what they have available to you. So thanks once again to Ledger for sponsoring the show. But while it may be less controversial than a Bitcoin strategic reserve, the sovereign

wealth fund still could face political headwinds. Democrat Representative Sean Kasten tweeted, It takes galactic stupidity to simultaneously ask the Congress to expand the debt limit and create a sovereign wealth fund. This is the first week of accounting class math error. This proposal is also happening the week after Elon Musk's Doge took control of the Treasury payment rails in what is a very controversial move. There's far too much to get into here that is fairly outside the scope of this show, but suffice it to say that there's genuine concern on the left about an unelected billionaire dealing with the public purse, meaning that many people are going to assume that this is a play to set up a parallel funding mechanism that circumvents Congress. Richard Farr, the chief

market strategist of Miriam Capital Group, tweeted, sovereign wealth is basically public sector control of the private sector. We would just do it nicely, unlike the CCP, at first. In an interview with Howard Lettnick in November, the Commerce Secretary spelled out the idea, stating, if we took the power of our 6.5 trillion a year spending, got equity for it and put it into Social Security, then it would be paid for. He essentially described leveraging the U.S. government's role as a monopoly client to boost the value of the companies they deal with. The proposal wasn't to buy equity, but rather to take it in exchange for more favorable contracting terms. Investor Andy Constant tweeted, so in order to continue to do sizable business

with the U.S. government, companies are going to have to dilute their private sector investors. Got it. Mike Green have simplified assets commented, so increase corporate taxes by any other name. just capture an equity multiple on it, which is absurd because you could never sell. This one is a hard one to know exactly how seriously to take it or how much to dig into it until we have more sense of what the real proposals are. I think on the one hand, and once again I find myself in the unenviable position of trying to explain the other side when everyone is screaming that this is completely insane, take away all the specifics.

And I think on a very base level, the appeal of something like this for the politically minded and imagining the attitude of an average American citizen or at least an average American Trump voter. The U.S.'s private sector creates incredible amounts of wealth, right? The U.S. of course, captures that through Texas, but there's something very make America great again about the idea of the U.S. government investing in and having a stake in the country's greatest innovations. Now, I will say that that is very different than taking equity in exchange for more favorable contracting terms, which is what Lettnick was talking about last fall, which is again why I say let's wait and see what the specific proposal is. But in any case, if you take it, if you take a lot of the same, you

take away nothing else from this week, it is demonstrating that under President Trump, all of the rules of global trade, finance, and state craft are fundamentally up for debate. Speaking of Treasury Secretary Scott Besson, he has been handed control of the Consumer Finance Protection Bureau. His first order of business as acting director appears to be halting basically all activity. According to Brendan Peterson at Punchbowl News, a memo sent on Monday instructed staff to, quote, halt movement on any proposed or final rules or guidance, suspend effective dates of rules, not to advance investigations and enforcement actions, not to make material agreements, and not to publish any public communications or reports. The CFPB has, of course, become one of the most

controversial government departments over the past year. It was initially proposed by Elizabeth Warren in 2007, when she was still a law professor, and authorized in 2010 under the Dodd-Frank Act. Outgoing director Rohit Chopra, who was fired over the weekend, was viewed as one of the key policymakers behind Operation Shokpoint 2.0. Venture capitalist Mark Andresen named the CFPB as the agency in charge of debanking the crypto industry and conservatives during his appearance on Joe Rogan in in late November. At the time, Elon Musk tweeted, delete CFPB. There are too many duplicative regulatory agencies. For the crypto industry, the other big CFPB proposal was a piece of midnight rulemaking that would extend consumer protection to crypto wallets. Basically, the idea was to extend protections

on credit card spending to various forms of digital accounts, forcing payments to be reversed in the case of fraud. The issue, as is literally always the case, was that the rule wasn't specific and potentially applied to all crypto wallets, including self-hosted wallets. Applying this type of consumer protection to the range of hacks and frauds that impact crypto investors would be impractical if not crippling for the industry. It's not impossible to think that a handful of stolen NFTs could bankrupt small wallet providers. At the time, CoinCenter argued that dealing with self-custody of assets was beyond the regulatory authority of the CFPB and also unconstitutional. The rule was still out for comments so was months away from implementation, but obviously the crypto industry is not sad to see

the backside of this particular agency. Still beyond our sector, the move is raised a lot of controversy. Cybercrime journalist Bob Sullivan wrote, The CFPB has been incredibly effective at sticking up for U.S. consumers against misbehaving U.S. financial institutions. Putting the Bureau on ICE only helps a small group of people, and I'll bet you aren't one of them. Colin Seaburger, the Senior Coms Advisor for the Center for American Progress, commented, shutting down CFPB isn't about saving taxpayers' money, it's about enriching the biggest banks, credit card companies, mortgage and payday lenders by letting them pick your pocket. Still taking the more nuanced stance, one of the issues plaguing institutions over the past decade

is that noble goals that most people agree with often give way to sprawling overreach. To wit, most people agree that consumer protections on financial products is good, but there are very few in favor of political debanking. Jake Trevinsky commented, Trump put Treasury Secretary Besson in charge of the CFPB. His first act, shut it down. The CFPB is one of those DC agencies with a vaguely nice name that does exactly the opposite of its stated mission.

Only Congress can eliminate the CFPB for real, but this is second best. It continues to be a highly dynamic beginning of this administration, we will continue to try to break down exactly what's going on, angering everyone by sharing every opinion, including the ones they most disagree with, but hopefully giving you the information you're actually looking for. For now, that is going to do it for today's breakdown. Appreciate you listening, as always. Till next time, be safe and take care of each other. Peace.