"Bitcoin Strategic Reserve" for Luxembourg: the match!

The setup

The "Bitcoin Strategic Reserve" (BSR) topic has popped up in many places lately, following its first appearance in the US more than a year ago. To my satisfaction, it surfaced recently in the public debate sphere in Luxembourg.

With OffChain Luxembourg a.s.b.l., we had launched at the beginning of 2025 "The Orange Heart Initiative", a public call to politicians, business leaders and the general electorate to seize upon and debate the topic.

In the red corner ...

Things started moving when a prominent business figure, Mark Tluszcz, wrote a public tribune arguing in favor of a BSR for Luxembourg. Without openly referencing it, Mark alluded to our initiative in the title of his article.

The umpire ...

A highly influential MP and city alderman, Laurent Mosar then echoed Mark's article, asked the typical questions and laid out the standard concerns.

In the blue corner ...

The scene was set when a second well-known venture capitalist, Pascal Bouvier, replied to Mark Tluszcz taking the opposite view: a BSR would make no sense for Luxembourg. His approach and reasoning were mostly sound ... except that the author relied on what I felt were false, or at least debatable, assumptions.

They can't both be right, can they? ...

In this article I'll follow Pascal Bouvier's approach, for several reasons: Mark's argument for a BSR is primarily a call backed by a vision of the future. I share that vision but if someone does not, it is hard to argue with a projection of things that might come to pass, but might also not happen. In contrast, Pascal's rebuttal is rational and based on comparison with visible "anchors" such as the "Strategic Petroleum Reserve" that several countries manage (the US, China, Japan, India).

As Pascal rightly says, a strategic reserve exists to insure resilience in case of disruption due to crises, wars, economic disruptions, embargoes, natural disasters. What he doesn't see though, is what type of disruption could a SBR protect against?

The crisis scenario

If and when Mark (or anyone else) will debate Pascal, he should come with concrete, down-to-earth arguments facing and refuting the skeptics worries, rather than with a projection of the future where an SBR would burnish Luxembourg's image as an advanced fintech hub and attract talents - however right and compelling that vision is. He should lay out one or more possible crisis scenarios (the more plausible, the better) in which Bitcoin could prove vital to the continuation of economic activities.

Unfortunately, such a crisis scenario is not difficult to imagine, and it becomes ever more likely every day. At the heart of it, the current international trade system and the monetary infrastructure underpinning it. The signs of an impending global crisis have been clearly seen by many observers. I've chosen to illustrate here with yet another LinkedIn article from widely respected Professor Bruno Colmant. I posit that Pascal Bouvier knows and respects his opinion too.

Bruno Colmant argues that an unsustainable US public debt burden and a dangerously fragile dollar are setting up the world for a rude awakening. This academic and somewhat abstract article is just one piece in a broader view that paints a much darker picture. In a subsequent post, Prof. Colmant looks closer at the nascent embrace between crypto and traditional finance and notices that with the GENIUS act, the US has ignited a stealth monetary war.

Although only "monetary" and "stealth", the world is at war ... And unlike a conventional war, a monetary war does not deplete stocks of shells or ammunition, a monetary war depletes trust. When talking about the Trump regime, which destroyed or severely damaged the trust earned through decades of good faith cooperation in the first three months of his presidency, Prof. Colmant talks of "digital fascism".

Unlike classical wars, monetary wars do not deplete stocks of shells or ammunition. Instead, monetary wars deplete trust.

The whole geopolitical post-WW2 order is collapsing under our eyes. China is shrewdly propping up Russia in order to keep the US busy so it cannot fully pivot towards the Chinese sphere of influence. Now imagine that Xi Jinping decides to invade Taiwan. This is the kind of global crisis every country should be prepared for. Think of the consequences on the vast network of international trade that is today oiled by the US Dollar.

An open confrontation between China and the US will force all countries to take sides. Europe is understandably expected to side with the US. But imagine for a second that Brazil, for instance, or Indonesia, make a sovereign decision to side with China. The EU imports iron ore and oil for its industry, soy meal for its cattle farmers, coffee for its consumers, and many other products from Brazil. A majority of these exports were paid for in ... US Dollars. But if Brazil makes the sovereign decision to side with China, it will likely be "sanctioned" by the US and cut off from USD financial circuits. It will become impossible to pay Brazilian exports in USD. And while for some of those contracts the Brazilians are probably going to accept euros instead, the induced trade friction for the remaining part will be enormous.

Furthermore, Europe at least does have a credible currency that could grow in importance as an alternative to the USD. But let's think of other countries, such as Australia. In 2023 almost 90% of Australia's exports and almost 60% of its imports were invoiced in USD. In a world where the US and China will force countries to take sides, and those siding with China will likely lose access to the USD, you can imagine the difficulties that Australia, a staunch US ally, will face in its trade relationship not only with China (a big trading partner) but also with countries such as South Africa or Pakistan (likely China allies).

What have international trade disruptions to do with Bitcoin?

Currently, very little. But Bitcoin is an algorithmic product and, despite some fluctuations induced by human behavior, its trend is abundantly clear. The argument that "Bitcoin is volatile" only makes sense in a stable world with stable fiat currencies and reliable financial rails. For a country coming under US sanctions - and the erratic nature of the current US president tends to indicate that nobody is safe, not even Denmark, given Trump's craving for Greenland - the value of the USD for those countries will suddenly collapse to near zero. Consequently, the value of Bitcoin for these country will increase many-fold.

Imagining that under such a stressful international situation, alongside the use of local currencies such as BRL, AUD or ZAR, a significant proportion of bilateral trade contracts will be settled in Bitcoin instead, is not that difficult: Bitcoin offers fast, robust, independent settlement rails that can arguably withstand American interference. For Bitcoin to become a settlement vector for trade in goods all that's needed is a "on / off toggle" of one country accepting it - once that dam cracks, the trickle can rapidly turn into a flood, as is the nature of confidence plays. And currencies are precisely that: "partially trusting" a currency is not a stable situation - you either trust it or you don't. The fact that nobody has yet trusted Bitcoin in international trade is therefore an unreliable indicator of whether it may happen in the future. And this is perhaps the most valuable characteristic of Bitcoin: by design, it intrinsically is trustworthy.

To sum up the line of argument until now, Bitcoin, an independent financial circuit that nobody owns, could prove salutary for the continuity of international trade in a world torn between two opposing camps, one of which owns today's currency of international trade.

Bitcoin is highly liquid: it is immediately accessible and can be mobilized in seconds and change hands in under one hour with full reliability even under situations of systemic or geopolitical disruptions. Indeed, despite its considerable influence, the US can not cut off a country from the internet (nor cut out its electricity supply). Sending Bitcoin only requires internet access and the amount sent is almost the same as the amount received, with barely any friction and very low transaction costs.

Bitcoin is not accepted yet as a currency, but as I pointed out above, this is no indication that it won't become suddenly an acceptable alternative, because this is the nature of trust objects: they are binary - once enough countries begin using and trusting Bitcoin, the movement becomes self-reinforcing and before you know it everybody is using and trusting Bitcoin.

By design, Bitcoin, an algorithmic product, is intrinsically trustworthy. The fact that it hasn't been trusted yet in international trade is not a reliable indicator of it becoming trusted in the future, as currencies are "binary trust objects": once enough countries begin using it, the movement becomes self-reinforcing.

Pascal Bouvier likens Bitcoin to Pokémon cards and some of his readers like that analogy. While amusing, it is a deeply flawed analogy : Pokémon cards are under the control of one entity, "The Pokémon Company"; nobody can object to the owner of the franchise printing and selling more cards, thus diluting the rarity value of the existing ones. Because of that, since 1998 when Nintendo, Game Freak and Creatures Inc. established the joint controlling company, only a relatively stable proportion of people assign value to Pokémon cards. In contrast, over the past 15 years, as the number of people understanding the fundamental characteristics of Bitcoin has increased, that increase has been reflected in a steady overall increase in Bitcoin's price. And that, despite the "Cambrian explosion" in the number of currencies inspired by Bitcoin, relying on similar or better technologies and offering better functionalities.

Pascal also mistakenly sees "liquidity" with respect to Bitcoin's conversion to fiat currencies. This is a glaring blind spot in his reasoning which challenges the soundness of his argument: the strategic importance of Bitcoin is not as an asset to be converted to a pivot fiat currency, but as an alternative currency standing on its own, challenging the Central Bank-issued currencies.

This aspect also weakens his fourth argument based around an alleged "operational fragility": Bitcoin does not depend on "exchanges", because as Pascal himself notes, the purpose is not to "play", "speculate" and "make fiat gains", but to use it as is, as a transferable unit of account and store of value. Anecdotally, Mt.Gox was processing about 80% of Bitcoin trades in 2014, at a time when Bitcoin was a lot more fragile than it is today; Bitcoin shrugged MtGox's demise. Today Bitcoin is traded in hundreds if not thousands of exchanges all over the world.

Nor does Bitcoin depend on "friendly jurisdictions", especially under the crisis scenario laid out above. A convincing illustration is the ban on Bitcoin mining that China suddenly enacted in 2021 (after having banned cryptocurrency transactions in 2018), at a time when almost two thirds of all hash power was concentrated in China. Sometimes called "the honey badger of money", Bitcoin again shrugged. Mining rigs were exported to other places, like in a game and "whack-a-mole", and hash power quickly recovered. Furthermore, Bitcoin allows sovereign nations to resist the financial bullying of an unpredictable and untrustworthy US administration that might turn unfriendly (for instance because it wants Greenland or the Panama canal).

Yes, Bitcoin depends on electricity and on the internet - but don't all (bank) money transfers for the purpose of settling international trade depend on electricity and the internet? Let's then compare what's comparable.

Remains the question of pricing goods and services in Bitcoin under an unstable international monetary regime where the value of the USD itself is called into question. How much Bitcoin for a ton of Vale or BHP iron ore? How much Bitcoin for a ton of Brazilian coffee? While hard to say in advance, these appear as questions best left to the markets to settle. If the global monetary system is in complete disarray and a new value scale will have to emerge, we will remember that we were in the past been able to price goods and effort in salt, sea shells or gold. Such is the effect of crises.

Therefore, Bitcoin is a strategic asset. Both its issuance and its transfer are independent of nation states. Bitcoin functioning is predictable and therefore trustworthy. In the not-unlikely scenario of an international monetary crisis, Bitcoin can alleviate the worlds' dependence on the US Dollar for international trade, which is a vital component of modern economies.

Revisiting Bitcoin

Pascal's second argument asks "what is bitcoin"?

Bitcoiners would answer this question by explaining the elegance of Satoshi's whitepaper and glossing about crypto-anarchism, b-money, hashcash, and timestamp servers. About the auditability of the open-source code and the unparalleled reliability of a network that has added a "block" to the "blockchain" every 10 minutes for the past 15 years without interruption.

In contrast, Pascal eludes completely the intrinsic nature of bitcoin as a technological product and instead misplaces his focus on ... Bitcoin's pricing by the markets in fiat currencies. He argues that Bitcoin is the archetype of a J.M. Keynes "beauty contest" asset, where prices are formed in an infinitely-reflexive guessing game of what everyone thinks the price will be.

The fatal flaw in Pascal reasoning is ... ignoring history, ignoring the technology, ignoring the Bitcoiners. Indeed there is little need for an object of Bitcoin's nature in a world where trust reigns and it is honored by its depositories.

Yet the Great Financial Crisis of 2007-2009 was a massive breach of trust that shocked the world to its core. Pascal has certainly lived it firsthand, but has probably forgotten it. For him and all those who need a reminder of history, I recommend re-watching the excellent 2015 movie, "The Big Short". It is at that very moment, and in response to those very events that Bitcoin was born.

When it was launched, Bitcoin was little more than a promise rooted in technology. Few people understood the power of that technology and started believing in it. Sixteen years on, that technology has been thoroughly proven. For all practical purposes, it is the most reliable IT system ever built by humans. As confidence in it increased, its price followed and the price increase attracted a lot of people seeking fiat gains. Most of these followers that have begun appearing once Bitcoin began trading in earnest in the middle of 2011 are indeed fickle. They mainly focus on what other think the price of Bitcoin will be in the future, typical of J.M. Keynes description of the "beauty contest".

Although far less numerous, those who are the bedrock of Bitcoin's fiat value are the early Bitcoiners, those who spent time and resources "mining", securing, and expanding the network in the first 18 months of Bitcoin's existence. During that time, Bitcoin was not traded and had no monetary value, so they weren't doing it "for the (fiat) money". Although more than 12, they were comparable to Jesus's 12 apostles, acting out of faith. The early Bitcoiners break Pascal's narrative of the "beauty contest" - they weren't in it for the money then, they were at it for so many years, it is unlikely that they are going to ever despair and sell Bitcoin to zero in exchange for a fiat currency that they made an act of faith loathing.

So why should Luxembourg seriously consider a BSR?

Once his first and second argument were refuted, Pascal's third and fourth argument are turning against his thesis. In his third argument, he implies that it is the US itself who would like Luxembourg (and probably other countries) to own Bitcoin because that would enrich those who own it (the US, that is).

One obvious thing that escapes Pascal is that unlike Jack Daniels' bourbon, Harley Davidson motorcycles, or Boeing 737 airplanes, which the US wants us to buy because it alone produces them and if we buy more, it can produce more, the US does not have a monopoly on Bitcoin production. Luxembourg could build a BSR by mining Bitcoin rather than buying it (and thus enriching the sellers) just like the US does, mining is open to everyone. Arguably, Luxembourg is a net energy importer, so Pascal's third argument is thus akin to saying "Luxembourg should not create a Strategic Petroleum Reserve because this is what the Saudis want us to do, as they would get rich by selling us their oil." Not that with respect to energy production, that is not the case of France for instance, which can easily produce an excess of cheap and clean nuclear energy - and yet Franch authorities are obtuse enough not to do it, which tends to show that most skepticism is not rooted in rational thinking but rather in ideology. Even if, through nobody's fault but its own, Luxembourg came to build a BSR by buying Bitcoin, those who sell would not have them anymore (and producing new ones would be a lot harder, by design), and its usefulness in case of a monetary crisis will still stand, as the US does not and cannot control the network or the ownership of Bitcoins.

Pascal's fourth argument is incredibly muddled, mixing two opposing concepts: Bitcoin, an independent asset running on an unstoppable network that no state can control would be a "gateway drug" to USD stablecoins. Yet Bitcoin is a synonym for financial independence whereas the USD stablecoins represent the exact opposite: financial indenture to the United States. It would be a bit like saying "the US wants us to buy nuclear power plants in order to then sell us nuclear weapons". Yes, just like nuclear weapons and nuclear energy both use the fission of uranium nuclei, both Bitcoin and USD stablecoins use blockchain technology. But confounding the former with the latter is as damning to the author as confusing nuclear power plants and nuclear bombs. This shows that Pascal would be be well served by an in-depth Bitcoin education.

Conclusion

To understand Bitcoin, you don't need to understand in detail elliptic curve cryptography, hash functions or Merkle trees. You don't need to understand in detail distributed computing, Byzantine Fault tolerance nor Sybill-attack resistance.

To truly understand Bitcoin you need to understand the human nature. Some people intuitively "get" how humans function. For the rest of us, the systematic approach to analysing and predicting human behavior is provided by a field of mathematics called "Game theory".

Game theory deals with modelling and predicting the outcome of interactions among autonomous, self-interested actors. In other terms, human beings.

Game theory is widely used in economics and the most famous game theorists, such as John Nash, were awarded Economics Nobels rather than Fields medals.

I would thus like to invite those still sceptical of Bitcoin to arm themselves with game-theoretical tools and embark on an in-depth analysis, if they have never done so before.

We all have started sceptical of Bitcoin. Yet I'd like to point out a powerful and tell-tale asymmetry: today in the world you'll meet people who are still sceptical of Bitcoin and people who have understood and embraced Bitcoin. What you'll be hard-pressed to find is people who, at some point, embraced Bitcoin ... but "came back" to being skeptics again!

I'll say that again: nobody except Satoshi began his journey as a Bitcoiner. Everybody was, at some point, a skeptic. All the Bitcoiners became so consciously, through their own mental processes. Some in 2011 or before, some in 2016, some in 2020, some even later. And yet no Bitcoiner ever "converted back" to being a skeptic.