Why Germany should buy Bitcoin and not sell it

Blocktrainer.de spoke exclusively with Joana Cotar, a non-attached member of the Bundestag, about this topic. The politician plays a leading role in the "Bitcoin in the Bundestag" initiative and recently caused a stir with her letter to Federal Chancellor Olaf Scholz, Finance Minister Christian Lindner and Saxony's Minister President Michael Kretschmer. In this letter, she asked the federal government and the state government of Saxony to "refrain from the hasty sale of state-owned Bitcoin". Cotar also pleaded for a "comprehensive Bitcoin strategy".

Dear Ms. Cotar, the responsible authorities have so far withheld further information on the sales, but the proceeds are to benefit the state of Saxony. To what extent do you draw a connection between the sales by the Free State of Saxony and the attitude of the federal government towards Bitcoin? And isn't it also legally binding that confiscated Bitcoin must be sold?

The link between the sales by Saxony and the attitude of the federal government towards Bitcoin is not clear. Federal states often make independent decisions in such matters, so it is quite possible that Saxony is acting for financial or practical reasons - regardless of the federal government's position.

There is no uniform regulation in Germany regarding the legal obligation to sell confiscated Bitcoin. The handling can vary depending on the federal state and the specific case. Usually, however, confiscated assets are only sold very quickly if there is a risk of a major loss in value. This is not the case here. In addition, it is not yet known who will receive the proceeds, as there has not yet been a judgment in these proceedings.

It would be good if the official bodies of the Saxon government and the relevant authorities would finally allow transparency to prevail. The relatively quick sale via the stock exchanges leaves an absolutely unprofessional impression.

Blocktrainer.de: In the context of the sales, you have called for Germany to recognize Bitcoin as a strategic reserve currency and diversify its treasury accordingly. What advantages could this have for the world's third largest economy? And by what means should or could Germany build up its own holdings?

Bitcoin could serve as an additional asset class to reduce dependence on traditional reserve currencies such as the US dollar and thus diversify the currency reserve. Bitcoin is also often seen as a hedge against inflation, which could be attractive in times of expansionary monetary policy. If Bitcoin establishes itself as a store of value in the long term, Germany could benefit from price increases.

Germany could also position itself as an innovative player in the field of digital assets and thus take on a pioneering technological role. Government involvement in Bitcoin could also drive the development of the German Bitcoin industry.

There are several ways for Germany to build up Bitcoin holdings. On the one hand, the state could buy Bitcoin "over-the-counter (OTC)" from miners or traders or become directly active on regulated crypto exchanges. However, there is also the option of accepting Bitcoin for tax payments or government services or participating directly in mining activities as a state. However, the accumulation of Bitcoin would be associated with risks and regulatory challenges. Nevertheless, I believe that the opportunities outweigh the risks for Germany, given the ongoing global adoption of Bitcoin.

Blocktrainer.de: How exactly do you envisage the issue of Bitcoin bonds by the Ministry of Finance, which you called for in your letter? To what extent could the state budget benefit from this?

Which Bitcoin bonds would be specifically suitable for Germany would have to be decided individually for each use case. Samson Mow submitted an individual proposal for El Salvador at the time, which focused on reducing risk for investors. We will also be discussing this topic at the event "Bitcoin strategies for nation states - What options for action do political decision-makers and governments have?" on 17 October at the Bundestag.

Bitcoin-backed government bonds for long-term projects could work as follows: The federal government or a federal state issues bonds that are partially or fully collateralized by Bitcoin. These bonds would be used to finance long-term infrastructure projects such as renewable energy, power grids or transportation infrastructure. The state deposits a certain amount of Bitcoin as collateral for the bonds. This could be done through direct Bitcoin reserves or through partnerships with large Bitcoin holders (whales) who provide their Bitcoin as collateral. The bonds offer a return that could be linked to both the Bitcoin price and the success of the financed projects. This would allow investors to benefit from both rising Bitcoin prices and the value creation of the infrastructure projects. The term of these bonds could be ten years, for example, to reflect the medium to long-term nature of the infrastructure projects. At the end of the term, repayment could be made either in the original currency or in Bitcoin, depending on the agreement and market conditions.

These bonds would beattractive to different groups of investors for differentreasons. Bitcoin whales would have the opportunity to put large Bitcoin holdings to productive use without having to sell them. They would also promote Bitcoin adoption by governments, which could support the Bitcoin price in the long term. In addition, they could diversify their portfolio with real assets while maintaining Bitcoin exposure.

Institutional investors would have access to the asset class through Bitcoin bonds, but with the security profile of government bonds and the opportunity to invest in promising infrastructure projects. An investment in the bonds would also potentially be a hedge against inflation or currency risks. Sustainability-oriented investors could finance green infrastructure projects and combine a Bitcoin investment with sustainable investments. Government investors and central banks would also have the opportunity to invest indirectly in Bitcoin without having to hold the cryptocurrency directly, thereby diversifying their currency reserves.

For a Western nation state, issuing such bonds could offer several advantages. For example, it could provide access to new capital by tapping into a new group of investors. The state could also take on a technological pioneering role by positioning itself as an innovative financial centre, promote the domestic Bitcoin industry and potentially stabilize the Bitcoin price through increased institutional demand. Bonds could also be used to finance important infrastructure projects on more favorable terms.

However, there are of course challenges and risks involved, such as the volatilityof the Bitcoin price and technical and security challenges in managing large Bitcoin holdings. Overall, however, this concept could build an interesting bridge between the traditional financial world and the Bitcoin world, whereby careful consideration of the opportunities and risks as well as clever structuring of the bonds would be crucial.

Blocktrainer.de: Do you think that building a strategic Bitcoin position for Germany should only be a first step towards a national Bitcoin-backed currency?

The establishment of a strategic Bitcoin position by Germany could indeed be seen as a pioneering first step towards an innovative, future-oriented monetary policy. A national currency backed by Bitcoin would have the potential to position Germany as a pioneer in the world of digital finance.

Potential benefits of this approach could include increased financial sovereignty and reduced dependence on traditional financial systems. A Bitcoin currency could also protect against inflation, as the maximum amount of Bitcoin is limited. Germany's attractiveness for international investors and tech companies could increase and innovation in the fintech sector could be driven forward. Bitcoin could also potentially reduce the cost of international transactions.

A gradual implementation, starting with the build-up of strategic Bitcoin reserves, could be a smart way to gain experience and prepare the infrastructure. Thiswould make itpossible to minimize potential risks and gradually optimize the system. Of course, such a move would come with challenges, but it could also be seen as a bold vision for a digital future of money.

Blocktrainer.de: In the US, high-ranking politicians such as presidential candidate Donald Trump are currently arguing in favor of welcoming the Bitcoin industry, including mining companies, to the US in order to gain an advantage over China and Russia. While the digital assets section of the renowned business magazine Forbes speculates on whether the USA will implement Bitcoin as a reserve asset in the future or even support the US dollar with the 15-year-old asset, the German government - as you also criticize - does not seem to have looked at Bitcoin in any depth. Why do you think that is and could it be the case that we are also missing out on the next big innovation in this country?

These developments are indeed very interesting and show the different approaches of different countries to the topic of Bitcoin. It is true that some US politicians, including Donald Trump, are in favor of greater integration of the Bitcoin industry in the US. This is probably for a number of reasons. Firstly, there is the political positioning ahead of the US presidential election. Bitcoiners are increasingly becoming a relevant group of voters (slowly also in Germany) and Trump obviously wants to take advantage of this. It is worth mentioning here that the recently published "2024 Election Manifesto" calls for far-reaching individual Bitcoin rights and rejects digital central bank money.

Then there is the economic competition. Trump probably wants to put the US in a position of technological and financial leadership over countries such as China and Russia. Bitcoin offers an opportunity here today that is comparable to the early developments of the internet. The crypto industry is seen as a driver of innovation and economic growth.

And, of course, geopolitical considerations also play a role. Bitcoin could be seen as an instrument for strengthening financial sovereignty. As far as Forbes' speculations are concerned, these are currently still very far-reaching and have not been officially confirmed.

With regard to Germany and the German government, there are several possible reasons for the more cautious position. Firstly, there is regulatory caution. Germany has traditionally taken a rather conservative approach to financial matters and wants to weigh up potential risks thoroughly. The focus is on the euro. Germany is an important member of the eurozone and is therefore very focused on the stability of the eurozone currency .

A lack of expertise isalso a potential factor. It could be that there is not yet enough expertise on Bitcoin in government circles. Less likely, but I do want to mention it: Germany is waiting and observing developments in other countries before taking its own steps. It is difficult to predict whether Germany will miss out on a major innovation as a result, but the indicators (price development, global and institutional adoption) point to this in my estimation. It is quite possible that too hesitant an attitude could lead to Germany falling behind in the development and use of Bitcoin.

In order to minimize the risk of missing out on an important innovation, it would be advisable for the German government to invest more in education and research into Bitcoin technologies and dialogue with experts, as well as paying more attention to the Bitcoin industry in general. It is also important to create a regulatory framework that allows innovation, ensures consumer protection and promotes pilot projects so that Bitcoin technologies can develop better. It remains to be seen how the positions and strategies of different countries with regard to Bitcoin will develop in the future.

Blocktrainer.de: Thank you very much Ms. Cotar for your time and the interesting answers.