Canada needs Bitcoin in its Treasury
The case for building a Bitcoin treasury and how to execute on it
A short history of Canada’s Reserves
Most countries retain some gold as a hedge against economic uncertainty, as a hedge against inflation or currency crises, and to stabilize their economies. Canada instead has focused on foreign currency reserves, particularly in U.S. dollars, as its primary strategy for maintaining financial stability and as a safeguard against economic shocks. Canada also maintains investments in foreign government bonds like U.S. Treasury bonds and other high-quality securities to preserve the value of its reserves. Our treasury reserves are also comprised of special drawing rights (SDRs) allocated by the International Monetary Fund (IMF) to supplement foreign exchange reserves or to allow transactions between IMF member countries. SDRs are not a currency itself but represent a potential claim on the freely usable currencies of IMF member countries.
Canada sold off the last of its gold reserves under Trudeau in 2016. Trudeau’s government had a preference for assets that were more liquid and interest-bearing. The proceeds from the sale of gold were largely used to purchase foreign currencies (particularly US dollars, euros, and other major international currencies), high-quality government securities (especially U.S. Treasury bonds), and bolstering its holdings of SDRs. Canada opted for a modernized reserve composition to suit its (at the time) relatively stable and diversified economy. Ironically, Canada owns no gold but maintains a liquid gold reserve: a Strategic Maple Syrup Reserve.
A New Strategic Reserve Asset
The financial world is atwitter with a controversial idea: Bitcoin as a treasury reserve asset. The United States is contemplating the creation of a Strategic Bitcoin Reserve (SBR), an idea that is gaining traction between Senator Lummis’ legislative proposal and Trump’s intention to establish a cryptocurrency advisory council to potentially establish the SBR.
Senator Cynthia Lummis has introduced the BITCOIN Act, which proposes the establishment of an SBR. The legislation suggests acquiring 1 million Bitcoin over five years (4.8% of the total Bitcoin supply), to be held for at least 20 years before potentially being used to reduce national debt. The reserve would be managed by the US Department of Treasury, utilizing existing funds to diversify the Federal Reserve’s assets without incurring new debt. The acquisition would be funded by reallocating existing Federal Reserve surplus funds and adjusting the valuation of gold certificates held by the Federal Reserve to reflect market values, with the gains used to buy Bitcoin. Additionally, Texas is contemplating introducing its own SBR legislation.
The US is not alone in their thinking, nor are they the first. Following the passing of the Bitcoin Law in 2021, the government of El Salvador continues to stockpile Bitcoin daily, with a total of 5,942 Bitcoin at present, while the Royal Government of Bhutan currently holds 12,218 Bitcoin from its mining operation.
What does this mean for Canada?
Canada is being left behind. Again. Our country faces economic challenges on multiple fronts. Canada has lagged in real GDP per capita growth among G7 nations since the pandemic, with a noticeable decline and a slower recovery compared to countries like the US.
The Canadian dollar’s value against the US dollar is in a long-time downward trend. With Trump’s win, the CAD is expected to decline further.
Canada’s major stock index, the Toronto Stock Exchange (TSX), has grown only by ~8% in recent years, significantly trailing behind international indices like the S&P 500.
Canada’s debt is outpacing it’s GDP growth and debt represents 216% of GDP.
Together, these indicators suggest that Canada faces slower economic growth, a weakening currency, lower stock market performance relative to other major economies, and a growing debt problem.
A Strategic Bitcoin Reserve for Canada
The establishment of an SBR by Canada could potentially address Canada’s economic and fiscal challenges in several ways.
An Alternative Hedge Against Currency Depreciation and Inflation
Canada could diversify its asset base beyond traditional currencies like the USD. Given the historical trend of the Canadian dollar weakening against the USD, Bitcoin could act as a hedge against further depreciation. If the Canadian dollar continues to weaken, holding Bitcoin could protect against the erosion of reserve value due to inflation or currency devaluation. Bitcoin’s limited supply and global demand could help stabilize, or even enhance the value of Canadian assets relative to the USD, especially if other nations also recognize Bitcoin’s value as a reserve asset — and given the likelihood of other countries following the US in creating an SBR, Trumps promise has kicked off a nation state race to accumulate Bitcoin.
An Alternative Hedge Against Globally Disruptive Events
Bitcoin has shown itself to be a flight to safety amid some of the most disruptive events over the last five years. As a decentralized and non-sovereign asset that is not tied to any one country, and without traditional counterparty risks, it offers unique protection against macro risks like banking system crises, sovereign debt crises, currency debasement, geopolitical disruptions, and country-specific economic or political risks.
Investment Attraction and Economic Development
Establishing a Bitcoin reserve might signal to global investors that Canada is embracing Bitcoin, potentially attracting investment in both traditional and digital sectors. This could lead to increased capital inflows and stimulate growth in tech sectors, potentially boosting GDP per capita. Shifting Canada from a laggard to a leader in fintech and innovation within the G7, could lead to job creation, new industries, as well as revitalization in sectors like finance, energy (by way of Bitcoin mining), and software development.
Shoring-up Canada’s Balance Sheet
If Bitcoin continues to appreciates in value over time, the reserve could yield significant unrealized gains. While this wouldn’t directly affect GDP per capita, it could improve the balance sheet of the Canadian government, reducing the need for debt financing.
Geopolitical and Trade Advantages
Holding Bitcoin could provide Canada with a degree of financial sovereignty. In an era where Bitcoin may challenge the dominance of the US dollar, Canada could leverage Bitcoin to negotiate trade deals or to assert more independence in global financial systems. With more countries potentially adopting Bitcoin as part of their reserves or for trade, a future exists with easier trade between countries without the need for traditional currency exchange, lower transaction costs, and faster trade processes.
Increased Market Confidence
If investors perceive that Canada is ahead of the curve, it could lead to increased confidence in the Canadian market. Confidence could translate into higher valuations for Canadian companies listed on the TSX, potentially narrowing the performance gap with indices like the S&P 500.
Potential Pathways for Acquiring Bitcoin
Utilizing Existing Reserves
Canada does not have the benefit of leveraging it’s existing gold reserves to acquire bitcoin as proposed by Senator Lummis’ BITCOIN Bill. If Canada were to add Bitcoin to its reserves, the decision on what to exchange for it would depend on the risk profile, liquidity needs, and strategic goals of its reserves.
Canada would likely exchange a small percentage of its foreign exchange reserves (such as US dollars and euros) for Bitcoin. This approach offers three benefits. It balances risk and liquidity, as swapping a portion for Bitcoin could diversify the reserve while retaining a focus on liquid, tradable assets. It reflects Bitcoin’s growing role as a digital asset with potential geopolitical and financial implications. Lastly, it minimizes disruption to core reserve components like bonds and SDRs.
The government could also swap a portion of its bonds for Bitcoin to add a speculative element to reserves that could yield higher returns over time. This would free up a portion of low-return assets for a higher-growth opportunity, and existing bonds can be easily liquidated if needed for reallocation. Bitcoin has historically moved in four-year cycles, where in the first three years it outperforms Gold, Real Estate, Bonds, Equities, and Commodities. In year four it underperforms all of those asset classes, but the long term price trajectory has been upward. The author notes however, that the government may be hesitant to reduces the reserve’s safety net of ultra-stable, low-risk assets as Government bonds historically have provided stability and modest returns.
The government is not likely to convert a portion of SDRs to fiat currency to acquire Bitcoin. SDRs are relatively illiquid and are not easily sold or converted, and doing so may signal a shift in Canada’s IMF strategy.
Canada would likely maintain a diversified approach rather than committing heavily to it, integrating it as a speculative asset for long-term growth potential.
Mining Bitcoin: A Pathway to Economic Sovereignty and Financial Independence
We are in the era of nation states mining Bitcoin, and it has global geopolitical implications. Mining offers an alternative pathway to economic independence. By leveraging energy resources, countries like Canada can mine Bitcoin for a number of strategic reasons: to diversify a nation’s asset holdings, enhance the resilience of the nations reserves, attract foreign investment, hedge against inflation, and enhance their financial credibility. Countries like Bhutan and El Salvador are already deploying this strategy.
Canada is also blessed with vast energy resources — from nuclear, to fossil, to renewables. A number of provinces have excess or stranded power:
- Hydropower: Provinces like Quebec, British Columbia, and Newfoundland have abundant hydropower, often generating excess energy during off-peak periods.
- Wind and Solar: Prairie provinces and Ontario may have excess renewable energy during certain seasons or times of day.
- Stranded Natural Gas: Alberta and Saskatchewan could leverage flared or vented natural gas for Bitcoin mining.
- Nuclear Energy: Ontario’s nuclear power plants produce consistent baseload energy, potentially leading to overproduction.
However, energy generation and distribution in Canada is under the purview of each province and territory so taking advantage of excess or stranded power would require collaboration and various tailored agreements between the federal government, provinces (and potentially municipal or Indigenous governments) to balance economic, environmental, and governance priorities. These agreements would need to consider infrastructure funding, energy system optimization, revenue sharing, and environmental implications.
Energy Utilization Agreements
- Access to Power: Provinces would need to agree to allocate a portion of excess or stranded energy to federal Bitcoin mining operations.
- Energy Pricing: Fixed or discounted energy rates for mining operations to balance profitability and payback of provincial energy infrastructure costs so local electricity ratepayers are not saddled with higher fees.
- Grid Access: Provincial governments would likely wish to establish that mining operations are secondary to local energy needs, with flexible shutdown capabilities during peak demand. While markets already accomplish this in US states like Texas and Nordic countries, where miners participate in demand response programs, provincial governments may seek additional assurances.
Revenue and Asset-Sharing Agreements
- Profit Allocation: Agreements would need to define how revenues from Bitcoin mining are split between the federal government, provinces, and participating municipalities. Many stranded or excess power sources are near Indigenous communities, thus Agreements could include equity ownership, job creation, and revenue-sharing opportunities for these communities. Furthermore, some provinces like Alberta may want to establish their own Bitcoin reserves (as is being considered in Texas), rather than adding bitcoin revenue to provincial coffers.
- Bitcoin Custody: Agreement around who custodies the mined Bitcoin as part of the national reserve, whether the Bank of Canada, an approved third party custodian, or a multi-signature agreement.
- Taxation Policy: Agreements around how mining profits will be taxed at the provincial and federal levels.
- Mining Pool: An agreement around the creation and management of a national mining pool, with potential for private-public partnerships. By operating domestic mining facilities and managing a sovereign mining pool, Canada can maintain it’s economic independence and maintain a stronger measure of control over what transactions it mines. This would not be unprecedented — El Salvador launched its own mining pool in a partnership with Luxor, as part of broader efforts to achieve financial independence.
Infrastructure and Funding Agreements
- Capital Investment: The federal government could provide funding to develop mining facilities, grid connections, or to develop stranded energy projects across Canada. Bitcoin mining has become a powerful tool for bosting energy security and building and shoring up energy systems across continents — it presents a novel way to subsidize or fund public infrastructure, besides the traditional taxpayers and ratepayer pathways. Mining provides predictable and consistent demand that raises the financial viability of new or stranded energy projects, and helps get public infrastructure projects over their hurdle rates. As consumer demand for power grows in a community, Bitcoin mining can be decreased or removed entirely, but it enabled critical local energy infrastructure to be built out. It could also address energy poverty challenges in grid disconnected northern or indigenous communities where the federal government already subsidizes diesel power generation.
- Public-Private Partnerships (PPPs): Canada could also allow for private sector participation in infrastructure development and operation. Canada could follow in the steps of Bhutan, Oman, and Abu Dhabi. The partnership between Druk Holding and Investments (an investment company owned by the royal family) and Bitdeer uses excess hydroelectric power to support Bitcoin mining, and aligns with Bhutan’s focus on leveraging renewable energy for economic development while maintaining environmental sustainability. Zero Two, a subsidiary of Abu Dhabi’s sovereign wealth fund, has partnered with Marathon Digital Holdings to establish a 250-megawatt Bitcoin mining operation that leverages surplus power from the local grid, enhancing sustainability and grid stability. The government of Oman has collaborated with private firms to launch large-scale mining projects in order to diversify its economy and position itself as a global digital hub.
Environmental and Regulatory Agreements
- Environmental compliance: Mining operations will need to comply with federal and provincial carbon reduction goals and other environmental regulations. Mechanisms for allocating and tracking carbon credits between provinces and federal entities will also need to be established.
The elegance of Bitcoin mining is that it aligns economic incentives with environmental goals. Mining is increasingly being used to fund low-carbon infrastructure and pollution mitigation infrastructure. By co-locating with low-carbon generation, mining boosts the viability of low-carbon generation. Bitcoin mining is already lowering Canadian carbon emissions by using flared gas from oil and gas operations by burning methane more effectively and converting it to a less potent greenhouse gas (CO2); these activities could be expanded more broadly. Miners can also help mitigate landfill methane emissions by subsidizing the construction of landfill gas capture systems and waste-to-energy projects, which reduce toxic air and water pollution and transform waste into an economically commodity. Historically, coal, bunker fuel, propane, or natural gas have been used in Canadian residential and industrial heating systems. The heat byproduct of the hashing process can be used to displace fossil-fuel generated heating with renewable electricity with varied case studies — from individual homes, to district heating, greenhouses, food and beverage manufacturing, hotels, spas, forestry, and aquaculture.
Bitcoin is Partisan in Canada too
Unfortunately Bitcoin has become a partisan issue in Canada, similar to the US. Thus, the appetite for action (or the extent of reserve adoption) may rely on the party in power.
While Trudeau has indicated his disfavor towards Bitcoin, a “red wave” (blue wave in Canada) in the upcoming Canadian election could change the governments appetite around diversifying Canada’s reserves into Bitcoin.
The time to consider establishing an SBR is here. Waiting as other countries adopt Bitcoin reserves means buying the reserve asset at significantly higher prices. Canadians and Canadian businesses that support a Strategic Bitcoin Reserve should take on advocacy efforts to socialize this issue. The time to front-run other nations to a Strategic Bitcoin Reserve is now; the next best time is tomorrow.
