This weekend, the Sunday Telegraph reported that Rachel Reeves is eyeing a ‘£5 billion bitcoin sale’ to ease the pressure on the public finances. Some commentators have grasped the wrong end of the stick here – these sales could not be used to fill a ‘black hole’ under the current fiscal rules.
Others have argued that it would be foolish to dump cryptoassets that may still increase significantly in value. Unfavourable comparisons are inevitably being drawn with Gordon Brown’s sale of gold reserves starting in 1999. But that may be wide of the mark too. So, what to make of all this?
Unlike true ‘safe havens’, the price of bitcoin tends to slump when riskier assets are out of favour
Perhaps surprisingly, the UK government already holds a large amount of cryptoassets. The most important source was the seizure of 61,000 bitcoin from Jian Wen, who was convicted of money laundering in March 2024. At the time, the CPS put their value at ‘in excess of £2 billion’. That would now be about £5.4 billion at current market prices.
This sounds promising. At face value, a windfall of more than £5 billion would make a handy dent in the ‘black hole’ in the public finances, widely estimated to be at least £20 billion. Some hope that selling cryptoassets could reduce the need for more tax increases, or painful spending cuts. But the reality is rather different.
Unfortunately, a one-off asset sale would not reduce the size of the shortfall against the government’s fiscal rules. The binding constraint now is the requirement that the ‘current budget’ should be in surplus in 2029-30, which means that day-to-day spending will have to be covered by tax revenues. Crucially, the income from selling a financial asset would not normally count against this target.
Moreover, even if by some sleight of hand the sale of bitcoin could be used to reduce the deficit in the short term, the government could only pull off this trick once. The OBR and the financial markets would see right through it in any case.
This sale would still help to reduce the amount of government bonds, or ‘gilts’, which will need to be issued to cover the deficit. But the benefit here of raising even £5 billion would be marginal, given that annual gilt issuance is running at around £300 billion and the total stock is more than £2,500 billion.
Nonetheless, this does not mean it is not worth doing. As it stands, the government is sitting on at least £5 billion worth of something which is purely speculative and unproductive. It therefore makes perfect sense to develop a storage system and mechanisms to allow the regular sale of confiscated cryptoassets.
This is bound to be controversial. The price of bitcoin is soaring again as the US administration considers more initiatives to promote its use. Some fans believe it could still increase a lot further. Indeed, the Reform party has argued that the UK should set up a sovereign bitcoin reserve fund and even advocated a tax break for capital gains on crypto.
However, bitcoin is not a suitable reserve asset. It is highly volatile, impossible to value objectively, and carries many regulatory and reputational dangers. Unlike true ‘safe havens’, the price of bitcoin has tended to slump when riskier assets, notably equities, are out of favour.
Above all, the UK government should not be using taxpayers’ money to take a punt on a market which is still so heavily dependent on the whims of President Trump. Crypto may well be here to stay, but that does not mean that the current high prices are sustainable.
As for comparisons with Gordon Brown’s decision in 1999, hindsight is of course a wonderful gift. That decision made a lot of sense at the time because gold had performed poorly as an investment for many years. The launch of the euro also provided an opportunity to diversify the UK’s reserves into a new currency which was widely expected to rival the US dollar. Moreover, the proceeds from the gold sales were reinvested in assets that at least paid some interest.
There is obviously a risk that selling bitcoin now will also be seen as a massive mistake in a few years’ time. But it is just as conceivable that the Chancellor would end up being slammed for speculating on crypto if, or when, the bubble bursts.
A policy of gradually selling the bitcoin is a sensible middle ground. While the windfall may not help to meet the fiscal rules, holding on to an unproductive asset is not responsible either.
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