Bhutan's Bitcoin Gamble: Freedom or Fool's Gold?

Is Bhutan's all-in bet on Bitcoin a masterstroke of economic ingenuity, or a reckless gamble with the nation's future? You see, when a country synonymous with Gross National Happiness starts hoarding Bitcoin like a dragon guarding gold, you have to wonder: is this a leap towards economic freedom, or a stumble into fool's gold?

Bitcoin Fixes This, Or Does It?

In Bhutan, a landlocked kingdom tucked away in the eastern Himalayas, these challenges are more conspicuous than in other developing countries. A brain drain is siphoning away its brightest minds, youth unemployment hovers stubbornly around 19%, and its tourism sector, once a reliable source of income, struggles to regain its pre-pandemic footing. It’s hard not to applaud them for even attempting something so different.

The government's rationale is compelling. They’re harnessing their incredible hydropower mainly in the summer months to mine Bitcoin. This approach takes a dangerous energy export and turns it into something you could call digital gold. The Prime Minister is calling this a strategic investment. It’s just like the ones we know have produced huge returns on investment for the private sector. And there’s positive evidence that it’s working. In 2023, the government auctioned off $100 million of that cache in various cryptocurrencies. This far-reaching decision more than doubled civil servant salaries and immediately halved the number of resignations.

Here’s where the surprising link gets interesting. Now imagine Bhutan is that climate-smart, small, family-run farm. Rice has always been enough to grow (tourism and hydropower exports), hopefully enough to feed the family and barter for other goods. Now, they've decided to bet the farm on a new, exotic crop (Bitcoin) that promises a much higher yield, but is incredibly volatile and susceptible to market fluctuations. Is that wise?

Happiness Hinges on Bitcoin's Price?

Arkham estimates that with over 600 million dollars in Bitcoin, Bhutan would be holding almost two times its GDP in the cryptocurrency. That’s an incredible amount of dependence on one, volatile asset. The federal government is a powder keg of anxiety. They are right to fear a price crash that may well wipe out half of their claimed $11 trillion in national wealth. Do you imagine even the great King, in pushing for digital infrastructure, ever imagined his enabling such a deep level of dependence?

And what about the social impact? Furthermore, doubling civil servant salaries is a good start. We need to keep in mind the farmers, small business owners, and vulnerable populations that won’t directly benefit from this Bitcoin windfall. Are we leaving them behind in this new era of opportunity?

We have to consider the alternative scenarios. What is the environmental impact if Bitcoin dies, if regulatory crackdowns or technological advancements make mining unprofitable. What are Bhutan's contingency plans? What alternative solutions, if any, did you look at and what made them less feasible? Diversification is one of the main pillars of a good investment strategy. It seems Bhutan is betting everything on one very unstable asset.

Proponents of Bitcoin mining contend that it fits hand-in-glove with Bhutan’s commitment to sustainability. We’re glad to hear that it avoids heavy industrialization, but that sounds like a stretch. Bhutan’s notoriously cold climate keeps cooling costs down, while hydropower—which the country produces in spades—provides an abundant source of clean energy. The truth is, Bitcoin mining is an enormous environmental disaster. That is a long way from their recently adopted sustainable tourism and carbon neutrality initiatives.

Governance: The Real Key to Freedom

Yet at the end of the day, even the success or otherwise of Bhutan’s Bitcoin gamble would depend on disciplined, prudent stewardship. It takes perseverance, but transparency and accountability, and a readiness to adapt to changing circumstances.

• Transparency: The Bhutanese people deserve to know the details of the government's Bitcoin strategy, including the risks involved and the potential consequences.
• Accountability: There must be mechanisms in place to hold those responsible accountable for their decisions, particularly if things go wrong.
• Risk Management: Bhutan needs a robust risk management framework to mitigate the potential downsides of its Bitcoin investment.

Bhutan’s willingness to experiment with Bitcoin is a courageous step, one that might lead them to breakthrough opportunities for economic flourishing. It’s a high-stakes opportunity that should be met with thoughtfulness and responsible stewardship. The key question is not whether Bitcoin is a good place to invest your money. The question is whether Bhutan can stay on top of these risks and ensure its Bitcoin strategy generates positive outcomes for all its citizens. It’s a tenuous compromise of liberty and expediency, and time will judge whether Bhutan has the ability or agility to find it.

Bhutan's embrace of Bitcoin is a bold move, one that could potentially unlock new pathways to economic prosperity. But it's also a high-stakes gamble, one that demands careful consideration and responsible management. The real question isn't whether Bitcoin is a good investment, but whether Bhutan can navigate the inherent risks and ensure that its Bitcoin strategy serves the best interests of all its citizens. It's a delicate balance of freedoms and needs, and only time will tell if Bhutan can strike it successfully.