In the span of time between Donald Trump’s election and his inauguration, cryptocurrency values surged as expectations rose that the president would choose pro-crypto regulators and establish a “strategic bitcoin reserve.” On the regulatory side, Trump has made good on those expectations: The Securities and Exchange Commission has appointed a new crypto-friendly commissioner and has suspended or dropped lawsuits against various crypto exchanges. Additionally, during his first week, Trump issued an executive order requesting an assessment of the “potential creation and maintenance of a national digital asset stockpile.” However, shortly after he assumed office, cryptocurrency prices experienced a significant decline, which has worsened in recent weeks. This downturn has sparked dissatisfaction among Trump’s prominent supporters within the crypto space. In what appeared to be an effort to stabilize falling prices, Trump took to social media over the weekend to announce that a “Crypto Strategic Reserve” would soon be established, to be stocked with not just bitcoin and ether (the two most significant crypto assets), but also with more speculative assets including ripple, solana, and cardano.
Initially, Trump’s announcement seemed effective: Bitcoin and ether prices each increased by over 10 percent following the news, while the total market value of crypto assets jumped by more than $300 billion. However, many of those gains were recouped throughout the day yesterday, partly due to uncertainty surrounding the details of Trump’s promise and his ability to fulfill it. The government currently holds approximately $17 billion in bitcoin and around $110 million in ether, primarily seized from criminals; one possibility is simply to retain those assets. Nevertheless, what crypto proponents desire, and what Trump appears to be indicating, is for the government to accumulate this new strategic reserve by purchasing billions worth of crypto assets.
In essence, they are anticipating a subsidy for crypto holders—or, from the perspective of Americans who do not hold crypto, a misguided governmental safety net for purely speculative assets. Establishing a crypto reserve would effectively signify a massive wealth transfer from taxpayers to crypto enthusiasts (a term derived from the common online mistake in the word hold, often interpreted as “hold on for dear life”). This concept is fundamentally flawed, particularly at a time when the Trump administration is cutting back on various government programs and expenditures in the name of efficiency.
The term strategic crypto reserve (or more frequently, strategic bitcoin reserve) is clearly meant to draw a comparison between this prospective crypto vault and the Strategic Petroleum Reserve, a reserve managed by the Department of Energy comprised of hundreds of millions of barrels of oil. The strategic rationale for maintaining a government-owned oil reserve is evident: Oil is vital for the operation of the U.S. economy. In the event of an oil embargo, like that of 1973, or significant disruptions to the oil supply chain, the strategic reserve has historically played a key role in maintaining stability (even with the increase in domestic oil and gas production, which has made the U.S. less susceptible to such shocks).
Conversely, there is no strategic reason for the government to acquire crypto assets. They hold no intrinsic value for either the U.S. government or the American economy. We can easily manage without them. Crypto advocates often point out that the United States maintains reserves of foreign currencies and boasts a significant gold reserve. However, the amount of foreign-exchange funds held is minimal, and the foreign currencies that the U.S. does possess are maintained to potentially exchange for dollars—as a hedge, for instance, against a scenario wherein the dollar sharply declines, prompting the government to buy its own currency to stabilize its value. This is an unlikely situation; the U.S. has never leveraged its foreign-exchange reserves to combat a speculative decline in the dollar’s value. Moreover, there is no similar rationale for bitcoin or other crypto assets.
Regarding American gold reserves, they are essentially redundant: Fort Knox is a remnant from the era when the U.S. pledged to exchange gold for dollars on demand. Nowadays, the U.S. retains its gold primarily out of habit—and possibly to avoid destabilizing the market by liquidating the reserve or facing political backlash from Americans who still believe in the Gold Standard. None of this provides a valid argument for accumulating a new stash of digital assets.
Crypto advocates also curiously argue that stockpiling substantial amounts of bitcoin and other crypto assets would bolster the dollar’s strength. However, the dollar is a fiat currency, meaning its value is not contingent on the backing of any assets that the government holds. More importantly, bitcoin was designed as an alternative to the dollar, not as its support. Purchasing billions of dollars’ worth of assets intended to serve as alternatives to the dollar would at best be economically irrelevant and at worst diminish confidence in the dollar. There is nothing that conveys: “We are concerned about our currency’s future value” like a government commitment to buy billions of dollars of speculative, alternative currencies.
What crypto advocates really imply when they assert that acquiring crypto will strengthen the dollar is that crypto prices will continuously rise, subsequently enriching the U.S. However, any potential increases in the value of a crypto reserve would be negligible compared to the magnitude of the U.S. budget. Regardless, mandating the government to stake taxpayer funds on highly volatile assets is a reckless financial gamble. What’s next— a federal Department of Sports Betting?
Thus far, Trump has been vague about the methods through which assets for a crypto reserve will be procured. Some proposals, for example, suggest that the government might sell a portion of its gold reserve to finance the crypto purchases. However, regardless of the approach taken, any acquisition of cryptocurrency will necessitate a commitment of financial resources from the government that could otherwise be allocated to reduce the budget deficit or invest in government programs.
Last, but not least, a crypto reserve would serve as a prime avenue for corruption, fostering significant conflicts of interest concerning both corporate regulation and government policies. Inclusion in a government reserve would provide a tremendous boost to crypto assets, especially lesser-known ones. This would generate compelling financial motives for crypto proponents to curry favor with Trump, who has his own financial interests in the memecoin $TRUMP. Committing the government to acquiring crypto would effectively institutionalize the accumulating conflicts of interest of his administration.
All of this is hardly surprising coming from Trump, a figure for whom patronage governance and self-dealing are standard practices. While he may bear no reputational risk, the U.S. government certainly does, especially as an issuer of debt and as a last-resort creditor. The crypto advocates’ push for a crypto reserve reflects how bitcoin and its counterparts have shifted from being revolutionary alternatives to the conventional financial system into mere speculative assets; now, the crypto lobbying effort is asking Uncle Sam to inflate their prices and provide support. A crypto reserve would essentially be a government-backed scheme—one that turns the government into an easy target for exploitation.
