He proposed the reserve as a method to mitigate the erosion of purchasing power caused by inflation in the US dollar. On Thursday, Sacks reaffirmed this perspective, stating on X, “The U.S. will not liquidate any bitcoin held in the Reserve. It will serve as a store of value. The Reserve functions like a digital Fort Knox for the cryptocurrency often referred to as ‘digital gold.’”
The intention to create a reserve was met with enthusiasm by crypto supporters, who interpreted it as an indication of their sector’s newfound legitimacy and stood to gain financially from what essentially represents a commitment by the US government to prevent the price of bitcoin from declining through large-scale sales into the market.
However, this initiative has perplexed economists, who argue it relies on two erroneous assumptions: that the price of bitcoin will inevitably rise, and that the government would be able to sell bitcoin back into US dollars at some point without causing a market crash. Opting to hold onto bitcoin seized through law enforcement rather than selling it also incurs an opportunity cost; unlike stocks and bonds, bitcoin does not generate income, making it costly to retain.
“Maintaining a reserve that consists solely of bitcoin owned by the government is less objectionable [than using taxpayer money to acquire more coins] but still costly,” states George Selgin, director emeritus of the Center for Monetary and Financial Alternatives at the Cato Institute, a U.S. think tank that advocates for libertarian principles. “There is simply no sound justification.”
Meanwhile, Democratic lawmakers have expressed concerns regarding potential conflicts of interest involving previous investments made by Sacks and other Trump administration members in cryptocurrencies that are proposed to be included in the US reserves. “Lawmakers deserve strong leaders who will prioritize public interest over personal profits,” wrote Elizabeth Warren, senator from Massachusetts, in a letter addressed to Sacks on March 6.
One possible outcome of Trump advancing the crypto reserve initiative may be that individual US states and other national governments seek to establish their own reserves, suggests Hillmann. “I expect that US states will also begin to acquire some of these assets. If the US government is going to hold them, states are more likely to follow suit,” notes Hillmann. “And it’s likely that other countries around the world will do the same. The United States has always set the standard in finance.”
Already, lawmakers in states such as Texas, Ohio, and New Hampshire have introduced legislation that would permit their state treasuries to purchase bitcoin, as have politicians and leaders in Brazil, the Czech Republic, Hong Kong, and beyond.
Once the two US crypto reserves are established, particularly if Trump is successful in codifying them into law, they are improbable to be dismantled—sustained by the same political forces that facilitated their creation. The same influx of funding from the crypto industry that advocated for their establishment, asserts Selgin, will be directed against any politician attempting to liquidate the assets.
“Even if either reserve appreciates [in value], there’s no assurance that the government would capitalize on that appreciation by selling,” asserts Selgin. “It’s quite probable that the same members of the crypto community who lobbied for their establishment will vigorously campaign against ever liquidating them. They are focused on their own capital gains.”
