The Strategic Crypto Swindle

Yahoo

20-03-2025

In the months between Donald Trump's election and his inauguration, cryptocurrency prices soared on speculation that the president would appoint crypto-friendly regulators and set up a 'strategic bitcoin reserve.' Trump has delivered on the regulatory front: The Securities and Exchange Commission has a new pro-crypto commissioner and has dropped or paused lawsuits against crypto exchanges. Trump also issued an executive order in his first week calling for an evaluation of the 'potential creation and maintenance of a national digital asset stockpile.' Still, crypto prices fell sharply after he took office; the slide has intensified in the past couple of weeks. And that has caused considerable discontent among Trump's major backers in the industry. So, in what certainly looked like an attempt to halt the drop, Trump took to social media over the weekend and promised that a 'Crypto Strategic Reserve' would soon be on the way, and that the government would be filling it with not only bitcoin and ether (the two biggest crypto assets) but also more speculative assets such as ripple, solana, and cardano.
Trump's announcement initially had the desired effect: The prices of bitcoin and ether each rose more than 10 percent on the news, while the total value of crypto assets jumped by more than $300 billion. But over the course of yesterday, many of those gains were given back, in part because of uncertainty about exactly what Trump was promising and whether he can deliver. The government already owns about $17 billion in bitcoin, and another $110 million or so in ether, most of which it has seized from criminals; one option would be for it to simply hold on to those assets. But what the crypto advocates want, and what Trump seems to be promising, is for the government to fill this new strategic reserve by buying billions of dollars' worth of crypto assets.
What they hope for, in other words, is a handout for crypto holders—or, from the point of view of non-crypto-holding Americans, a misbegotten government backstop for purely speculative assets. Filling a crypto reserve would effectively represent a huge transfer of wealth from taxpayers to crypto HODLers (a nickname derived from a common online typo of hold, also said to stand for 'hold on for dear life'). That's an abysmally bad idea, especially at a time when, in the name of efficiency, the Trump administration is slashing other government programs and spending.
[James Surowiecki: Trump Media is the new Bed Bath & Beyond]
The phrase strategic crypto reserve (or, more commonly, strategic bitcoin reserve) is of course intended to draw a parallel between this putative crypto hoard and the Strategic Petroleum Reserve, a stockpile maintained by the Department of Energy that consists of hundreds of millions of barrels of oil. The genuinely strategic reasons for having the government own an oil reserve are obvious: Oil is essential to the functioning of the U.S. economy. In the event of an oil embargo, such as the one in 1973, or major disruption to oil-supply chains, the strategic reserve has historically helped keep things running (even if the growth in domestic oil and gas production has now made the U.S. less vulnerable to such shocks).
In contrast, the government has no strategic reason to own crypto assets. They have no use value either to the U.S. government or to the American economy. We can get along without them just fine. Crypto advocates point to the fact that the United States does hold reserves of foreign currencies, and has a large hoard of gold as well. But the U.S. actually holds very little foreign-exchange moneys, and the foreign currencies it does own are held in the event that it needs, or wants, to exchange them for dollars—as a hedge, for example, against a situation when the dollar is falling sharply and the government buys its own currency to prop up its value. That's a very unlikely scenario to begin with—the U.S. has never used its foreign-exchange hoard to fend off a speculative decline in the dollar's value—and, in any case, no such use case exists for bitcoin or other crypto assets.
As for American gold holdings, they're essentially pointless: Fort Knox is a legacy of the days when the U.S. promised to exchange gold for dollars on demand. Today, the U.S. holds on to its gold solely out of inertia—and perhaps a desire to not crash the market by dumping the stash or incur political blowback for liquidating the reserve from Americans who still think that the Gold Standard is a thing. None of that is an argument for adding a new hoard of digital assets.
Crypto advocates also argue, mysteriously, that for the U.S. to have large stores of bitcoin and other crypto assets would strengthen the dollar. But the dollar is a fiat currency, which means that its value does not depend on the backing of any assets the government owns. More to the point, bitcoin was created to be an alternative to the dollar, not a support for it. Far from strengthening the dollar, having the U.S. purchase billions of dollars of assets that were created to be alternatives to the dollar would at best be economically pointless and at worst would actually weaken confidence in the dollar. Nothing says 'We're worried about the future value of our currency' like having a government purchase billions of dollars' worth of speculative alternative currencies.
What crypto advocates really mean when they say that buying crypto will strengthen the value of the dollar is that crypto prices will keep going up, which in turn will make the U.S. richer. But any gains in the value of a crypto stash would be trivial relative to the size of the U.S. budget. Either way, requiring the government to wager on tremendously volatile assets is a reckless use of taxpayer funds. What next—a federal Department of Sports Betting?
So far, Trump has been cryptic, so to speak, about how the assets for a crypto reserve will be acquired. Some schemes, for instance, call for the government to sell some of its gold reserve to pay for the assets. One way or another, however, any acquisition of crypto assets will require the government to dedicate financial resources to crypto that it could use otherwise—to reduce the budget deficit or spend on government programs.
[James Surowiecki: The Trump-whim economy is here]
Last, but not least, a crypto reserve would be a ready-made vehicle for corruption, creating colossal conflicts of interest over corporate regulation and government policy generally. Being included in a government reserve would be a huge boost to crypto assets, particularly less established ones. That would create major financial incentives for crypto bros to try to win favor with Trump, who himself has a huge stake in the memecoin $TRUMP. Committing the government to buying crypto would essentially institutionalize his administration's accumulating conflicts of interest.
All of this is hardly a surprise coming from Trump, for whom patrimonial governance and self-dealing are a way of life. In that sense, he may have no reputational risk, but the U.S. government certainly does, as an issuer of debt, as well as a creditor of last resort. The crypto advocates' embrace of a crypto reserve speaks to the way that bitcoin and its peers have evolved from being revolutionary alternatives to the traditional financial system into little more than speculative vehicles; now the crypto lobby is asking Uncle Sam to inflate and support their prices. A crypto reserve would be a government-backed grift—one that makes the government itself the easy mark.
Article originally published at The Atlantic