The U.S. government's new strategic reserve: Billions in seized crypto

Yahoo

2 days ago

President Donald Trump signed an executive order in March that boosted the spirits of cryptocurrency investors - and created a digital money mystery.
Trump directed the treasury secretary to create two national stockpiles of crypto assets, putting digital currencies alongside gold, foreign currencies and other assets in the U.S. reserve.
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The assets are to include crypto seized by federal agencies in criminal or civil proceedings. But the government has not disclosed how much bitcoin, or which other crypto coins, it holds.
New data on what crypto cash the U.S. government has seized may now provide some answers. It suggests the crypto reserves will together hold more than $21 billion in cryptocurrency.
Trump ordered the creation of a Strategic Bitcoin Reserve, which Trump described as 'a virtual Fort Knox for digital gold,' and a separate U.S. Digital Asset Stockpile to hold other cryptocurrencies. The stockpile will be funded with whatever crypto assets the Treasury holds other than bitcoin, leaving the stockpile's composition to be largely determined by a mixture of chance and criminal conduct.
That unconventional method for selecting government financial holdings had the benefit of making the reserves cost-neutral for the taxpayer. It also provided a way to estimate what exactly might go into the two pools before results are released from an official accounting of U.S. crypto holdings that is underway.
Because government seizures are disclosed in court documents, news releases and other sources, crypto-tracking firms can use those notices to monitor which digital assets the U.S. government holds.
Chainalysis, a blockchain analytics firm, reviewed cryptocurrency wallets that appear to be associated with the U.S. government for The Washington Post. The company estimated how much bitcoin it holds, and the other crypto tokens in its top 20 digital holdings as of May 13, by tracking transactions involving those wallets.
The United States' top 20 crypto holdings according to Chainalysis are worth about $20.9 billion as of 3 p.m. Eastern on May 28, with $20.4 billion in bitcoin and about $493 million in other digital assets. It has been scooped up from crimes such as stolen funds, scams and sales on dark net markets.
Those estimates put the U.S. government's top crypto holdings at less than the approximately $25 billion worth of oil held in the U.S. Strategic Petroleum Reserve. Their value is nearly double the Fed's listing for U.S. gold holdings, although that figure uses outdated pricing and would be over $850 billion at current prices.
The Treasury declined to comment on U.S. government crypto holdings.
Before Trump's order established the crypto reserves, the U.S. government had not had a cohesive plan for handling its digital assets, said Eric Jardine, cybercrimes research lead at Chainalysis. It had regularly off-loaded pieces of its digital holdings through asset sales and restitution to crime victims, he said, apparently in part because crypto wasn't an asset it was considered strategic.
The crypto tokens headed for the U.S. Digital Asset Stockpile according to the Chainalysis list include ethereum, the world's second-largest digital asset, and a string of other crypto tokens with punier name recognition.
They include derivatives of bitcoin and ethereum that mirror those cryptocurrencies' prices, several stable coins designed to be pegged in value to the U.S. dollar, and 10 tokens tied to specific companies, including the cryptocurrency exchanges FTX, which imploded in 2022 after defrauding customers, and Binance.
The 20 tokens on the list are generally those with the largest market capitalizations in the $1.3 trillion crypto industry. Trump's March 2 Truth Social post that announced his intention to establish the reserves said they would include XRP, Solana and Cardano, causing their prices to jump, but none feature in Chainalysis's estimate of the top 20 tokens held by the government.
Trump's order said creating the reserves would centralize disparate government crypto caches and that 'there is a strategic advantage to being among the first nations to create a strategic bitcoin reserve.' Economists have warned that national reserves of cryptocurrency are likely to benefit only existing investors in the coins selected for inclusion, who could reap profits if the U.S. government's endorsement causes prices to increase.
There is broad support for the digital reserves from the crypto industry, which Trump has embraced. Lawsuits and investigations into crypto firms by federal regulators have melted away since his return to office. Last week, the president dined with top investors of a meme coin named after him that generates profits for Trump and his family.
Sergey Nazarov, co-founder of Chainlink, a crypto infrastructure company, said in an interview that the bitcoin reserve provides the industry a reputational boost, signaling the U.S. government considers crypto a safe-haven asset, like gold, currencies and government bonds.
Nazarov was not aware his company's own crypto token, LINK, appears to have a good shot at landing in the Digital Asset Stockpile until The Washington Post informed him. He called the coin's potential inclusion 'a generally positive thing.'
Chainalysis estimates the government holds about $1.5 million worth of the token, which has a market capitalization of over $10 billion, placing it among the top 20 crypto tokens by value.
Not everyone in the crypto community favors the U.S. government anointing cryptocurrency as a strategic national asset.
'The original spirit' of crypto, Vitalik Buterin, a co-founder of ethereum, said in a March interview with The Washington Post, 'is about counterbalancing power,' including government and corporate power.
Bitcoin, the first widely adopted cryptocurrency, was created during the Great Recession of 2007-2009, amid deep skepticism about traditional finance. Buterin is excited about the idea of governments embracing certain aspects of crypto technology. But the movement becoming too closely associated to 'one particular government team or even a particular corporate team,' he said, could violate crypto's original mission of decentralization and openness.
Austin Campbell, a professor at New York University's business school and a principal at crypto advisory firm Zero Knowledge, sees hypocrisy in crypto enthusiasts cheering the government's strategic reserves. The bitcoin community in particular 'has historically been about freedom from sovereign interference,' he said.
Campbell argues the U.S. government could put seized crypto coins - and its gold - to better use, by filling in some of the national debt or reducing spending. He would not oppose a crypto reserve, he said, if the United States were running a budget surplus.
Trump's use of an executive order bypassed congressional debate on crypto reserves but state lawmakers attempting to establish similar reserves have gotten mixed results.
New Hampshire and Arizona's governors this month signed bills paving the way for state crypto reserves.
Other states - including Florida, Oklahoma and Wyoming - have rejected or postponed similar bills. One common concern has been that cryptocurrencies are more volatile than many conventional financial assets.
A 2024 Pew Research Center report found that 17 percent of Americans have invested in, traded or used crypto. Among Americans ages 18 to 29, the figure was 29 percent. Some younger investors even consider highly speculative meme coins to be their generation's best shot at the American Dream.
One challenge to consumer adoption of crypto has been the need to invent tools and services to make it easy to manage digital assets. Owning crypto depends on a private cryptographic key a few dozen characters long - making it easy to transfer funds but also to lose them or get scammed.
Some crypto enthusiasts and institutions store bitcoin in special devices not connected to the internet, to stop hacks. The U.S. government has lost some of its seized crypto dating back to the takedown of the Silk Road dark net marketplace in 2013.
'The government has built better and better processes of managing crypto assets over time, but there have still been some mistakes,' Chainalysis CEO Jonathan Levin said in an interview this month.
The Department of Justice announced in July 2024 that it had awarded a five-year contract to Coinbase, a leading crypto exchange, to provide crypto custody and trading services for its cryptocurrency assets. The company declined to comment further on the U.S. crypto reserves.
Levins predicts there will now be 'a greater level of sophistication' applied to managing and securing the government's reserves.
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https://washingtonpost.com/documents/bb78a1aa-db03-45f1-89d1-d3611c1fa2c7.pdf
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