The cryptocurrency market never sleeps, so it was fitting that former President Donald Trump chose a Sunday to make his latest announcement. In a post on Truth Social, the social media platform he owns, Trump declared his intention to create a US Crypto Reserve. This move could directly benefit the billionaires who helped fund his presidential campaign.
โA US Crypto Reserve will elevate this critical industry after years of corrupt attacks by the Biden Administration,โ Trump wrote. Shortly after, his son Eric also posted about the plan, implying that his fatherโs announcement could be considered market manipulation.
The former president had previously pledged to establish a “strategic national Bitcoin stockpile” during his campaign. However, his latest statement broadens the scope to include Ethereum, Solana, Rippleโs XRP, and Cardano. While this may sound like a structured policy, no clear details have been provided regarding how the tokens will be acquired, who will manage them, or what kind of storage system will be used. In a well-organised financial system, such fundamental details would be essential. Yet, in Trumpโs world, such specifics seem secondary to grand declarations.
Could this undermine the US dollar?
The US dollar is the worldโs dominant reserve currency, widely used in global trade, and often considered the safest financial asset. The strong demand for US Treasury bonds makes it cheaper for the government to borrow money than for other nations. Additionally, because American banks facilitate most dollar transactions, the US can use its financial influence to impose sanctions on adversaries and enforce anti-corruption laws globally. This economic power is a significant tool of US foreign policy.
However, a federally managed crypto stockpile could weaken this position. In its original form, Bitcoin was designed to challenge central banks’ influence and undermine state-backed currencies. With Trump proposing that the government hold large amounts of these assets, it raises the question: Why would the US invest taxpayer dollars in something that could devalue its own currency?
Trumpโs loyalty to the crypto industry may explain his willingness to continue despite these concerns. The industry played a major role in funding his campaign, and this policy could be seen as a direct reward to his financial backers.
Who benefits from a government-owned crypto reserve?
Stockpiles of essential resources, such as oil, gold, and vaccines, exist for practical purposes. Oil powers transportation, gold is used in electronics, and vaccines prevent diseases. On the other hand, cryptocurrencies do not serve a comparable functional purpose. Instead, they are primarily used for investment speculation and, in some cases, illicit transactions.
The only clear winners from Trumpโs proposal appear to be the crypto investors who hold large amounts of these tokens. By endorsing digital assets with US government backing, the plan could significantly boost their market value, benefiting those who have already invested heavily in the industryโincluding some of Trumpโs key donors.
Economist Tyler Cowen has argued that a US crypto reserve could expand the dollarโs global influence by allowing the government to impact crypto prices alongside traditional currency reserves. However, this reasoning is questionable. The mysterious Satoshi Nakamoto entity controls the largest Bitcoin reserves, which could destabilise the market anytime. Similarly, venture capital firms heavily influence other major cryptocurrencies, making their value unpredictable.
Without a clear strategy for implementation, the proposalโs benefits remain uncertain. If the reserve is intended to support the dollar, it could tie national financial stability to a volatile and speculative market. If it is simply a new asset for the government to hold, taxpayers could end up footing the bill for a risky investment with no guaranteed return.
