Source: The Atlantic
Compiled and organized by: Bit push News Ivy
During the period from Trump's election victory to his official inauguration, the price of cryptocurrencies rose sharply due to market speculation. People predicted that Trump would appoint crypto-friendly regulators and establish a "strategic Bit reserve". Trump did take some action on regulation: the U.S. Securities and Exchange Commission (SEC) appointed a new commissioner who supports cryptocurrencies, and suspended or withdrew lawsuits against some cryptocurrency exchanges. In addition, Trump issued an executive order in his first week in office to assess the "feasibility of establishing and maintaining a national digital asset reserve".
However, after Trump took office, the price of cryptocurrencies plummeted, with the decline accelerating in recent weeks. This has led to strong dissatisfaction from the main supporters of the cryptocurrency industry. Therefore, it seems to be to prevent further price declines, Trump has promised on social media that he will soon establish a "cryptocurrency strategic reserve", and said the government will not only stockpile Bit and Ethereum (the two largest crypto assets), but also include more speculative assets like Ripple, Solana and Cardano.
This move is clearly intended to soothe market sentiment, but the volatility of cryptocurrency prices still reflects the market's concerns about policy uncertainty.
Trump's statement initially succeeded in boosting market sentiment: the prices of Bit and Ethereum briefly soared more than 10% after the announcement, and the total market capitalization of cryptocurrencies surged by $300 billion. However, the market's excitement did not last long, and most of the gains were erased yesterday, partly due to uncertainty about the specific content and feasibility of Trump's promises.
In fact, the U.S. government already holds about $1.7 billion in Bit and $110 million in Ethereum, most of which were seized from criminals.
One possible approach is for the government to simply hold these assets without selling them. But what cryptocurrency supporters hope for, and what Trump seems to be promising, is for the government to fill this new strategic reserve by purchasing billions of dollars worth of crypto assets.
In other words, they hope the government will provide a de facto subsidy for cryptocurrency holders - from the perspective of non-cryptocurrency holders, this looks more like the government's absurd bailout of a high-risk speculative asset.
Establishing a cryptocurrency reserve effectively means transferring a large amount of wealth from taxpayers to cryptocurrency holders (HODLers is a nickname in the cryptocurrency community, derived from the misspelling of "hold", meaning "to hold firmly"). In the current environment, this is highly controversial and even absurd. Especially now, when the Trump administration is drastically cutting funding for other government programs and spending under the guise of "improving administrative efficiency", using taxpayer money to purchase crypto assets is clearly difficult for everyone to accept.
The concept of a "strategic cryptocurrency reserve" (or the more common "strategic Bit reserve") is clearly borrowing from the concept of the "strategic petroleum reserve". The latter is managed by the U.S. Department of Energy and has a reserve of hundreds of millions of barrels of oil. The government's rationale for establishing a petroleum reserve is beyond doubt - oil is the lifeblood of the U.S. economy. If a crisis like the 1973 oil embargo or a major disruption to the global oil supply chain were to occur, the strategic reserve could play a stabilizing role at a critical moment. (Although in recent years, the increase in U.S. domestic oil and natural gas production has reduced the country's sensitivity to external supply shocks.)
In contrast, government ownership of crypto assets has no strategic significance. These assets have no practical use for the government and the entire economic system - even if cryptocurrencies are completely abandoned, the U.S. economy can still function normally. Cryptocurrency supporters often cite the U.S. holding of foreign exchange reserves and gold as arguments. However, in reality, the scale of the U.S. foreign exchange reserves is quite limited, and the main purpose of these foreign currencies is to be exchanged for dollars when necessary - for example, in extreme cases, if the dollar depreciates significantly, the government can buy dollars to stabilize its value. But even so, the U.S. has never used its foreign exchange reserves to deal with dollar depreciation, let alone Bit or other cryptocurrencies, which cannot play a similar role in national financial strategy.
As for the U.S. gold reserves, they have actually lost their significance: the gold reserves in Fort Knox are a legacy of the past era when the U.S. promised to exchange dollars for gold at any time. Now, the U.S. holds gold simply out of "inertia" - the government does not want to cause a market collapse by selling gold, nor does it want to provoke political backlash by liquidating the reserves, as some still have "gold standard" fantasies. But in any case, this cannot be a reason for the government to establish a digital asset reserve.
Cryptocurrency supporters even claim that the U.S. holding large amounts of Bit and other crypto assets will help strengthen the status of the dollar. However, the dollar is a fiat currency, and its value does not depend on any assets held by the government. More importantly, the birth of Bit was to replace the dollar, not to support it. If the U.S. government spends billions of dollars to purchase these assets that are originally "alternatives" to the dollar, not only will it not help the stability of the dollar, but it may even shake market confidence in the dollar. After all, if the U.S. government actively purchases large amounts of speculative crypto assets, it is sending a dangerous signal to the world - "we lack confidence in the future of the dollar".
When cryptocurrency supporters advocate that "government hoarding of crypto assets can enhance the value of the dollar", their real intention is to keep cryptocurrency prices rising, thereby increasing the overall market value and making the U.S. "appear wealthier". But even if the prices rise, compared to the U.S. government's huge budget, the gains are almost negligible. And letting the government bet on such volatile assets is undoubtedly "gambling with taxpayer money". What's next, a federal sports betting department?
So far, Trump has been vague about how to acquire crypto reserve assets. Some proposals suggest the government sell part of its gold reserves to buy crypto assets. But whichever way the government chooses to establish a crypto reserve, it means that fiscal funds will be diverted to this field, when that money could have been used to reduce the deficit or invest in people's livelihood projects.
Finally, the crypto reserve could also become a breeding ground for corruption, causing huge conflicts of interest in corporate regulation and government policy. Once certain cryptocurrencies are included in the government's reserve, their prices will inevitably soar, especially for those less mature cryptocurrencies. This will provide huge economic incentives for cryptocurrency practitioners to try to please Trump, who himself holds TRUMP meme coins. If the government enters the market in a big way, it is tantamount to "legalizing and institutionalizing" these potential conflicts of interest.
But all this is not surprising for Trump - family-style rule and self-serving behavior have long been his "standard operating procedure". Although Trump himself may suffer no reputational loss, as the core of the global financial system, the U.S. government cannot afford such risks. After all, the U.S. is not only the world's largest debtor, but also the ultimate credit guarantor, and if the government actively enters the crypto market, it will not only damage its own credibility, but also make the outside world question the stability of the dollar. And the reason why cryptocurrency supporters are pushing for the government to establish a crypto reserve is simply that they hope the government will step in and prop up the crypto market, allowing prices to continue to soar.
Ultimately, this so-called "cryptocurrency strategic reserve" will turn out to be a complete scam - and the one being fleeced is the U.S. government itself.
