After a market downturn early in the year, cryptocurrency markets rallied following Donald Trump’s announcement regarding a national crypto strategic reserve. Trump shared on Truth Social that a working group would “move forward” with facilitating the strategic federal purchase of Bitcoin, Ethereum, and three other less established cryptocurrencies.
This announcement preceded the White House’s inaugural cryptocurrency summit on March 7th. It also underscores Trump’s growing affinity for cryptocurrency over the past year, which has included a crypto venture, a suggested “crypto czar” position within the White House, and the TRUMP meme coin, that has fallen in value over time.
Questions linger about the details of the plan. It is unclear if taxpayer dollars will fund the reserve, its ultimate size, or if it will be utilized to address the U.S. federal debt, as some have posited. This proposed strategic reserve has already drawn criticism from economists and a subset of cryptocurrency advocates.
The U.S. has traditionally established strategic reserves for crucial assets such as oil, aiming to ensure availability and stabilize prices during crises. However, the crypto reserve presents a fundamental difference. Stephen Cecchetti, an economist and professor at Brandeis International Business School, who has written extensively regarding cryptocurrency skepticism, views the proposal as “absurd.” He argued that these reserves hinge on the belief that prices will increase, which contrasts with the typical rationale of importance to the nation. “It’s foolish to purchase risky assets with leverage in the hope of making it easier to repay your debt,” he said.
What Is a Strategic Reserve?
Historically, the U.S. has stockpiled essential assets to protect against supply disruptions. For example, Congress established the Strategic Petroleum Reserve in 1975 following the Arab oil embargo crisis. This event caused gas shortages across the country and crippled the American economy. The aim was to stabilize prices, but with crypto, Cecchetti states, “A strategic reserve is for something that is essential, either for national defense or national economic security…What exactly is essential about Bitcoin in our lives that makes it so the U.S. would want a reserve?”
Why the Enthusiasm Among Cryptocurrency Advocates?
While the goal of stabilizing prices isn’t the priority of crypto enthusiasts pushing for a reserve, many hope it would trigger significant price increases. They believe federal purchases of crypto would communicate the staying power of the asset and encourage other financial institutions to invest. They also believe other governments might follow suit and create their own reserves, causing a rise in prices. Some Bitcoin adherents believe it could serve as a hedge against inflation.
However, cryptocurrency has proven to be extremely volatile during times of geopolitical conflict. Purchasing Bitcoin could also threaten the dollar’s global value. Austin Campbell, a crypto entrepreneur and professor at NYU Stern, wrote on X that “We should be doing everything we can to keep our fiscal house in order in dollar terms, which means cutting the deficit and future expenditures to a sustainable path, not trying to YOLO into an asset that benefits from dollar decline.”
Financing the Crypto Reserve
Concerns were expressed online that taxpayer funds might finance this reserve. U.S. law enforcement currently holds approximately $17 billion worth of Bitcoin, obtained through criminal seizures. The U.S. Marshals Service manages these assets, selling them to support law enforcement operations and compensate victims of crypto-related crimes. Whether Trump intends for that Bitcoin to be co-opted remains unknown.
In response to questions, a White House representative referred to the X post by Trump’s crypto czar, David Sacks, which stated that further information will be provided at the summit. Sacks wrote: “Nobody announced a tax or a spending program. Maybe you should wait to find out what’s actually being proposed.”
Can a Crypto Reserve Help Pay Down the U.S. Debt?
Some, like Senator Cynthia Lummis, believe it can. She suggested that investing in Bitcoin would raise far more money than levying taxes because its value would continue to increase. She further argued those gains could then be sold off, allowing the country to reduce its debt. This plan is viewed with concern from those who see relying on a volatile asset as risky to implement.
Professor Chester Spatt of Carnegie Mellon University’s Tepper School of Business warns that relying on a volatile asset like Bitcoin for debt reduction is risky, stating, “Just because an asset has gone up in the past doesn’t mean it will go up in the future.”
Cecchetti likened the plan to “a homeowner running up their credit card to gamble in the hopes of paying off their mortgage faster.”. He also suggests that buying a large quantity on the U.S. debt could “increase the likelihood that credit rating agencies would downgrade the U.S., increasing the cost of borrowing.”
Meanwhile, some crypto enthusiasts are also concerned about what would happen to Bitcoin if the plan actually works. If Bitcoin increases massively in price and then the U.S. decides to sell off the reserve to pay down its debt, that transaction itself could trigger a significant decrease in Bitcoin’s price.
Concerns Among Crypto Fans
While the broader crypto market reacted positively to Trump’s announcement, prominent voices expressed various criticisms. Some criticized the irony of federal government control over a supposedly decentralized currency. Others worried that the reserve would be an avenue for scams and insider trading. The proposal surprised people for the inclusion of volatile currencies like ADA and XRP.
Given the lack of clarity around many of the idea’s central details, it’s difficult to say whether a crypto reserve will actually come to fruition. However, Trump is far from the only one pushing this idea: several states are considering their own versions, including Oklahoma and Utah, which have advanced similar proposals. Dennis Porter, the CEO and co-founder of the crypto advocacy group Satoshi Action Fund, wrote on Twitter that the group had helped over 20 states introduce strategic reserve legislation.
