Trump's Crypto Strategic Reserve
Make America Grift Again
This past weekend was an ‘interesting’ one for news from the Trump White House. My own social media feed was filled with posts regarding Trump’s Friday meeting with Ukrainian PM Zelensky, which apparently went even worse than the infamous “perfect” phone call which triggered Trump’s first impeachment. But the news that really got my attention occurred on Sunday, when President Trump announced over social media that the US would be launching a “strategic reserve” of bitcoin and other crypto assets.
Trump’s Sunday crypto announcement was not entirely unexpected, although its timing and content was somewhat surprising. As you may recall, in late January Trump issued an Executive Order, Strengthening American Leadership in Digital Financial Technology, in which he announced the formation of the “President‘s Working Group on Digital Asset Markets”, a group of cabinet heads and other senior officials charged with developing a new crypto strategy for the federal government and making recommendations to the President on a number of concrete proposals. Included among these proposals was one to explore “the creation and maintenance of a national digital asset stockpile … derived from cryptocurrencies lawfully seized by the Federal Government through its law enforcement efforts”.
It is unclear from Sunday’s announcement whether the Working Group has now completed its work and made specific recommendations to the President regarding this proposal or whether Trump simply woke up Sunday morning and decided to bypass the previously announced process and make a splashy announcement on his own, perhaps in an attempt to shift attention away from the diplomatic (or should I say undiplomatic) developments from last Friday. With his Sunday announcement of a new crypto “strategic reserve”, however,Trump seems to have significantly expanded the scope and scale of his earlier Executive Order committing the federal government to “stockpile” digital assets seized through federal law enforcement efforts, assets with a current market value of around $18 billion consisting predominantly of bitcoin.
I do not know exactly what Trump means when he talks about a crypto “strategic reserve”, and I suspect that neither does he, even though this idea has been discussed for quite some time in and around the crypto world and no doubt in the Oval Office. To help me understand what Trump and those around him might possibly have in mind, and for some more informed economic perspectives, I turned to George Selgin, Senior Fellow and Director Emeritus at the Center for Monetary and Financial Alternatives at the Cato Institute. In December of last year, Selgin spoke with David Beckworth, host of the excellent Macro Musings podcast on exactly this topic, “the strategic bitcoin reserve”. That interview is the source for much of what follows in this post, and you can listen to it here.
Selgin describes three different types of “strategic reserves” employed in international finance. The first are reserves or stockpiles of commodities which play some sort of critical (hence “strategic”) role in national defense or economic preparedness, consisting for example of weapons, petroleum, agricultural commodities or medicine, all of which the US already has. Building a reserve of crypto assets does not fit well into this model, at least not in the USA, although a crypto stockpile might well make sense for money laundering purposes at a large criminal organization or rogue state actor like our new strategic ally Russia.
The second type of “strategic reserve” is often referred to as a “sovereign wealth fund”, a large investment fund charged with reinvesting the income generated from state-owned assets (eg oil reserves) in some new way. Good examples would be the SWFs established by various oil-rich countries such as Norway and the UAE, who seek to diversify their sources of national wealth away from their depleting natural resources into new asset classes (eg international equities or venture capital) for the benefit of future generations of citizens. A month ago, President Trump issued an Executive Order calling for the development of something similar, a US sovereign wealth fund. Trump’s order was typically light on detail and economic rationale, but seemed to contemplate the monetization or leveraging of unspecified “assets” currently owned by the United States for purposes of “long-term wealth creation”. The order specifically mentioned $5.7 trillion of assets held by the federal government, which on further investigation appears to consist primarily of receivables, property plant and equipment and other operating assets which are not well suited to use in a sovereign wealth fund, a detail which seems to have been overlooked by our new President and his senior advisors. But as the Executive Order stated, the US also owns a much larger (but unquantified) amount of land, minerals and energy resources which could fit the bill. Even if we were to accelerate the sale (or monetization) of these other assets, however, it is far from obvious why the US should prefer to use any of the proceeds to fund a new SWF rather than to fund the government’s continuing operations, to reduce taxes and/or to pay down the $30+ trillion of currently outstanding federal debt, which Elon Musk and Republicans in Congress keep telling us poses an existential threat to our way of life.
The third type of “strategic reserve” which Selgin discusses consist of the sorts of international financial assets held by many central banks, typically for the purpose of managing the foreign exchange value of their own currencies. The rationale for foreign central banks to hold international reserve assets, for example USD securities and gold, does not really apply to the US given the role of the US dollar as the global reserve currency. The US has no economic reason to hold foreign securities or even any gold, although for historic reasons we do own a very large amount of the latter. (The USD remained on the ‘gold standard’ until the 1970s; hence our large gold holdings.) The US owns the largest supply of gold in the world, over 8000 metric tons, which is worth $750+ billion at current market prices but which is reported on the Treasury’s accounting books at a value of only $11 billion. And while it might make sense for the US to begin monetizing some portion of our massive gold supply over time, it is once again far from clear why we should take the proceeds from any gold sales and put the money at risk in the market for crypto, another form of financial asset which has even less intrinsic economic value than gold.
No doubt crypto fans will take exception to this last statement of mine, that crypto currency has no intrinsic economic value. If so I apologize, but I am simply unaware of any convincing arguments to the contrary. Bitcoin has been around for something like 15 years, and despite its spectacular growth as a vehicle for financial speculation—the current market cap of bitcoin is now approaching $2 trillion and average daily trading volume is around $30 billion—bitcoin has never demonstrated outside of the crypto (and criminal) space any particular merit as an alternative to fiat currency for purposes of transactional exchange, as a store of value or as a unit of account, which of course is exactly what ‘currencies’ are intended to do.
This is not to say that bitcoin or other crypto assets should not be held in private investment accounts or that US financial regulatory reforms in the crypto space are not long overdue. Nor do I mean to suggest that the future financial return on bitcoin or other crypto currencies will not exceed that from investing in the stock market or buying UST bonds. But the US federal government should not be in the business of promoting or engaging in economically unproductive financial speculation, and it should certainly not be doing so with taxpayer funds and public resources which could be used for more constructive purposes like paying down the US debt, which is now over $30 trillion and accruing interest at $1 trillion a year, growing at a rate in excess of the US economy.
So what’s really going on here? If a crypto strategic reserve really makes little or no economic sense for the US government, even from the perspective of a libertarian supporter of the digital economy like George Selgin, why is the Trump administration going ‘all in’ on this issue?
I really have no idea, of course, but it seems to me that the answer may become somewhat clearer if we just follow the money trail. In the 24 hours since Trump’s Sunday announcement, the market value of bitcoin and ether has increased by 20% or so, generating $200 billion of incremental wealth for the owners of these two coins, which will apparently form core holdings in the new strategic reserve. In fairness, I should note that President Trump’s principal crypto advisor, David Sacks, divested all of his personal holdings of crypto (which included Bitcoin, Ether and Solana) before taking office, in compliance with ethical guidelines which of course do not apply to the President or his family. I do not know what specific crypto investments the Trump family now holds (or may be planning to acquire), but you will recall that the Trump family owns a crypto firm called World Liberty Financial which at one point did have large (for them) holdings in Ether, one of the five crypto currencies selected by President Trump for inclusion in the strategic reserve. And although the President’s own meme coin $TRUMP will not be included in the strategic reserve, at least not yet, its value was also up big on Sunday, increasing by 30% and adding $3 billion to the Trump family’s net worth. But these recent gains pale in comparison to the likely profits to be made in crypto world once the US government begins buying up the President’s favored digital coins with large amounts of taxpayer funds.
On the off chance that any readers may have missed the obvious irony in all of this—wholly apart from Trump’s own “Drain the Swamp” campaign promises— I will remind you that bitcoin was first created as part of a libertarian effort to provide the world with a private sector alternative to government-sponsored fiat currency which would serve as the foundation for a new digital financial system operating outside of state control and influence.
Which of course is a far cry from with what our President announced on Sunday.
Links
George Selgin on Bitcoin Reserves, Macro-Musings, December 23, 2014
Trump Faces Blowback Over Plans for Crypto Reserve, NY Times Dealbook, March 3, 2025
Am I wrong to suspect that this crypto reserve is just a way of using US taxpayer $ as exit liquidity for well-connected crypto whales?