Trump's Crypto Strategic Reserve, Part 2
The grift goes on
A week ago, I published a note on Trump’s Crypto Strategic Reserve and what it might look like. At that time, the President had made a number of statements regarding the establishment of a US Crypto Strategic Reserve but he had not issued an official order to that effect. This all changed last Thursday, March 6, when the President issued his Executive Order regarding the Establishment of the Strategic Bitcoin Reserve and US Digital Asset Stockpile. The order was not unexpected, of course, but it was nonetheless interesting, both as to the details of the President’s plan and also for what it suggested about the underlying rationale (or lack thereof) for the creation of the new Strategic Reserve. The Executive Order also raised serious questions about the potential for abuse of this new government fund, which should not go unexamined.
With the issuance of this latest Executive Order, President Trump clarified that the only crypto currency which will be included in the Strategic Reserve will in fact be Bitcoin, which was a direct contradiction of explicit statements made by him only a few days earlier, in which he specified four other crypto coins which he intended also to include in the strategic reserve. This change of position on the part of our President should come as no surprise to anyone, certainly not after the past few weeks of head-spinning tariff announcements. But it is curious nonetheless, and there may well be an interesting backstory here which may someday make its way into the public domain.
Whatever that backstory may be, it now appears that the new Strategic Reserve is to be funded only with Bitcoin, consisting initially of an estimated $17 billion (market value) of BTC currently held by the US Treasury, which was obtained by the federal government as a result of criminal or civil asset forfeiture proceedings. In addition to this initial contribution, however, the Treasury Secretary and the Secretary of the Commerce Department are also charged with developing strategies to acquire additional amounts of Bitcoin with government funds, beyond any amounts confiscated in future forfeiture proceedings, provided that such purchases are “budget neutral and do not impose incremental costs on United States taxpayers”.
The President’s Executive Order raises a number of unanswered questions, including the important one of how any additional purchases of Bitcoin for the Strategic Reserve could possibly be funded in a way which does not impose “incremental costs" to the US taxpayer. If the government were to purchase say $10 billion of additional Bitcoin for the Reserve, this might of course be funded in a ‘budget neutral’ manner if the government were also to cut other spending or to raise taxes by this same amount. And there may be other ways to find “off-budget” sources of funding, say by tapping into the nation’s $750 billion (market value) of physical gold reserves. But whatever the budgetary (accounting) treatment of these purchases, acquiring any additional BTC will necessarily impose ‘incremental costs’ to the US taxpayer, if only because money is fungible and the funds used to buy BTC could alternatively have been used to fund other government spending, reduce taxes or pay down the federal debt. And the same thing would be true of any new Bitcoin obtained by the government through future forfeiture proceedings; in this case too the new Bitcoin could alternatively have been sold on the market and the proceeds similarly used for other government purposes. This is a demonstration of the economic concept of “opportunity cost”, which the President in his Executive Order seems to have overlooked, or hoped would go unnoticed by Congress and the public.
In addition to announcing the Strategic Bitcoin Reserve, the President’s Executive Order also establishes a separate “US Digital Asset Stockpile,” to consist of “all digital assets owned by the Department of the Treasury, other than BTC, that were finally forfeited as part of criminal or civil asset forfeiture proceedings”. Unlike with Bitcoin, however, the federal government will be prohibited by the Executive Order from acquiring additional Stockpile Assets (ie non-BTC crypto) other than through criminal and civil forfeiture (and similar) proceedings. But as with the Strategic Bitcoin Reserve, this provision too can be modified through future executive decree, or of course thorough future legislation.
These seem to be the highlights of how the new Strategic Bitcoin Reserve and Digital Stockpile are intended to work, at least for now. But what if any public policy rationales did the President provide for these bold new initiatives?
Well, here is what was said in the Executive Order:
“Bitcoin is the original cryptocurrency. The Bitcoin protocol permanently caps the total supply of bitcoin (BTC) at 21 million coins, and has never been hacked. As a result of its scarcity and security, Bitcoin is often referred to as “digital gold”. Because there is a fixed supply of BTC, there is a strategic advantage to being among the first nations to create a strategic bitcoin reserve. The United States Government currently holds a significant amount of BTC, but has not implemented a policy to maximize BTC’s strategic position as a unique store of value in the global financial system. Just as it is in our country’s interest to thoughtfully manage national ownership and control of any other resource, our Nation must harness, not limit, the power of digital assets for our prosperity.
As discussed in my last post, Bitcoin is not a national “resource” in any meaningful sense, and certainly not in the same sense as the federal government’s landholdings or mineral rights. Nor is Bitcoin comparable to the other scarce (or vulnerable) resources that the US and other governments often stockpile for national defense purposes, for example energy, food, water, minerals and medicine. And putting BTC into a “Strategic Reserve” does not magically transform Bitcoin into a financial reserve asset of the sort held in many (non-US) central bank accounts, as much as the President and his advisors might like us to believe otherwise.
But what are we to make of the rather shocking statement in the Executive Order suggesting that the US federal government should as a matter of public policy seek to “maximize BTC’s strategic position as a unique store of value in the global financial system”?
As you may recall, Bitcoin was launched in the wake of the global financial crisis as an alternative to government-issued ‘fiat money,’ the supply of which was controversially expanded in response to the near collapse of the global financial system, which then (as now) revolved largely around the US dollar as the world’s principal reserve currency. Bitcoin’s early proponents stated as their explicit goal the creation of a shadow financial system operating entirely outside of government control, with BTC itself serving as the new form of currency which would be widely employed for financial and commercial purposes across the world. Like other forms of private or public ‘money’, Bitcoin was intended to serve not only as a ‘store of value’, but also as a ‘medium of exchange’ and a ‘unit of account’. To date Bitcoin has largely failed to meet most of these monetary objectives, despite its extraordinary success as a vehicle for pure financial speculation. But we are still in the early days, and with the President’s Executive Order the promotors of Bitcoin may have gotten a new lease on life.
But to what end?
I do not know if today’s Bitcoin promotors remain fully committed to these libertarian (and arguably anarchist) goals to displace the US dollar from its central role in the global financial system, or if they are now primarily interested in making more money for themselves and their fellow travelers. But one has to ask what exactly does the President of the United States expect to accomplish with this Executive Order?
It is certainly possible that President Trump has been persuaded by his new crypto advisors of the important and unique role that Bitcoin could and should play in an evolving decentralized private financial sector embedded within a dollar dominant global financial system. But while this would be consistent with some of the President’s recent policy moves on the regulatory front, it doesn’t seem to have much to do with establishing a Strategic Bitcoin Reserve per se. Nor would this promotion of a BTC-centric DeFi economy seem to be consistent with taking large amounts of BTC out of circulation through US government purchases. A growing economy needs to be fueled by a growing supply of money, not a shrinking one, a lesson I thought we had all learned nearly 100 years ago, during the Great Depression.
Unfortunately, the President’s Executive Order on the Strategic Bitcoin Reserve likely has more to do with creating opportunities for grift and corruption than it does with public policy or the national interest, as suggested in my last post. Recall that President Trump was for many years an outspoken critic of all things crypto; he regularly called crypto a “scam” and a “Ponzi scheme” and he was not entirely wrong to do so. But this was all before Elon Musk and the crypto bros contributed huge amounts of money to Trump’s latest campaign—Musk alone contributed $250 million or so— and before they introduced Donald Trump and his family to the many personal get-rich-quick opportunities available in the largely unregulated world of meme coins (which Trump reportedly referred to as “me me” coins). I do not know how much cash the Trump family has so far taken out of its various crypto ventures—some estimates are in the hundreds of millions of dollars— but at least on paper the increase to the family net worth from the issuance of $TRUMP alone is now over $10 billion, and at one time was much larger.
But how does this relate to the President’s new Strategic Bitcoin Reserve, you might ask. The answer I think lies not so much with the establishment of the Strategic Reserve per se, as with the ways in which the Reserve might be used (or abused) in the future, using large amounts of public funding to fuel largely private gains. As of now, the President’s new Strategic Reserve will be funded with just $17 billion (market value) of BTC already owned by the US government, which is a very small amount of money even in crypto world, in fact less than one day’s average trading volume in BTC. And it is a completely irrelevant amount of money relative to the financial position of the federal government, which is currently running a $2 trillion deficit on a $6 trillion budget with well over $30 trillion in debt. The government’s current $17 billion BTC holdings could increase in market value by one hundred-fold in the next year and it would not change this picture in any material way.
But consider the implications if the Trump administration were for example to begin tapping into our nation’s physical gold reserves, worth something like $750 billion at current market values, equivalent to 75% or so of the total current market value of BTC. If even small amounts of the US gold reserve were redirected into Bitcoin, the impact on the market price (and liquidity) of BTC would be profound, creating huge windfalls for private BTC holders (including certain foreign governments and criminal organizations) and serious potential and actual conflicts of interest on the part of those charged with promoting our national interest, including the President.
It will not be long, I suppose, before we see the self-appointed Republican ‘fiscal conservatives’ and ‘budget hawks’ in Congress lining up to publicly praise the President’s latest plan to speculate in the crypto markets with taxpayer funds, perhaps on the grounds that we might eventually be able to pay off the federal debt with the winnings. These folks would never accept this sort of fiscally irresponsible Hail Mary pass from a Democratic president, of course, nor should they. There are many things the federal government does well, but speculating with the taxpayers’ money is not one of them.
And this will remain true no matter how much money it might seem like we are leaving on the table by not going long BTC, at least until more savvy operators walk away with our cash, leaving US taxpayers holding the bag.
Links
Trump Signs Order to Create a Crypto Reserve, NY Times, March 6, 2025
very good article, what's a little more corruption in a totally broken system. My paternal grandfather was an anarcho-socialist - beginning to understand why