The crypto market never closes, so it was fitting President Donald Trump made the announcement on a Sunday: he was going to reward the billionaires who funded his presidential run.
“A U.S. Crypto Reserve will elevate this critical industry after years of corrupt attacks by the Biden Administration,” Trump wrote in a post on Truth Social, a social media website that he owns. His brilliant son Eric made a post suggesting that his father’s announcement qualified as market manipulation. Fantastic.
I know I’ve been saying this a lot lately, but this is so stupid
Trump promised his crypto constituency a “strategic national bitcoin stockpile” on the campaign trail. The new post expands the plan to include Ethereum, Solana, Ripple’s XRP, and Cardano. I am using “plan” loosely. I don’t know who’s going to buy and hold the tokens, or even if tokens need to be bought at all, or what kind of wallet will be used, or any of the rest of it. In a sane system, we’d have an inkling of these things, but this is Donald Trump.
Look, I know I’ve been saying this a lot lately, but this is so stupid. The US dollar is a source of American soft power and a tool for setting fiscal policy. The express point of Bitcoin, as it was originally conceived, is to challenge the dollar and undermine the state. Now, it seems the state is about to waste taxpayer dollars buying assets that weaken its own position in the world.
But Trump owes the crypto industry big, so he might do it anyway.
The US dollar is functionally the world’s reserve currency. It’s widely used for international transactions, and US Treasury bonds are often used as collateral for loans, since they are considered the safest asset in the world. Because there’s such a strong demand for US bonds, it’s cheaper for the US to borrow money than it is for other countries.
US law goes everywhere the dollar goes. American banks handle dollar transactions, which means that when the US sanctions a country such as, let’s say, Russia, that country has a much harder time doing international business. This also means that US anti-corruption laws — among others — are also in effect when people transact in dollars. That gives the US a great deal of soft power. The US’s financial policy is hugely influential for the world’s financial policy, since our bonds serve as the default safe asset class.
A crypto stockpile enriches Trump’s crypto donors
Now let’s consider the hypothetical crypto stockpile. It amounts to an endorsement of tokens that the US has no control over, which are widely used for crime. The US does not and cannot set crypto financial policy — Bitcoin’s is hard-coded and lightly insane. Pricing of the tokens, which are also widely used for gambling, is volatile. US taxpayers may even wind up on the hook for bailing out crypto investors if the prices crater.
Stockpiles of other things exist, of course: oil, gold, vaccines. The difference between crypto and other reserves is that the other things we stockpile have uses. Oil can be used in cars, jets, and buses. Vaccines can be deployed to prevent illness. Even gold has real uses: fillings, electronics (there is gold in your cellphone), satellites. Cryptocurrencies are essentially tokens that mark gamblers’ moods. The only thing a crypto stockpile accomplishes is enriching Trump’s crypto donors.
The economist Tyler Cowen has made the closest thing to a smart case for the reserve I’ve seen. He argues that a crypto reserve could actually expand the reach of the dollar, because holding crypto reserves means that the US can functionally influence the price of crypto as well as dollars. This seems like a pretty weak argument, since the most significant reserves of Bitcoin are held by the Satoshi Nakamoto entity, which could functionally crater its price as soon as the US buys in. Similarly, the other reserve currencies are heavily influenced by VCs. And a lot depends on implementation.
It’s not clear that a crypto reserve would have any benefits whatsoever to the American economy
We don’t know how the crypto reserve will be deployed. If it’s meant to back the dollar, then that has the effect of devaluing the dollar and tying it to instruments for speculative gambling. And while some might argue that more exposure to Bitcoin could benefit the government when its price increases, the truth is that the US government already benefits from that — in the form of taxes.
Devaluing the dollar also has wide-ranging effects. For instance, it would make imported products, including car parts and food, more expensive and simultaneously devalue many people’s 401(k)s. Some people also believe it would increase inflation. The dollar also is a financial instrument the US government has direct control of — allowing the Federal Reserve to set fiscal policy that responds to events in the country.
It’s not clear that a crypto reserve would have any benefits whatsoever to the American economy to offset weakening the dollar. However, it clearly benefits some very specific people.
Dancing with them what brung ya
A Bitcoin reserve is a terrible idea in its own right — but the addition of those extra currencies really gives away what’s happening. Bitcoin is open source, and its creator (or creators), the Satoshi Nakamoto entity, has disappeared. The other currencies here — Ethereum, Solana, XRP, and Cardano — were all backed by investors.
To Bitcoin maxis, this is a strike against them — people like Jack Dorsey point to Bitcoin as the ideal cryptocurrency because it’s not controlled by VCs.
The only surprise is that Trump didn’t stick his own shitcoins in the reserve
But enriching VCs is a crucial part of gangster tech regulation. That’s arguably why David Sacks is crypto czar, after all — I mean, it’s not like he’s had to leave his day job at Craft Ventures in order to advise the White House. Hey, did you know that Craft Ventures invested in Bitwise, a crypto index fund? I wonder what its top holdings are. Andreessen Horowitz, the eponymously named VC firm for Trump backers Marc Andreessen and Ben Horowitz, is heavily involved in the Solana ecosystem. Charles Hoskinson, cofounder of Ethereum and Cardano, insinuated that he had Trump’s ear. Oh, and Ripple’s founder, Brad Garlinghouse, has been meeting with Trump and is on the shortlist for a crypto advisory board.
The only surprise is that Trump didn’t stick his own shitcoins — $WLFI, $Trump, and $Melania — in the reserve.
The crypto industry shelled out more than $130 million on the 2024 elections, according to Politico. That was almost half of all corporate money that went into the elections, The Associated Press says. So far, that investment has resulted primarily in defanging the Securities and Exchange Commission, which has stalled or dropped its enforcement lawsuits against, variously, the exchanges Kraken, Coinbase, Binance, Gemini, and OpenSea. Justin Sun, who invested $75 million into Trump’s shitcoins, also had a fraud case paused.
Why is the crypto industry seeking a government bailout?
Why is the crypto industry seeking a government bailout, too? It suggests the future of crypto is bleak. While there is a devoted market of crypto speculators, Bitcoin and other tokens have not become the currencies of the internet — in part because they are impractical to transact in. Crypto transactions are slow, and the unstable nature of token valuations makes timing crucial. Further, every time a person transacts in crypto, they open themselves up to tax liability.
VCs have hyped the blockchain as the solution to problems such as digital scarcity. The NFT craze was originally billed as a way of making sure creators could get paid for their work. This led to a bubble, followed by a collapse. Following the FTX debacle — and its subsequent bank failures — large swaths of the public have avoided crypto. Once billed as the future of money, crypto seems pretty unpopular among normal people. No wonder its backers are looking for a bailout.
Boosting the welfare of… North Korea?
What, you ask, could possibly be worse than a blatant handout to billionaires? How about hackers, ransomware extortionists, and totalitarian states?
Cryptocurrency, especially Bitcoin, is an important tool for cybercriminals. Among the most active groups is Lazarus, the state-sponsored hacking collective for North Korea. Most recently, North Korea stole $1.5 billion in the Bybit heist. This is the tip of the iceberg; a 2019 UN report suggested North Korea was involved in 35 hacks in 17 countries. North Korean hackers have stolen more than $6 billion in crypto since 2017, according to Elliptic, a blockchain analysis firm.
So, who wins in a crypto reserve? VCs, gamblers, hackers, and North Korea
To create the crypto reserve, the US would presumably have to buy the currencies it’s planning to use — which would boost their price. Even if the reserve comes from government-confiscated crypto — like the seized Silk Road proceeds — it means those assets won’t be publicly auctioned, a move that can flood the open market and lead to significant price drops.
Either way, anyone with significant crypto holdings benefits. And that’s a windfall for North Korea. It may even incentivize more hacking.
So, who wins in a crypto reserve? VCs, gamblers, hackers, and North Korea. Who loses? US taxpayers.
Fortunately, the crypto reserve stands a good chance of never happening. After all, the executive order Trump made in January says only that the US will evaluate creating a digital asset stockpile. The funniest possible outcome is also the most crypto possible outcome: the president manipulated the market for political ends, and the crypto stockpile never gets off the ground.
