Backlash to crypto-reserve plan raises doubts on its prospects
THERE are many questions swirling around Washington and the crypto market regarding how exactly the Trump administration will attempt to execute on the president’s plan for a strategic cryptocurrency reserve.
Yet one important point is clear: The US would have to acquire three of the tokens that he wants included in the stockpile. And that’s causing a backlash among both supporters and critics of the notion that the government should be invested in digital assets.
When Trump originally announced plans for a Bitcoin reserve last year, he said it would be based on crypto that the government already held, mostly from assets seized in criminal cases. While the US currently owns about US$16.4 billion worth of Bitcoin and about US$400 million worth of seven other tokens, its known wallets do not currently hold any of the cryptocurrencies known as XRP, SOL and ADA that Trump said on Sunday (Mar 2) that he wants to be included.
That suggests that the ambitions for the strategic reserve go beyond just maintaining federal holdings to also involve purchases made with taxpayer money or financed with other government assets. That could make it a tough sell politically, as evidenced by this year’s statehouse rejections of plans in Montana, Wyoming and North Dakota to create state reserves.
“You should only be establishing this kind of thing when you are running a surplus, not a deficit,” said Austin Campbell, a cryptocurrency consultant and former Wall Street trader who is an adjunct professor at New York University’s Stern School of Business. “And if you are running a surplus, set money aside so you can invest it in productive assets growing value over time.”
That highlights another potential political headwind to Trump’s goal: The values of crypto tokens he wants included in the reserve have plunged in recent weeks, and they even reversed most of the brief rebounds that followed Trump’s posts about the reserve on Truth Social on Sunday.
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SOL, for example, has sank as much as 57 per cent from its high in January amid massive losses in high-profile memecoins hosted on its Solana blockchain, including some associated with President Trump and his wife Melania and one token promoted by Argentine President Javier Milei.
Ether has fallen more than 50 per cent from its high in December. And even Bitcoin, by far the most dominant cryptocurrency in the market, dropped as much as 28 per cent from its last record above US$109,000 on the day of Trump’s inauguration.
Price action ‘not helpful’
“I think what we will find is that price, more than anything, will determine the administration’s appetite for creating a reserve,” said Peter Atwater, president of research service Financial Insyghts and an adjunct professor at William & Mary. “The price volatility is not helpful to those who are advocating to create a reserve. Typically, when governments want to buy things, price stability is one of the elements that they are looking for.”
Even among those in the crypto industry who support the notion of a strategic Bitcoin stockpile, there has been a backlash towards the idea of also including so-called altcoins in the strategic reserve. Some believe they would be acceptable in a sovereign wealth fund, which Trump also wants to create, but not in a strategic reserve.
“The crypto strategic reserve in its current form is a horrible precedent to set,” crypto investor and influencer Anthony Pompliano wrote in his newsletter on Monday.” Adding these crypto tokens to the balance sheet of the United States makes no sense.”
Policy objective ‘unclear’
Or as Charleyne Biondi, a digital assets analyst at Moody’s Ratings, wrote on Tuesday: “The broader policy objective behind these massive investments in unbacked cryptocurrencies remains unclear.”
Questions also are being asked about why Trump chose to specifically include the other four tokens, especially among executives involved with other crypto projects that appear not to be included in the reserve plan.
“We need closer scrutiny of the assets that are being chosen and some transparency about the methodology of how they are choosing these assets,” said John Wu, president of Ava Labs, the team behind the US$8.2 billion Avalanche token, which is the 14th-largest cryptocurrency and one not included in Trump’s announcement for the reserve.
An index that weighted tokens by market value, or some other objective framework, would be preferred, he added.
‘First mindshare’
“If they are to include them, they should explain to the public what they are used for,” he said. “They are learning on the fly. And the people who have the proximity to them and are pitching their utility, use case, the reason for their coin, their tokenomics, whatever it is, are getting first mindshare.”
It’s yet to be seen if the backlash inside or outside the crypto industry disrupts Trump’s plans for a crypto reserve. It’s conceivable that the president could justify buying any token he wants by utilising presidential powers related to national security, emergency powers or financial stability, according to John Deaton, a pro-crypto lawyer and entrepreneur and former candidate for Senate.
“All of these options would be immediately challenged in court, of course,” he wrote on X. “The bottom line: let’s not fight over something that’s not going to happen anytime soon.” BLOOMBERG
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