Crypto Gets a Trump Tailwind but Troubling Questions Remain

A Bitcoin reserve raises issues related to utility, conflicts of interest and the primacy of the US dollar, but will confer legitimacy and spur more crypto adoption.

- Vikram Khanna

During his election campaign, candidate Donald Trump vowed to make the United States "the crypto capital of the planet". As president, he has lost little time in attempting to deliver on this pledge.

On March 6, he signed an executive order to create a "Strategic Bitcoin Reserve" as well as a digital asset stockpile comprising other digital assets, including Ethereum, Solana, Ripple and Cardano. US crypto czar David Sacks likened the initiative to the creation of a "digital Fort Knox", referring to the repository of the US gold reserves.

How will the Bitcoin reserve work?

For a start, Mr Sacks said the US "will not sell any Bitcoin deposited into the reserve", noting that the government owns about 200,000 bitcoins (worth around US$17 billion — S$22.67 billion — as at March 13) acquired through confiscations and forfeitures. Previous US administrations made no commitment to refrain from selling any Bitcoin holdings, so this is new.

On strategies for acquisitions, Mr Trump's executive order stated that these have to be "budget neutral" and not impose incremental costs on US taxpayers. In other words, as Mr Sacks clarified, the government can buy Bitcoin only if it doesn't add to the US fiscal deficit or the debt. But this, too, is a departure from the past, when confiscations were the only way through which the government acquired Bitcoin. Now, the government is open to other strategies, albeit with guardrails.

Around the time of Mr Trump's inauguration, a lot of crypto investors had apparently assumed that there would be aggressive Bitcoin acquisition by the government, which led to heavy purchases. On Jan 20, the price of Bitcoin had soared to a record high of more than US$109,000.

But after the March 6 order, which set limits on the acquisition strategy and disappointed a lot of crypto bulls, it fell back to around US$85,000.