ASince a massive fall in February, cryptographic markets have rallied Sunday following the announcement of Donald Trump that he would create a strategic reserve of national crypto. Trump wrote on Truth Social that a working group “going forward” on the facilitation of strategic federal purchases of Bitcoin, Ethereum and three other smaller cryptocurrencies.
The announcement comes in front of the first summit of the cryptocurrency of the White House on March 7, and is based on the fixation of Trump on the crypto in the past year, which included a cryptographic adventure, a position of “Czar Crypto” in the White House and a room of Mème Trump which fell in prices from $ 70 to $ 13 in a month and a half.
It is not known if taxpayers will finance the reserve, what will be the size or if it will be used to reimburse the American federal debt, as some have suggested.
The announcement of Trump’s strategic reserve aroused criticism of economists and even some of the greatest boosters in cryptography. The United States has a long history of creating strategic reserves in key assets such as oil, in order to ensure access and stabilize prices in times of crisis. But this crypto reserve seems fundamentally different from nature, because it does not depend on the importance of assets for the nation, but on the idea that its prices will increase in the future, explains Stephen Cecchetti, economist and professor at Brandeis International Business School who wrote Skyptically on Crypto for several years.
Cecchetti called the idea of a “absurd” strategic crypto reserve.
“It is stupid to buy risky active ingredients with a lever effect in the hope of facilitating the reimbursement of your debt,” he said.
What is a strategic reserve?
In the past, the United States has stored rare assets to protect themselves from supply disturbances. For example, the congress created a strategic oil reserve in 1975 after the Arabic oil embargo crisis caused the country’s shortages across the country and decimated the American economy. The creation of an oil store, supported its donors, would stabilize prices.
The United States has also created strategic reserves from other goods, such as medical equipment and helium. “A strategic reserve is intended for something essential, whether for national defense or national economic security,” explains Cecchetti. “What is essential about Bitcoin in our lives that make that to make the United States a reserve?”
Why do crypto lovers want a reserve?
Most crypto lovers do not want to stabilize prices; Instead, they hope that a reserve would send upward prices. Federal Crypto purchases would send a signal that the crypto is there to stay, encouraging other financial institutions respected to buy. Other governments could also follow the example and create their own reserves, increasing prices more.
Some bitcoins also believe that a reserve could be used as a cover against inflation. They highlight the fact that the dollar has become less precious over time and argue that the value of Bitcoin could be stronger than that of the dollar in world economic crises.
However, the crypto proved to be very volatile during recent geopolitical conflicts, such as the invasion of Ukraine by Russia. And the US government buying Bitcoin could actually threaten the global value of the dollar, according to some experts. Austin Campbell, a crypto entrepreneur and professor at Nyu Stern, wrote on X that “we should do our best to keep our tax house in terms of dollars, which means reducing the deficit and future expenses on a lasting path, not trying Yolo in an asset that benefits from the drop in the dollar.”
How will Trump pay for a crypto reserve?
On Sunday, many people online expressed their concern that a bitcoin reserve can be funded with taxpayers’ dollars, effectively transferring money from everyday Americans to cryptographic and billionaire millionaires. However, Trump’s Crypto-Czar, David Sacks, missed this idea on X on Monday, writing: “No one announced a tax or an expense program. You might be waiting to find out what is really offered. (He also refuted the accusations that he personally benefits from the proposal.)
American police already has around 200,000 bitcoins, worth around $ 17 billion, which were mainly obtained by criminal crises. These assets, managed by the US Marshals Service, are generally sold at auction to support law operations and compensate victims of crimes related to crypto. It is not clear if Trump aims to cooperate these bitcoins for the reserve, or how the government could be transferred to transfer these funds from justice to the treasury.
In response to questions by e-mail, a White House representative referred to the Sacks post who said that more information will be provided at the top on Friday.
Could a crypto reserve help repay the debt of the US government?
Crypto lovers believe that the answer to this question is yes. Senator Cynthia Lummis, who proposed a Bitcoin reserve bill last year, argued that, because Bitcoin will continue to increase in value, there was the simple fact of collecting much more money than collecting taxes. These gains, she argued, could then be sold, allowing the United States to reduce its debt in two in 20 years. (The bill has no co-sponsors.)
But experts say that relying on a volatile asset like Bitcoin for debt reduction is risky. “It is not because an asset has increased in the past that it will increase in the future,” said Chester Spatt, finance professor at the Tepper School of Business at Carnegie Mellon University. “If we think that our markets are quite effective, then we would expect the markets to be turned forward, and that suggests that there would not necessarily be much predictive power.”
Cecchetti compared the stratagem to an owner who ran his credit card to play in the hope of repaying his mortgage more quickly. He also maintains that the use of American debt to buy a large quantity of crypto “would increase the probability that credit rating agencies decrease the United States, increasing the cost of the loan”.
Meanwhile, some crypto enthusiasts are also concerned about what would happen to Bitcoin if the plan actually works. If Bitcoin increases massively as a price and the United States decides to sell the reserve to repay its debt, this transaction itself could trigger a significant drop in the price of Bitcoin.
Why are some crypto fans unhappy with Trump’s announcement?
While the largest cryptography market reacted positively to Trump’s announcement, influential cryptography voices criticized him for reasons. Some indicated the irony of the federal government having so much power over a currency which is supposed to be decentralized. “It is wrong to steal my money for fat on the left; It is also wrong to impose me for Crypto Bro regimes, “wrote the entrepreneur Joe Lonsdale on X.
Others feared that the reserve would become a vector of scam and initiate negotiation. An anonymous trader was the subject of a meticulous examination for giving a 200 million dollars for Bitcoin hours before the announcement, and that the collection immediately for a profit of $ 6.8 million.
Trump’s announcement also surprised many people for its inclusion not only bitcoin, but also smaller and more volatile currencies like Ada and XRP. “So the United States will use taxpayers money on XRP, Sol and Ada?” Why would he create a strategic reserve of something that you can simply print? Bad glance, ”wrote Gabor Gurbacs on X.
Given the lack of clarity around many central details of the idea, it is difficult to say if a crypto reserve will materialize. However, Trump is far from being the only one to push this idea: several states envisage their own versions, including Oklahoma, which adopted a Bitcoin reserve law law outside the committee last week. Utah and Arizona have also advanced similar proposals.
Dennis Porter, CEO and co-founder of the Crypto Defense Group Satoshi Action Fund, wrote on Twitter that the group had helped more than 20 states introduce strategic reserve legislation. “Yes, many will fail, but everything we need is one, so the door is wide open,” he wrote.
Andrew R. Chow’s book on Crypto and Sam Bankman Frit, Cryptomawas Published in August.
