Financial Insights That Matter
- Donald Trump used to call bitcoin “a scam.”
- Last year, he changed his mind and promised to create a government-run bitcoin reserve.
- Now that reserve exists. What’s it supposed to do, and why should the US own one?
The US has a strategic bitcoin reserve.
Question: What’s a strategic bitcoin reserve?
More important question: Why should the US have a strategic bitcoin reserve?
Spoiler: I’ve been trying to figure this out for a bit, and I really can’t understand it.
Other people seem similarly perplexed. “It is not clear how such a reserve would work or how it would benefit taxpayers,” Reuters said Thursday.
And while I don’t usually compare myself to Donald Trump, I have definitely made the same face he made Thursday, when someone is telling me something I don’t fully comprehend. “And this is something you believe in?” he asked David Sacks, his crypto czar, before signing the executive order creating the reserve.
To be clear: I know what the reserve is supposed to be. And I know why Trump signed the order creating it.
The president, who had previously called bitcoin “a scam,” changed his stance on crypto last year — he now has his own cryptocurrency — and pledged at a Nashville bitcoin conference to create the reserve. His turnaround coincided with the crypto industry’s embrace of his candidacy. (Though he still didn’t seem like a true believer back in April: “Have a good time with your bitcoin and your crypto and everything else that you’re playing with,” he told the crowd as he left the stage.)
But I don’t get the point of a strategic reserve.
The US already owns a bunch of bitcoin, mostly acquired through asset forfeiture in court proceedings. Those coins are now supposed to go into the reserve, and the government isn’t supposed to ever sell them.
While some crypto and bitcoin fans thought the Trump plan was to go out and buy more bitcoin, that doesn’t seem to be the case now. Though the order appears to provide some wiggle room on that front since it instructs Trump’s Cabinet members to “develop budget-neutral strategies for acquiring additional bitcoin.”
If you peruse crypto fans’ commentary about the news, you’ll see a mixed reaction: Some are upset that there’s no immediate plan for the US to buy a lot of bitcoin — which would boost bitcoin prices. Others think it’s a good thing for the US to actively support bitcoin instead of, say, calling it “a scam.”
What I haven’t found — and feel free to point it out to me if you have — is an explanation of why this is good policy.
Sacks and others say this is just the equivalent of the US holding gold in Fort Knox, or owning reserves of other valuable commodities, like it does with oil. But to what end? The government’s relationship with gold is an old and complicated one. It keeps extra oil around in case of emergency. I don’t see a parallel for crypto.
I also thought one of the main ideas behind crypto was that it allowed people to create assets without involving the government. And this sure seems like it’s government involvement. At the very least, since the US owns a bunch of bitcoin and is now promising not to sell that bitcoin, it seems like that’s the government actively supporting bitcoin.
Look. I’m no crypto expert. So over the past few days, I reached out to several crypto experts — who are also people who are fans of Trump 2.0’s pro-crypto stance — to explain the thinking behind the reserve, and … couldn’t get them to chat with me about it. Even off the record.
That reaction certainly doesn’t prove anything. But it does make me think that even some crypto people aren’t 100% convinced about this one. Let’s see if people feel more comfortable about this idea in a year or so.