Trump Signed The Executive Order for a Bitcoin Strategic Reserve Last Week
After much lobbying and bloviating and worrying from crypto traders, last week Donald Trump signed an executive order (EO) to create a Strategic Bitcoin Reserve. Many believed this would set off a massive rally as demand for bitcoin surged. However, the market has collapsed instead, with heavy liquidations on long-leveraged speculators. What happened – and what happens next?
First, the specific details of the reserve really only functioned to prevent selling off existing bitcoin held by the government. And more than half of the ~200,000 BTC held by the government likely belongs to victims of hacks, like Bitfinex, and will be returned. The EO states that the administration may seek to find budget neutral methods of acquiring more bitcoin as well. Coupled with Trump’s somewhat glib behavior around the signing of the order and ensuing comments – “They say never sell your bitcoin, who the hell knows?” – the market has not yet viewed the decision as monumentally as crypto Twitter acolytes had prayed.
In part, this stems from a challenging macro environment. Equities have sold off sharply as tariff fears and instability plague the market. The yen carry trade has unwound, signaling reduced liquidity for risk assets. The FED’s reverse repo has run dry, signaling much of the same. Though many hope bitcoin functions as a store of value, like gold, most trade it like a highly speculative asset. As a consequence, bitcoin has led the recent drawdown.
Further, the transient power of an executive order, vagaries around acquiring more bitcoin, and intermingling commentary about the government holding other altcoins, have not sent a definitive message to the market and other nations that the strategic reserve is more than a political stunt for Trump supporters.
A view of derivatives markets shows that open interest has remained largely unmoved since the announcement. Skew has turned negative. This suggests institutional investors are protecting against a downside move at present.
Skew has turned negative on BTC
So what hope lies ahead for bitcoin believers?
First, the BITCOIN Act put forth by Senator Lummis is now working its way through the legislative branches of government. A bill passed in this way would significantly strengthen the meaning of the strategic reserve and set forth a clear plan for the US government to purchase more.
In addition, I suspect we will hear more concrete details on budget neutral methods of acquiring bitcoin from Crypto Czar David Sacks, Treasury Secretary Scott Bessent, and the Trump administration. This would add weight to the government’s commitment to bitcoin as it would cost some political capital. Are they willing to buy bitcoin as much of the media claims its a wasteful grift for billionaires?
Further, the existing actions by the government make it pretty clear that bitcoin is no longer an enemy of regulated finance. This gives much greater comfort to risk managers of financial institutions as well as corporate treasuries of public companies. As a consequence, we will see more products and investments roll out from these groups and more corporate treasuries add bitcoin to their balance sheets (over 70 pubcos already have).
Taken together, these actions would have the power to spur other nations to follow suit with their own strategic reserves. In truth, judged from a broader timeframe, bitcoin adoption continues to proceed well. However, the speed of government, even this highly active Trump administration, does not come close to the 24/7 mania of crypto markets. If investors can manage their anxiety, it seems likely a HODL strategy is right on course.
