After taking a massive tumble in February, crypto markets rallied on Sunday following Donald Trump’s announcement that he would create a national crypto strategic reserve. Trump wrote on Truth Social that a working group would “move forward” on facilitating the strategic federal purchases of Bitcoin, Ethereum, and three other smaller cryptocurrencies.
The announcement comes ahead of the White House’s first cryptocurrency summit on March 7, and builds on Trump’s fixation on crypto over the past year, which has included a crypto venture, a “crypto czar” position in the White House, and a TRUMP meme coin which has fallen in price from $70 to $13 within a month and a half.
It is unclear whether taxpayers will fund the reserve, how big it will be, or whether it will be used to pay off the U.S. federal debt, as some have suggested.
Trump’s strategic reserve announcement drew criticism from economists and even some of crypto’s biggest boosters. The U.S. 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 in nature, because it hinges not upon the asset’s importance to the nation, but the idea that its prices will increase going forward, says Stephen Cecchetti, an economist and professor at Brandeis International Business School who has written skeptically about crypto for several years.
Cecchetti called the idea of a strategic crypto reserve “absurd.”
“It’s foolish to purchase risky assets with leverage in the hope of making it easier to repay your debt,” he says.
What is a strategic reserve?
In the past, the U.S. has stockpiled scarce assets to protect against supply disruptions. For instance, Congress created a Strategic Petroleum Reserve in 1975 after the Arab oil embargo crisis caused gas shortages across the country and decimated the American economy. Creating a store of petroleum, its backers argued, would stabilize prices.
The U.S. has also created strategic reserves of other goods, like medical equipment and helium. “A strategic reserve is for something that is essential, either for national defense or national economic security,” Cecchetti says. “What exactly is essential about Bitcoin in our lives that makes it so the U.S. would want a reserve?”
Why do crypto enthusiasts want a reserve?
Most crypto enthusiasts don’t want to stabilize prices; instead, they hope that a reserve would send prices shooting upward. Federal purchases of crypto would send a signal that crypto is here to stay, encouraging other respected financial institutions to buy in. Other governments, too, might follow the lead and create their own reserves, further upping prices.
Some Bitcoiners also believe that a reserve could serve as a hedge against inflation. They point to the fact that the dollar has gotten less valuable over time, and argue that Bitcoin’s value could be stronger than the dollar’s during global economic crises.
However, crypto has proved highly volatile during recent geopolitical conflicts, such as Russia’s invasion of Ukraine. And the U.S. government buying Bitcoin could actually threaten the dollar’s global value, some experts say. Austin Campbell, a crypto entrepreneur and a professor at NYU Stern, wrote on X that “We should be doing everything we can to keep our fiscal house in order in dollar terms, which means cutting the deficit and future expenditures to a sustainable path, not trying to YOLO into an asset that benefits from dollar decline.”
How will Trump pay for a crypto reserve?
On Sunday, many people online expressed worry that a Bitcoin reserve could be funded with taxpayer dollars, effectively transferring money from everyday Americans to crypto millionaires and billionaires. Trump’s crypto czar David Sacks, however, batted down this idea on X on Monday, writing: “Nobody announced a tax or a spending program. Maybe you should wait to find out what’s actually being proposed.” (He also refuted accusations that he personally stands to benefit from the proposal.)
U.S. law enforcement already holds about 200,000 Bitcoin, worth around $17 billion, which has mostly been obtained through criminal seizures. These assets, managed by the U.S. Marshals Service, are typically auctioned to support law enforcement operations and compensate victims of crypto-related crimes. It’s unclear if Trump aims to co-opt those Bitcoins for the reserve, or how the government could go about transferring those funds from Justice to Treasury.
In response to email questions, a representative for the White House referred to Sacks’ X post which stated that more information will be provided at the summit on Friday.
Could a crypto reserve help pay down the U.S. government’s debt?
Crypto enthusiasts believe the answer to that question is yes. Senator Cynthia Lummis, who proposed a Bitcoin reserve bill last year, has contended that because Bitcoin will continue increasing in value, simply investing in it would raise far more money than levying taxes. Those gains, she argued, could then be sold, allowing the U.S. to cut its debt in half 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. “Just because an asset has gone up in the past doesn’t mean it will go up in the future,” says Chester Spatt, professor of finance at Carnegie Mellon University’s Tepper School of Business. “If we think our markets are pretty efficient, then we would expect the markets to be forward-looking, and so that would suggest there wouldn’t necessarily be a lot of predictive power from the past.”
Cecchetti likened the ploy to a homeowner running up their credit card to gamble in the hopes of paying off their mortgage faster. He also argues that using U.S. debt to buy a large amount of crypto would “increase the likelihood that credit rating agencies would downgrade the U.S., increasing the cost of borrowing.”
Meanwhile, some crypto enthusiasts are also concerned about what would happen to Bitcoin if the plan actually works. If Bitcoin increases massively in price and then the U.S. decides to sell off the reserve to pay down its debt, that transaction itself could trigger a significant decrease in Bitcoin’s price.
Why are some crypto fans unhappy with Trump’s announcement?
While the larger crypto market responded positively to Trump’s announcement, influential crypto voices criticized it for a slew of reasons. Some pointed to the irony of the federal government having so much power over a currency that is supposed to be decentralized. “It’s wrong to steal my money for grift on the left; it’s also wrong to tax me for crypto bro schemes,” wrote the entrepreneur Joe Lonsdale on X.
Others worried that the reserve would become a vector for scams and insider trading. One anonymous trader drew scrutiny for making a $200 million bet on Bitcoin hours before the announcement, and immediately cashing out for a $6.8 million profit.
Trump’s announcement also surprised many people for its inclusion of not just Bitcoin, but also smaller, more volatile currencies like ADA and XRP. “So the U.S. will use taxpayer money on XRP, SOL and ADA? Why would one build a strategic reserve of something you can just print? Bad look,” wrote Gabor Gurbacs on X.
Given the lack of clarity around many of the idea’s central details, it’s difficult to say whether a crypto reserve will actually come to fruition. However, Trump is far from the only one pushing this idea: several states are considering their own versions, including Oklahoma, which passed a strategic Bitcoin reserve act out of committee last week. Utah and Arizona have also advanced similar proposals.
Dennis Porter, the CEO and co-founder of the crypto advocacy group Satoshi Action Fund, wrote on Twitter that the group had helped over 20 states introduce strategic reserve legislation. “Yes, many will fail, but all we need is one then the door is wide open,” he wrote.
Andrew R. Chow’s book about crypto and Sam Bankman-Fried, Cryptomania, was published in August.
