On March 6, the White House unveiled an executive order establishing the official Strategic Bitcoin Reserve and the United States Digital Asset Stockpile.
The order charges the U.S. Treasury Department with creating procedures to administer and maintain custody of the government’s existing holdings of cryptocurrencies acquired through forfeiture in criminal or civil proceedings. It also directs the Treasury to evaluate mechanisms for the federal government to purchase and hold Bitcoin much like we maintain a strategic stockpile of oil and gold.
While the move was expected based on the president’s previous statements in support of the crypto industry, the details (limited as they were) created more disappointment than enthusiasm among crypto boosters and left unanswered the question of why, exactly, this is needed. Adding to the confusion was the bifurcation into two separate pools: the strategic reserve holding Bitcoin only and a secondary pot to hold all other “digital assets” including previously confiscated crypto coins other than Bitcoin.
Perplexed? You’re not alone. The executive order, which referred to Bitcoin as “digital gold” appears to offer a justification based more on promotion of crypto rather than its necessity, claiming that “our nation must harness, not limit, the power of digital assets for our prosperity.” To truly understand the motivation, follow the money.
The U.S. does retain supplies of some critical assets that are actually essential like cash, oil and medical supplies. Existing stockpiles of dollars or foreign currencies are useful for providing liquidity during times of economic stress, as happened in the wake of the financial crisis in 2006.
But unlike dollars or yen, cryptocurrencies are not real assets and exist only as a construct on a vast electronic ledger. They generate no cash flow and in fact cost money to store. They are not accepted by most other countries in exchange transactions and are generally not recognized as a means of payment for most commercial transactions (except for money laundering and ransomware attacks, for which Bitcoin is the preferred method of payment). You can, however, buy a Tesla with Bitcoin.
Proponents claim that digital assets would act as a hedge against inflation and economic instability, serving as a “unique store of value” according to the executive order. Typically, when searching for a hedge against uncertainty, one turns to low-volatility assets like cash, bonds or gold.
In this regard, cryptocurrencies perform more like an anti-hedge magnifying volatility. Bitcoin and its cousins have proven to be highly correlated with risky assets like growth stocks, only more extreme in their price swings. Consider that the average annual volatility or standard deviation of the U.S. dollar is around 8%. The average volatility of the top 100 stocks in the NASDAQ, widely understood to contain riskier stocks, is about 25%. Bitcoin’s historical volatility is nearly 50%, making it hard to argue its value as an economic stabilizer.
It seems irresponsible to place taxpayer funds at risk to bankroll federal speculation. In that case, why not go ahead and let Uncle Sam trade tech stocks? (Spoiler alert: On Feb. 3, President Donald Trump announced the creation of a U.S. government investment fund to be capitalized with tariff revenue and floated the idea of buying TikTok).
While the economic argument for a strategic crypto reserve is thin gruel, the potential and actual conflicts of interest are immense and unprecedented. The crypto industry contributed over $130 million to national political candidates of both parties during the recent election cycle, according to Public Citizen, which comprised nearly half of all corporate contributions during the 2024 campaign. And The Wall Street Journal reports that crypto executives donated over $50 million to the Trump inaugural fund between election day and inauguration day. But that is hardly the whole story.
Trump, who in 2021 called Bitcoin a “scam,” has since enthusiastically embraced the idea, promising to make America “the crypto capital of the planet.” (It’s good to start small, no telling which other solar system has a more advanced version of Ethereum).
A cryptocurrency venture called World Liberty Financial was launched last September by two supporters with a checkered background, in which Trump invested no capital but is entitled to 75% of profits once a minimum $30 million revenue threshold was reached. Interest was light until a Chinese-born businessman named Justin Sun invested $30 million in World Liberty, enough to get the president-elect across the threshold to begin collecting revenues.
Sun, under a fraud investigation by the Securities and Exchange Commission launched by the previous administration, has since invested an additional $45 million. Last month, under the new Trump-appointed acting commissioner, the SEC petitioned the court to pause the investigation. In fact, several fraud investigations have subsequently been dropped by the SEC, including charges against the biggest crypto exchange, Coinbase. Coinbase contributed $75 million to a pro-Trump superPAC, and its CEO gave $1 million to the inaugural fund.
Then there are the so-called meme coins issued by Trump just days before the inauguration, in which he invested no capital but in which affiliates of the Trump family retain 80% of the supply and have raked in $350 million in sales and trading fees, according to Financial Times. Furthermore, the president’s social media platform Truth Social is planning to launch several exchange traded funds including a Bitcoin fund, subject of course to SEC approval. One might suspect the chances of a green light are favorable. The president has also used his social media outlet to promote his cryptocurrency ventures.
It is unprecedented for a first family to be actively running businesses that so directly benefit from official presidential actions and over which that president exercises control of regulatory oversight. It is also dangerously ironic that one essential purpose of cryptocurrencies at their inception was to bypass and ultimately obviate sovereign national currencies. If that objective is realized and the world no longer needs the U.S. dollar, the consequences would be catastrophic for American households, and it will be our own fault.
Christopher A. Hopkins, CFA, is co-founder of Apogee Wealth Partners in Chattanooga.
This post was originally published on here
