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The crypto industry is getting everything it wanted under President Donald Trump. The regulators that crypto firms have blamed for all of their problems have been gutted or made over with friendlier faces who are eager to drop lingering legal challenges. The White House is even hosting an industry roundtable this week. That’s the kind of attention the industry could only have dreamed about under the Biden administration.
But a surprising backlash emerged from some prominent tech and crypto leaders after the president promised Sunday to establish a “Crypto Strategic Reserve,” which would direct the government to stockpile bitcoin, ethereum and three other tokens.
Some commentators don’t like the idea of potentially using taxpayer funds to backstop the price of crypto, a speculative digital asset with limited (some would say nonexistent) underlying value. Others questioned the motive behind including three relatively obscure tokens — Solana, XRP and Cardano — some of which have been backed by Trump’s own crypto czar (more on that in a moment). And investors across the board appeared unhappy with the lack of detail in Trump’s brief social media announcement, as crypto assets, which trade 24/7, fell Monday following a brief spike on Sunday.
It’s “wrong to tax me for crypto bro schemes,” tweeted Joe Lonsdale, a tech entrepreneur who described himself in this thread as pro-crypto and broadly supportive of the Trump administration. Another tech executive, Michael Bentley of the UK-based Euler Labs, wrote on X that the reserve idea was a “massive fumble.”
“A strategic reserve that looks like a retail trader’s 2017 portfolio indicates that the US admin doesn’t really understand the value proposition of bitcoin or the rest of … the crypto market,” Bentley wrote. “Bitcoin will be tarnished with the same brush, making it a net negative policy in the long run.”
Others appeared to be squinting to see the upside. Brian Armstrong, the CEO of Coinbase, wrote he was “excited to learn more,” but noted, “just Bitcoin would probably be the best option.”
Bitcoin bailout?
Several people likened Trump’s post to a government bailout of crypto, an asset class that just experienced its worst trading month in two years. Bitcoin, a market bellwether, fell 18% in February — its steepest drop since June 2022, during the “crypto winter” era that included the implosion of Sam Bankman-Fried’s FTX exchange.
But so many questions remain unanswered about exactly how the government would fund the project (and whether Trump even has the legal authority to create it) that the initial market euphoria wore off quickly.
On Monday, stocks and crypto markets sank after Trump said that 25% tariffs on Canada and Mexico would go into effect Tuesday and that there was “no room left” for negotiations. All three major US indexes fell, and bitcoin was down more than 9% on Monday evening.
Crypto markets, along with mainstream financial markets, have whipsawed in the Trump 2.0 era, surging late last year after Trump won the election and selling off more recently as the reality of Trump’s economic policies has taken shape.
Investors are offloading riskier assets, as they typically do when economic fundamentals look shaky. And crypto, known for its volatile price swings and a dearth of underlying value, is the king of risky assets.
Which raises more fundamental questions about the purpose of a crypto reserve.
The US has a strategic petroleum reserve because oil is limited and extremely useful to keep the US economy humming. But, as Hilary Allen, a law professor at American University and a prominent crypto skeptic told me, crypto has nothing backing it.
A digital token’s price is entirely dictated by supply and demand, she said. Having Uncle Sam buy a bunch of bitcoin artificially jacks up the price. On top of that, a reserve sets up a situation where the United States would at some point have to offload some of its holdings.
“The second you start to sell, the price is going to start tanking,” Allen said. “It just shows how pointless the whole thing is if you have any goal other than to essentially provide exit liquidity for existing holders.”
Sacks denies conflicts of interest
It’s far from clear whether Trump’s proposal will come to fruition.
But in the meantime, Trump’s words alone can pump up the price, raising even more concerns about his and his administration’s potential conflicts of interest.
David Sacks, Trump’s crypto czar, pushed back on accusations on social media that he had a conflict of interest as an investor in Solana and other cryptocurrencies. Sacks tweeted that he sold all of his crypto holdings before Trump took office and said he would “provide an update at the end of the ethics process.”
It’s not clear whether Sacks has gone through the financial disclosure process required for some government employees. It’s also not clear whether Sacks remains at his firm, Craft Ventures, which has stakes in crypto companies.
The White House didn’t respond to a request for comment. Craft Ventures didn’t immediately respond to a request for comment.