This week, the Trump White House announced a project that the crypto industry loves, skeptics hate, and that most people, reasonably, don’t really care about: a “bitcoin strategic reserve.”
The words are opaque and boring, and you’d be forgiven for tuning them out. But if you want to understand the controversy, in plain English, read on.
Under Trump’s executive order, the United States would essentially consolidate all the bitcoin it has seized through criminal and civil forfeitures and hold it as a reserve asset — similar to the way gold and petroleum are stockpiled.
Proponents of the move say the reserve would act as a hedge against financial instability in a hypothetical future in which cryptocurrencies replace regular money issued by central banks. They argue that a bitcoin investment could help pay down the national debt. (Of course, the minute the United States sold its holdings, it would cause the price to fall. And unlike petroleum, we can’t use bitcoin to power the US economy.)
The argument for a reserve is basically that there’s a (very small) chance that the Federal Reserve could completely mismanage the dollar. It’s a “small, small chance,” Jason Yanowitz, co-founder of crypto news platform Blockworks, told me. “But in that case, things like gold and Bitcoin do become hedges against dollar debasement and inflation.”
Critics question the wisdom of tying America’s financial future to a purely speculative, highly volatile asset. They argue that the reserve is little more than a scheme to enhance the value of bitcoin, thereby juicing the portfolios of early investors, such as the roughly 30 crypto CEOs who descended on the White House for a meeting with the president on Friday.
The White House order says the reserve would be built using only the bitcoin seized by law enforcement. (We’ve already got an estimated $17 billion worth of bitcoin left over from various legal cases over the years. Typically, the Treasury sells those holdings to compensate victims and bolster law enforcement.)
Officials have sought to emphasize that no taxpayer dollars will be used to acquire more bitcoin.
However, the order authorizes the Treasury and Commerce departments to develop “budget neutral” strategies for buying more bitcoin.
“We’re only allowed to buy more if it doesn’t add to the deficit or the debt, or cost taxpayers,” crypto czar David Sacks said ahead of the White House’s crypto summit on Friday.
A lot of crypto investors would have preferred a more aggressive approach to buying bitcoin, not just repurposing the government’s stash.
Story Continues
