On Sunday, President Trump took to social media to announce that his administration is making strides toward establishing a “crypto strategic reserve” that would encompass bitcoin and ethereum, as well as lesser-known cryptocurrencies such as XRP, Solana, and Cardano. He later clarified in another post that his intended reserve would specifically include Bitcoin and Ether, the two leading cryptocurrencies.
This announcement provided a temporary boost to crypto prices following recent declines, although it lasted only a few hours. Bitcoin spiked to $90,000 on Monday morning before dropping to approximately $87,000, reflecting a decrease of 7.3% by the afternoon. Ethereum saw a steep decline of 14.6%, falling to $2,153. Price surges in XRP, Solana, and Cardano also quickly subsided, with drops of 12.1%, 13%, and 12.3%, respectively.
Nic Puckrin, a financial analyst, investor, and co-founder of The Coin Bureau, indicated that the temporary price increase was likely driven by a mix of “hopium” and a typical short squeeze. He emphasized that more specific details regarding the crypto reserve plan are crucial to instill confidence in investors.
“While the crypto reserve announcement acted as a positive catalyst for short-term price movements, its long-term implications remain uncertain. For starters, no concrete details have been disclosed yet,” Puckrin remarked.
Nevertheless, the establishment of a digital currency reserve is a significant milestone for Bitcoin and blockchain technology.
“The introduction of a U.S. crypto strategic reserve signifies a crucial moment for digital assets, representing a notable advancement in the government’s interaction with the crypto sector,” stated Federico Brokate, head of U.S. operations at 21Shares, in an analyst note. “This initiative not only strengthens Bitcoin’s position as a developing store of value but also underscores the significance of blockchain networks like Ethereum, Solana, XRP, and Cardano in the realms of financial infrastructure, payments, and decentralized finance.”
What is a crypto strategic reserve?
As outlined in the president’s executive order dated January 23, the crypto strategic reserve would serve as a national stockpile of digital assets created under a federal regulatory framework designed by the newly formed Presidential Working Group on Digital Asset Markets.
This working group will be led by top officials, including the White House AI and crypto czar, the Secretary of the Treasury, and the chairman of the Securities and Exchange Commission, among others.
During his campaign, Trump committed to supporting a “strategic national bitcoin” stockpile, which would comprise Bitcoin that the U.S. government has previously confiscated through law enforcement actions. Sunday’s announcement marked the first instance where he advocated for the government to hold additional types of cryptocurrencies.
The specific structure and management of the crypto strategic reserve remain unclear, as the White House has not yet provided further details, including how much of each cryptocurrency Trump intends for the U.S. to hold or the methods for acquiring them.
However, additional information could be revealed this week as Trump has also indicated plans to speak at and host industry leaders on Friday at a White House “Crypto Summit.”
“The first White House Crypto Summit on Friday will be pivotal to observe,” Puckrin commented. “We are awaiting insights on who will attend, what topics will be covered, and whether any actual implementation steps are announced. The key question is how they plan to fund and legislate this reserve. Until we receive some answers, there’s little substantial backing for this rally, which may dissipate just as quickly as it emerged.”
What’s the purpose of a strategic crypto reserve?
Similar to the Strategic Petroleum Reserve, which safeguards the U.S. economy from disruptions in oil supplies, a national crypto reserve would aim to diversify government assets and mitigate financial risks, according to advocates of the proposal.
Critics, however, argue that the inherent volatility of cryptocurrencies makes them an unsuitable choice as reserve assets.
Potential challenges
Establishing a crypto strategic reserve will likely require congressional action, mirroring the process for the Strategic Petroleum Reserve, which was established in December 1975 under then-President Gerald Ford’s signing of the Energy Policy and Conservation Act.
Moreover, the inclusion of cryptocurrencies beyond Bitcoin may face considerable opposition from various factions within the already divided cryptocurrency industry. Bitcoin remains the oldest and most widely adopted cryptocurrency, representing over half of the global crypto market capitalization.
The president positions himself as a champion for the crypto industry, expressing in his announcement that it has been subjected to “years of corrupt attacks by the Biden administration.” The crypto sector has felt unfairly targeted by the Biden administration and invested significantly to support Trump’s electoral campaign.
The initial weeks of his administration have seen several actions aimed at promoting crypto, including reversing or delaying prominent enforcement measures by the Securities and Exchange Commission.
Crypto prices surged following Trump’s electoral win last year, and upon Bitcoin’s first rise above $100,000 in early December, Trump took credit, posting “YOU’RE WELCOME!!!” on social media.
However, prices have since declined, and Trump faces criticism, even from crypto allies, for launching a personal meme coin just before taking office, which has since plummeted in value.
The downturn of meme coins associated with First Lady Melania Trump and Argentine President Javier Milei, alongside a significant hack of a major cryptocurrency exchange attributed to North Korea as identified by the FBI, has also tempered enthusiasm for crypto.
