The following op-ed appeared in Barron’s on March, 19, 2024.
President Donald Trump recently announced he would create what he called a “strategic crypto reserve.” This proposal not only lacks any real basis in economic logic but raises serious concerns about the long-term consequences for American taxpayers, who have little to gain and much to lose from the plan.
The reserve will be funded initially by assets already seized in civil and criminal proceedings, and later by some to-be-determined “budget-neutral strategies,” according to a White House release. It won’t be limited to bitcoin, the best-known cryptocurrency. It also includes other cryptocurrencies, such as Ethereum, XRP, Solana, and Cardano, which unsurprisingly saw a jump in value upon Trump’s announcement that the reserve would hold them.
It isn’t clear how the proposal would help average Americans, but it definitely enriches crypto billionaires, many of whom have funded Trump’s campaign and other crypto allies in Congress, by creating demand for these cryptocurrencies at the expense of the broader public.
The whole idea for the reserve is based on a myth. Cryptocurrencies have no intrinsic value, legitimate use, or meaningful commercial applications. Unlike gold or oil, which have well-established uses and intrinsic value, crypto’s uses are for speculation and gambling, or, worse, as tools for money launderers, ransomware extortionists, tax evaders, terrorists, and rogue states. (North Korea allegedly stole $1.5 billion in crypto, according to the FBI, possibly to fund the rogue nation’s nuclear program.) Crypto lacks any strategic importance that would justify its inclusion in a national reserve.
Crypto’s volatility and boom-bust cycles alone make it an impractical asset to serve as a store of value for any nation, much less one as large and complex as the U.S. The risk of significant losses is real, and that jeopardizes taxpayer dollars. The White House says it won’t sell the reserve’s crypto, but either that claim is false, or it proves the project isn’t a legitimate reserve.
Strategic reserves are created and maintained so that their holdings can be released in the event of an emergency affecting a vital national interest. Oil is essential for the functioning of the U.S. economy and the well-being of all Americans. The U.S. has a strategic oil reserve to protect the country when oil is unavailable in the right quantity or price, usually due to some extreme or unexpected supply or demand disruption. President Biden ordered oil to be released from the reserve in March 2022 due to soaring prices resulting from Russia’s invasion of Ukraine. Similarly, last month, Japan released rice—a food vital to the country’s entire population—from its strategic reserve due to supply disruptions, shortages, price spikes, and panic buying.
There is no strategic need for crypto, and the incentive structure is the opposite. Strategic reserves are an accumulation of additional supply in nonemergency times to be released to move prices down for a vital product in an emergency. However, crypto holders generally want the price to go up. The pressure will be on the government to add to the reserve, not to release it (which would depress prices). Future taxpayer bailouts of the crypto industry are a real concern.
Trump’s proposal will also create artificial private-sector demand for cryptocurrencies, which, in turn, would inflate their prices, at least temporarily. FOMO—the fear of missing out—will undoubtedly push retail investors and probably even some institutions to jump in on the action, further inflating prices. History has shown that artificially inflating prices of financial products like derivatives before the 2008 financial crisis often lead to market crashes. Working people will lose the most when the bubble bursts and drags down the entire economy.
Trump’s proposal is also likely to encourage states and private entities to follow suit. Legislators in 18 states have already begun discussing similar measures, with some proposing to fund their own crypto reserves using pension funds. These funds, which are intended to secure the financial future of hardworking Americans, would be subject to wild volatility in the cryptocurrency market. Meanwhile, MicroStrategy and other corporations have already committed large portions of their balance sheets to bitcoin, thus creating yet more demand and inflating the price.
Much of the buying appears to be based on the belief that continued demand will keep jacking up the price, even though there is no legitimate use for crypto.
The crypto market is rife with illegal activities, including scams, ransomware, and so-called pig-butchering schemes that have victimized millions of people in the U.S. and around the globe. That crypto crime wave has resulted in Americans being opposed to and deeply skeptical of crypto as polls and surveys have shown. For example, 69% of likely voters in six 2024 swing states had a negative view of crypto during the presidential campaign, according to the Harris Poll; just 4.8% of U.S. households owned crypto in the past year, an FDIC household survey reported in November; and just 1% of Americans used crypto in 2023 to buy something or may a payment, the Fed found.
This plan is needless and dangerous. The U.S. government should focus instead on regulating cryptocurrencies effectively, fighting ransomware and arresting crypto criminals, protecting the interests of taxpayers, and ensuring the stability of the nation’s financial system.
About the author: Dennis Kelleher is president, CEO, and co-founder of Better Markets.
