From "scam" to reserves

Trump’s move to create a strategic digital asset stockpile sparks debate and controversy

Cryptocurrencies are entering?a new era of growth under US President Donald Trump’s vision to make America the “crypto capital of the planet,” fostering a pro-innovation, crypto-friendly business environment.

During his first term, Trump dismissed bitcoin as a “scam”, criticising it for competing against the US dollar. He has since repositioned himself as a crypto champion, and became the first presidential candidate to accept digital assets as donations.

On January 23, three days after?returning to the White House, Trump issued an executive order to promote US leadership in digital assets and financial technology. He said his administration’s?policy is to “support the responsible?growth and use of digital assets, blockchain technology, and related technologies across all sectors”.

A presidential working group led by venture capitalist and former PayPal executive David Sacks will review regulations and propose a new federal framework for issuance and operation of digital assets, including stablecoins. The group is also mandated to evaluate the creation of a “national digital asset stockpile”, according to the executive order.

Additionally, the order bars US government agencies from undertaking any action to establish, issue, or promote central bank digital currencies within the country or abroad, and terminates any previous actions in this area.

Meanwhile, Trump has nominated Paul Atkins, a former commissioner of the US Securities and Exchange?Commission (SEC) known for his pro-innovation stance, to chair the regulator and provide clearer crypto guidelines and facilitate industry growth.

The SEC on the same day repealed Staff?Accounting Bulletin 121, which required?financial institutions to list crypto?assets held for customers as liabilities, removing a major barrier for traditional custodian banks looking to embrace cryptocurrencies.

Bitcoin prices surged past US$100,000 for the first time since its creation in 2009 after Trump won the presidential election, and hit an all-time high of $109,114.88 on January 20 as he took office.

Although prices have since slipped, its total market value stood at a staggering $1.9 trillion as of February 17, more than double from a year ago.

“Digital gold”

The proposal for a national digital asset reserve is arguably the most controversial of Trump’s crypto measures. The idea, which had circulated in crypto circles for some time, gained traction last summer when both Trump and Robert F. Kennedy Jr., now his health secretary, addressed the subject at an annual bitcoin conference in Nashville.

In an interview with CNBC in?December Trump reaffirmed his intention to create a bitcoin reserve, emphasising that the US must lead in cryptocurrency technology ahead of China.

Hours before his executive order,?Senator Cynthia Lummis, a long-time bitcoin advocate who was appointed chair of the Senate Banking Subcommittee on Digital Assets, released a statement calling for the creation of a strategic bitcoin reserve. She asserted that this would strengthen the US dollar and maintain the country’s status as a financial innovator.

Lummis proposed that the US Treasury acquires one million bitcoins over five years to stockpile as a strategic reserve, equivalent to controlling 5% of the total supply. The government already holds around 200,000 bitcoins seized from criminal investigations. She suggested that additional purchases could be partially covered by the appreciated value of the Federal Reserve System’s gold certificates over the last 50 years.

Her proposal is both fascinating and contentious. The US would be able to position itself as a leader in bitcoin adoption by becoming the first superpower to strategically stockpile the digital currency.

Advocates view bitcoin as “digital?gold,” citing its scarcity – capped at 21 million coins, with 19 million already mined – as a guarantee of its value stability and a reliable store of wealth akin to gold or oil.

Unlike traditional currencies, bitcoin’s value is not subject to inflationary pressures, hence purchasing power wouldn’t be eroded.

The SEC’s approval of regulated retail?crypto funds in January 2024 has?already paved the way for pension funds, endowments, and large money managers to invest in digital tokens. As these investors increasingly buy into bitcoin, the price is likely to rise further, which??could potentially help the US reduce its $35 trillion national debt.

Scepticism

However, the World Bank has?expressed scepticism about the suitability of crypto assets as central bank reserves.

Reserve assets are “foreign financial assets held by central banks to maintain economic and financial stability during crises and to conduct foreign exchange policy”, the bank said in a paper last?September. “As reserves are mostly?needed during crises, the primary criteria for reserve assets are liquidity and safety.”

Bitcoin’s volatility undermines its stability as a reserve asset and also limits its potential use as a currency since users will need stability to trust its value. While bitcoin could offer higher returns, this is secondary to the liquidity and safety priorities of central banks. Additionally, bitcoin holders would likely refrain from spending their coins when they believe prices will rise, exacerbating liquidity challenges.

Unlike traditional reserve currencies, bitcoin is not issued or managed by a central authority, complicating its integration into national monetary policy frameworks.

Globally, the regulatory environment for crypto assets remains in flux. Many countries will need to establish clear regulatory frameworks before incorporating crypto assets into their reserve management strategies.

Policymakers are also concerned that if large, systemically-important investors such as pension funds and central banks begin holding bitcoin, a price collapse could have widespread repercussions across the financial sector, potentially necessitating their bailouts.

Large-scale government and institutional purchases of bitcoin could dramatically alter its supply and demand dynamics, driving prices to unprecedented levels. This, ironically, could further undermine the dollar’s dominance as the primary reserve currency.

Ultimately, the move could trigger a global crypto arms race, with nations rushing to accumulate bitcoin as they vie for a strategic role in the digital asset space.

Personal gains

Meanwhile, questions have arisen about Trump’s potential personal gains from his pro-crypto measures.

His enthusiasm for the industry appears murky, given his family’s?establishment of a crypto venture last September. The company, called World Liberty Financial, is structured as a decentralised finance (DeFi) platform enabling users to borrow, lend and invest in digital assets without relying on traditional banking systems. Trump serves as “chief crypto advocate,” while one son is listed as “DeFi visionary” and two other sons as “Web3 ambassadors”.

The company’s structure includes a governance token that holders cannot trade, and 75% of net profits are funnelled to a Trump-affiliated entity. It has been aggressively accumulating digital assets since inception.

Three days before his inauguration, a Trump-affiliated organisation launched $Trump, his official meme coin. The coin’s website features an image of Trump raising his fist after surviving an attempted assassination last July, and refers to him as “the crypto president”. One billion coins were created, with 200 million released in an initial coin offering on January 17, and 800 million retained by two Trump-owned companies for later releases.

Priced at $6.24 at launch, these tokens quickly surged to $75 just before Trump took office, making $Trump the 19th most valuable cryptocurrency globally within two days. The Trump family’s holdings could be worth over $60 billion.

On the eve of Trump’s inauguration, First Lady Melania Trump’s incorporated company issued her own meme coin, $Melania. Its price jumped from $7.40 to $12.69 on the launch day.

Both coins have since experienced significant volatility. As of February?17, $Trump was trading at $17.86 and $Melania at $1.2929, based on data from CoinMarketCap.

Other cryptocurrencies, including?Dogecoin, promoted by Trump’s high-profile billionaire supporter Elon Musk, have also seen sharp price gains in recent months.

The creation of a strategic bitcoin reserve by Trump’s administration could profoundly reshape the global financial order. How this will evolve needs to be closely watched.

*This article was published in Asia Asset Management's March 2025 magazine under the same title.