US president Donald Trump has named the crypto currencies/assets to be included in the nation's strategic reserve: on top of the original crypto currency Bitcoin (BTC), its competitor Ethereum (ETH), Solana (SOL), XRP and Cardano-ADA will be part of the reserve.
A reserve is an official stockpile of for example oil, that can be used in times of supply disruption, or a national crisis, to stabilise markets. The role of crypto currencies paid for with public money in reserves is new and untried, and not universally accepted as a good idea.
Looking at the less well-known currencies in Trump's proposal, Solana was established in 2020 and its perceived value has fluctuated wildly as the FTX exchange collapsed, the currency suffered a hack, and its backers were hit by legal actions.
Meanwhile, XRP has been around since 2012, and been embroiled in a legal stoush with the US Securities and Exchange Commission over what it should be classified as; Cardano-ADA? That crypto was launched in 2017, after its creator Charles Hoskinson fell out with Ethereum's Vitalik Buterin over commercialisation.
Has the official US support sparked a crypto currency boom? Reports from US media suggest the entire crypto sector has received a boost from Trump's proposal, but whether or not it will last remains to be seen.
Bitcoin lifted from below US$79,000 per unit on March 1, US time, and climbed towards US$95,000 in perceived value, but since then the crypto currency has again dropped. As of writing, it's listed at below US$86,000 per BTC.
Ethereum followed a similar pattern of a rapid spike and drop in value.
Where will the crypto currencies for the US stockpile come from?
The United States appears to hold 198,109 BTC presently, much of which comes from government seizures while pursuing criminal activity. In 2021, the US seized 50,676 BTC from James Zhong, who pleaded guilty to hacking the Silk Road online marketplace on which multiple illegal substances and activities were traded.
As a related aside, other governments with seemingly large BTC holdings include China (190,000), UK (61,245), Ukraine (46,351), Bhutan (10,635) and El Salvador (6095). The latter two nations have made big national bets on crypto currencies, with El Salvador having a national reserve of BTC.
At one stage, El Salvador's crypto friendly regime tried to make BTC legal tender in the South American nation, but had to scale that back to optional use after the International Monetary Fund frowned upon the idea.
If the US takes its current hoard of seized Bitcoin and kickstarts its reserve with the crypto currency, it will presumably mean that there forfeited funds will not be auctioned off, with proceeds distributed to victims, for example.
How exactly the crypto reserve would be set up is not clear at this stage. One reported proposal by Republican senator Cynthia Lummis who holds 5 BTC involves a bill that would require the US Treasury to buy 200,000 BTC over five years.
This would seem to indicate a total US Treasury Bitcoin hoard of 398,109 eventually, should the reserve creation plans go ahead.
The purchases would be funded through Federal Reserve bank deposit and gold holdings profits, and the Bitcoin reserve would be maintained for a minimum of 20 years. How much of other crypto currencies, including the popular Ethereum, would be bought is up in the air currently.
Lummis envisions the BTC holding as a way to cut US debt in half in 20 years, and to protect America against inflation and keep the dollar strong. Which would be quite a feat for an instrument that has no intrinsic value, and is very volatile.
Standard Chartered Bank has suggested BTC will rise to US$500,000 to the US dollar before 2028, as America's crypto friendly official policies boost the market. That would give BTC a "market capitalisation" of over US$10 trillion.
However, if the US government embarks on a large-scale purchase of crypto currencies, it is likely to affect the price of these as well. Selling off large holdings of crypto currencies as part of a reserve would do that as well, which would seem to run counter to the notion of perceived value increase.
The $TRUMP memecoin linked to the US president was launched just before the January inauguration and spiked at nearly US$74 to the US$. It has since dropped massively in value, to just under US$13 as of writing. However, $TRUMP rose substantially briefly, on news that the US president would create a crypto currency reserve. There is no indication currently that $TRUMP will be part of the US crypto currency reserve.
3 Comments
IMHO it has to provide a boast with that amount of purchasing power
HODL HODL ?
Probably the most volatile market activity ever seen in the crypto space over last few days. Deep in the degen dungeons, the carnage will be extreme. People down to their last breath and hunting for physical coins in the sofa.
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