Trump’s Crypto Crossover: Augmenting Dollar Dominance
- TerraCogent Staff
- Mar 9
- 9 min read
Updated: Mar 11
"Bitcoin, it just seems like a scam… I don't like it because it's another currency competing against the dollar."
This could have been said by any global leader, given the general unease with the expanding interest in and the influential monetary role of cryptocurrencies, led by Bitcoin (BTC). As it stands, this was said by ex-President Donald Trump in 2021, when El Salvador announced its intention to use BTC as legal tender. President Donald Trump, the 47th dealt a body blow to the belief system of ex-President Donald Trump, the 45th when on 6 March, he signed an Executive Order (EO) titled “Establishment of the Strategic Bitcoin Reserve and United States Digital Asset Stockpile." In complete contrast to the impreciseness and broad-strokes communication in President’s second term so far, this executive order has been drafted in a clear, unambiguous and precise manner.
Cryptocurrency and US Strategic Reserve Speculation
The EO of 6 March was preceded by President Trump’s announcement of creating a “U.S. Crypto Reserve” on 2 March. True to his free-flowing style, this announcement, made customarily on President Trump’s Truth Social feed, was expansive.
President Trump named XRP (Ripple), SOL (Solana) and ADA (Cardano) as the digital assets in his post, which confused those following the development. The strategic reserve was always talked in relation to BTC but BTC was not named by the President. He then issued an addendum post almost 100 minutes later to say that his reserve will also include BTC and ETH (Ethereum).
While President Trump cleared the confusion on not naming the two most significant digital assets – BTC and ETH earlier, the debate shifted to why these five cryptocurrencies and whether they were fit to be part of a “reserve”. To be fair, the five cryptocurrencies named by President Trump did represent the top five such assets by market capitalization. Stablecoins, which are linked in value to the US Dollar (USD), were not included in the list, as a USD-linked asset would not qualify as a store of value in a reserve. Tether (USDT), BNB and USDC were hence excluded. So, purely from a market prominence perspective, President Trump was not wrong.
Concept of Strategic Reserve
The concept of strategic reserve is nothing new. Apart from the obvious financial assets and foreign exchange reserves, which all central banks hold around the world, the US itself has had a broad view of the commodities which require national strategic reserves.
The US Department of Energy runs the world’s largest strategic petroleum reserve of an authorized capacity of 714-million barrels. It is used to reduce the impact of supply side disruptions, to provide energy continuity to the national economy and to ensure US meets its international energy obligations. With the daily requirement of about 20-million barrels of crude, this reserve can keep the country going for 35 days in the event of an international energy crisis.
The Center for the Strategic National Stockpile (SNS) is part of a federal medical response infrastructure for health emergencies. This system has various medical supplies, medicines and medical devices. During the Covid-19 pandemic, the US created a stockpile of vaccines and in fact was criticized for not releasing it for the needs to other countries, instead choosing to destroy unused stock.
In fact, the Bureau of Land Management under the US Department of the Interior even ran a National Helium Reserve. These reserves had been traditionally used for industries such as aerospace, medical devices and semiconductors. This is one reserve which successive US governments have tried to liquidate but unfavourable economics and lobbying by the impacted industry associations have not made this resolve easier. With this background, it was not surprising that a monetary reserve in the form of digital assets was mooted by President Trump.
Functions of Monetary Strategic Reserves
Monetary reserves and their management represent the core function of central banks around the world. Post the Jamaica Accords of 1976, which ended the Bretton Woods system prevalent since the end of the second world war, currencies like the USD have floated freely, delinked from the national reserves of gold. In fact, gold reserves themselves form one of the components of national monetary reserves but are valued marked to market.
In this system, the role of monetary strategic reserves becomes critical.
Central bank reserves serve to create financial stability in the economy, having an important signalling effect.
These reserves are also an important monetary policy tool given their buying and selling can be used to inject in or suck liquidity from the monetary system.
Given these functions, reserves can hence be used to maintain exchange rate stability and for international payments.
Reserves need to be sufficiently liquid to perform these functions, as the central banks may need to operate in short windows to achieve policy goals.
Hence, the choice of assets held in monetary strategic reserves has been foreign reserve currencies like the USD, Euro, British Pound, Swiss Franc and some other currencies, gold, silver and local currencies. Some central banks may choose to hold other instruments as per local needs.
Can Cryptocurrencies be Part of Monetary Strategic Reserves?
Can cryptocurrencies perform such functions as expected of components of monetary strategic reserves listed above? The jury has been out on the role of the cryptocurrencies. The global techno-futurists ascribe one or more of the above function to the cryptocurrencies, given their generally decentralized nature, which is not inflation-linked and their ease of largely unregulated cross-border movement.
If the US Treasury were to undertake a structured study on these features, strictly speaking, the cryptocurrencies will fall short on every count today. Various limitations, especially on their interplay with the ambient regulatory structures around the world, will limit their role in undertaking purpose-driven interventions like backstopping national currencies or maintaining high confidence in national monetary systems.
If anything, these digital assets may actually be the cause for the monetary system breakdown unless their regulatory status and legality is not enshrined in national rulebooks.
But under President Trump, the US is looking at far-reaching structural changes to the country’s economy. So, it was not a surprise that he went ahead in fulfilling his 2024 campaign promise on announcing such a reserve.
In some ways, the word “strategic” in the phrase “Strategic Reserves” carried more weight than the word “reserves”. It appears that the US intention here is to be ready for introducing fundamental long term changes to the global monetary system as well as to create capacity to undertake special operations through such assets, over and beyond the functions of the national reserves identified above.
Criticisms Galore
President Trump’s Truth Social account is the foremost global news generator since his assuming office. In this instance, the wording of President Trump’s posts led to frantic discussions and debates on whether he was making the right decision.
The most basic objection was if these digital assets represented something rare or essential, warranting their reserve status. However, this was not one of President Trump’s considerations, as he was perhaps looking for a new “store of value”.
But then the obvious question would be whether BTC and other digital assets represent a store of value at all. This is a leap of faith argument, where the techno-futurists prevailed. The clear thinking here is that the value of BTC being a supply-constrained, quantity-pre-defined commodity is bound to increase over time. It is a rare commodity, whose marginal generation towards the terminal quantity is increasingly difficult, placing a premium on its stock.
However, the same cannot be said so convincingly about the other four digital assets President Trump named.
ETH is not a supply limited asset, though the design of the Ethereum blockchain does maintain a supply equilibrium.
XRP is supply limited but its supply is relative high at 100-billion and all of it is already available. It has been positioned more for the ease of cross-border transactions, has been in crosshairs of the US Securities and Exchange Commission (SEC) and the Ripple blockchain use cases haven’t grown significantly.
SOL is not supply limited either and has a pre-defined supply inflation rate for the years to come. Compared to other blockchain systems, Solana is also more centralized, thus taking away from one of the most important features of these digital assets.
ADA comes from Cardano, which itself was created after its founders broke away from Ethereum, with an explicit view of running a commercial, for-profit operation. Cardano has also had its run-ins with the SEC.
The inclusion of these other digital assets outside of BTC was not viewed favorably. Jason Yanowitz, Co-Founder of crypto firm Blockworks called this inclusion a “horrible precedent”.
Another criticism made was that the US government now picking the winners in the digital asset stakes makes the whole premise of their operation very centralized. The decentralized nature of their operation and control was in fact the prime feature of digital assets.
Fear was also expressed that US government holdings of these assets will become the basis of new fraudulent operations on various blockchains. The crypto world has not forgotten how the Non Fungible Tokens (NFTs) issued on various blockchains cost gullible traders their lifetime savings. Critics have expressed apprehension that such announcements can lead to “pump and dump” schemes related to the digital assets the government decides to hold.
The EO Balancing Act
It seems that the Trump administration took good note of the various criticisms and opinions since the 2 March Truth Social posts by the President. The EO issued on 6 March was much more conservative, but much more precise.
Principally, the EO divided the whole operation into two parts – a Strategic Bitcoin Reserve and a United States Digital Asset Stockpile. Collectively, they would be called “Government Digital Assets”. BTC was identified as the OG cryptocurrency, worthy of its own strategic reserve. This signals a shift from “gold reserves” to “digital gold reserves” – a step not for the years but for centuries to come.
The EO clearly separates the accounts which will represent the Strategic Bitcoin Reserve and the United States Digital Asset Stockpile. The initial acquisition of assets in both the categories would be to transfer to the custodial accounts managed by the Treasury such assets which are forfeited as part of criminal or civil asset forfeiture proceedings or in satisfaction of any civil money penalty imposed by any executive department or agency. It is estimated that the US government as a whole holds 207,000 BTCs. However, the most interesting part of the EO was that while the Treasury was tasked to devise strategies to acquire more BTCs, it would not be acquiring any more other digital assets.
This provision clearly delineates the purpose of the two reserves. The Strategic Bitcoin Reserve would resemble a true strategic reserve, where the underlying commodity is a store of value and is expected to provide positive financial returns over time.
On the other hand, the Digital Asset Stockpile, i.e., the centrally aggregated stockpile of ETH, XRP, SOL and ADA may end up being used for very specific purposes rather than for reserve function. The Government Digital Assets – the collective term for both the above pools, could be returned to the original holders who were verifiable victims of crimes or used for other law enforcement operations. Perhaps, these assets can be used to deal with unsavory situations requiring furthering US strategic interests globally but at a price.
President Trump’s crypto czar David Sacks called these proposed government holdings as ‘digital Fort Knox for cryptocurrency’[1]. He also explained the EO demand that any further acquisition of BTC beyond this initial pooling has to be budget neutral. So the government will not spend USD to acquire BTC, thus addressing the criticism on artificial price manipulation and centralized control of these assets.
Of course, it will be interesting to see if President Trump chooses to exchange the fold in Fort Knox with the gold in Fort Cyberspace. If the Trump administration does not consider gold reliable enough, but still wants to go to a new Bretton Woods, this approach would conceivably be its first step in that direction of travel.
What Next?
The Trump administration has broken new ground – there is no doubt about that. But to what end? The passage of time will answer that question of course. It appears for now that President Trump is pursuing the following objectives via creation of the reserve / stockpile of Government Digital Assets.
Ushering in a new era of Geo-Techno-Politics, challenging the conventional thinking of governments and central banks. This may not have any specific intent, except to push the US technology supremacy further.
Hoping to repay USD debt via an appreciation in the value of BTC, which can then be liquidated to balance the US government books.
Architecting a new Bretton Woods, perhaps a new set of Mar-a-Lago Accords, to reimagine a new global order, which is less USD dependent.
If much of this succeeds, make USD the stablecoin to the BTC.
All of this may sound a flight of fancy, but then we are dealing with an administration, whose stated aim is to challenge conventional wisdom, rewire new templates of government working and create new paradigms for the global order.
TerraCogent Insights will deep dive further into these possibilities.
As President Trump himself summarized at the White House Crypto Summit - “High-IQ individuals around this table, high-IQ… We feel like pioneers.”
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