When Donald Trump promised to create a strategic Bitcoin reserve and make the United States the "crypto capital of the planet," his statements sent ripples through the cryptocurrency community. Bitcoin surged past record highs, reaching unprecedented valuations.
However, despite these bold promises and Trump's newfound embrace of crypto, significant obstacles make it unlikely that his administration will follow through on these plans.
Here’s an in-depth look at the reasons and paradox why Trump's Bitcoin promises are more rhetoric than reality:
1. Bitcoin Conflicts with U.S. Interests
Lack of Control
Bitcoin’s decentralized design and fixed supply of 21 million coins are inherently at odds with the centralized control the U.S. government wields over the dollar and monetary policy. The Federal Reserve relies on tools such as quantitative easing, interest rate adjustments, and control of the money supply to stabilize the economy during crises. Legitimising and integrating Bitcoin into national reserves would undermine these mechanisms, tethering the government to a volatile asset it cannot regulate or influence.
Furthermore, a Bitcoin reserve introduces, among others, certain unmanageable risks:
- Price Manipulation: Large holders (commonly referred to as "whales") could manipulate Bitcoin’s price, jeopardizing the stability of national reserves.
- Foreign Influence: Other nations with significant Bitcoin mining capacity and holdings could exert strategic influence, posing a potential security risk.
For Trump and the U.S., the inability to exert control over Bitcoin simply represents an unacceptable risk.
Compatibility with U.S. Systems
Bitcoin’s decentralized nature makes it poorly suited to integrate into U.S. financial and regulatory systems, which rely on centralized oversight and compliance mechanisms. Unlike the dollar, Bitcoin’s incompatibility with these systems poses significant risks:
- Banking Sector Vulnerabilities: Adopting Bitcoin could introduce systemic risks to critical sectors like banking and payments infrastructure.
- Regulatory Overhaul Requirements: Enforcing compliance measures, such as Anti-Money Laundering (AML) and Know Your Customer (KYC) regulations, would require massive overhauls in policy and infrastructure. Such changes could take decades to implement and enforce effectively.
These challenges would further complicate Bitcoin’s adoption as a viable national reserve, making it a logistical and strategic burden.
Tax Evasion and Illicit Use
Bitcoin’s pseudonymous and decentralized nature has also made it a haven for illicit activities, further conflicting with U.S. interests.
- Loss of Tax Revenue: Bitcoin facilitates tax evasion by allowing individuals and entities to hide income or wealth offshore, beyond the reach of traditional tax authorities. This undermines government revenue collection efforts.
- Criminal Activity: While not inherently illegal, Bitcoin’s structure has made it attractive for activities like money laundering, drug trafficking, and ransomware operations. These uses create additional regulatory and enforcement burdens, diminishing its appeal as a national reserve.
2. Bitcoin Benefits U.S. Rivals More Than the U.S.
Empowering Geopolitical Rivals
Bitcoin and other cryptocurrencies have become tools of choice for adversarial nations to evade U.S. sanctions and bypass the traditional, dollar-dominated financial system. A U.S. Bitcoin reserve, rather than neutralizing this threat, could inadvertently legitimize and strengthen these strategies.
Key examples include:
- Russia: Facing restrictions from the U.S.-controlled SWIFT payment system, Russia has turned to cryptocurrencies to conduct trade and financial transactions outside conventional channels. Bitcoin adoption by the U.S. could further encourage these practices.
- North Korea: The hermit nation exploits Bitcoin for its weapons programs, using tactics like cryptocurrency theft and ransomware attacks to generate revenue while bypassing international sanctions.
- Iran: Leveraging its abundant energy resources, Iran has embraced Bitcoin mining to offset the economic impact of sanctions, converting mined Bitcoin into tradable currency to support its economy.
- China: While officially distancing itself from Bitcoin, China continues to leverage it strategically in covert operations, facilitating trade in sanctioned regions and supporting gray-market activities.
Undermining U.S. Leverage
The U.S. dollar’s position as the world’s reserve currency gives America unparalleled influence over global trade and finance. This dominance enables the U.S. to enforce sanctions effectively and unilaterally, maintain control over international monetary flows and borrow at lower costs due to high demand for dollar-denominated assets. A decentralized financial system erodes the unified, dollar-based order, creating opportunities for adversaries to develop alternative financial networks that sideline U.S. influence.
3. The Paradox of a Bitcoin Reserve
The idea of a U.S. Bitcoin reserve raises fundamental questions about its long-term viability and strategic value. Regardless of how the U.S. approaches Bitcoin accumulation, the outcomes offer little to no advantage, and in some scenarios, they could even undermine national security.
Let’s explore two possible scenarios:
Scenario 1: The U.S. Dominates Bitcoin Holdings
If the U.S. were to accumulate the majority of Bitcoin’s supply, it would effectively centralize control of a currency designed to be decentralized. While this might sound advantageous, it would likely render Bitcoin irrelevant.
- Bitcoin Becomes Useless: A centralized Bitcoin controlled by the U.S. government would defeat its core purpose of being a decentralized, trustless asset. This would likely lead to a collapse in its global adoption and value, turning Bitcoin into a wasted investment rather than a strategic asset.
- U.S. Manipulation Concerns: Such dominance would also invite criticism and resistance from other nations, as Bitcoin would essentially become another lever of U.S. monetary policy. This could prompt countries to develop alternative systems, further fracturing global financial structures and reducing trust in both Bitcoin and the U.S.
Scenario 2: Bitcoin Remains Widely Distributed
If Bitcoin holdings remain decentralized and widely distributed across the globe, the U.S. would have little control over the network or its strategic use. This poses significant issues from a national security perspective:
- Vulnerability to Adversaries: Rival nations and non-state actors would retain the ability to use Bitcoin to bypass U.S. financial systems and sanctions. A distributed Bitcoin network undermines the centralized financial leverage that the U.S. has historically relied upon.
- Lack of Control Equals Risk: Without control, Bitcoin’s decentralized structure could become a liability, enabling adversarial powers to exploit the system for illicit activities or financial destabilization efforts.
In both scenarios, the idea of a Bitcoin reserve becomes self-defeating. Dominating Bitcoin undermines its utility and global adoption, while failing to dominate leaves the U.S. vulnerable to a financial system it cannot control. In either case, the strategic purpose of such a reserve becomes questionable, especially when weighed against the costs and risks of accumulating and maintaining Bitcoin at a national level.
4. Lack of Clear Strategic Value
Bitcoin as an Emergency Reserve
The concept of a strategic reserve typically involves stockpiling resources essential to national security, such as oil, food, or rare earth metals. These reserves serve practical purposes:
- Oil Reserves: Power military vehicles and stabilize the economy during crises.
- Metal Reserves: Support technology industries vital for defense and economic competitiveness.
Bitcoin, in contrast, offers no clear utility in emergencies. It cannot be consumed, traded for critical goods, or deployed to support national infrastructure. Its primary value lies in speculation and serving as a digital store of wealth, which is not strategically necessary for a government with the world’s largest economy and monetary reserves.
Better Alternatives
If the U.S. wanted to diversify its reserves, assets like gold, which has historical precedent and intrinsic value, or investments in cutting-edge technologies, would provide greater security and utility than Bitcoin. Bitcoin’s volatility and lack of intrinsic value make it a poor candidate for this role.
5. Undermining Sanctions and Financial Restrictions
Sanctions as a Key U.S. Tool
The U.S. relies heavily on financial sanctions to enforce foreign policy objectives. These sanctions work because the dollar is the global reserve currency, and the U.S. controls critical financial infrastructure, including the SWIFT payment system.
- Examples of Impact:
- Sanctions on Iran have significantly curtailed its oil exports.
- Russia has faced substantial economic pressure due to financial restrictions following its invasion of Ukraine.
Bitcoin Bypasses Sanctions
Bitcoin’s decentralized nature makes it difficult to control or track. A strategic Bitcoin reserve could accelerate the adoption of cryptocurrency by sanctioned entities, undermining U.S. efforts to restrict their financial activity. By reducing reliance on the dollar, adversaries would weaken the effectiveness of U.S.-led sanctions.
6. Economic and Financial Stability Risks
Volatility and Risk of Loss
Bitcoin’s price is notoriously volatile, with frequent swings of 50% or more. If the U.S. were to stockpile Bitcoin, any sharp decline in its value could result in significant financial losses, eroding public trust in government fiscal management. Historical examples, such as the 70% drop in Bitcoin prices between 2021 and 2022, illustrate the risks involved.
Speculative Nature
Bitcoin’s speculative appeal makes it more suitable for individual investors than for national reserves. Holding such an unpredictable asset could expose the U.S. economy to systemic risks, especially if public funds are used to accumulate Bitcoin.
Destabilizing the Dollar
Bitcoin adoption at a national level could reduce confidence in the U.S. dollar. A strong, stable dollar underpins global trade and provides the U.S. with significant economic advantages, including cheaper borrowing costs. A move toward Bitcoin could destabilize this foundation.
7. Political and Institutional Resistance
Federal Reserve Opposition
Federal Reserve Chair Jerome Powell has made it clear that the central bank is not interested in holding Bitcoin, citing legal and regulatory barriers. The Federal Reserve Act does not permit the Fed to own cryptocurrencies, and Congress would need to pass new legislation—a politically fraught process.
Partisan Divides
Even with Republican control of Congress, Trump’s proposal would face resistance from fiscal conservatives wary of speculative investments. Meanwhile, Democrats are likely to oppose the initiative outright, citing risks to financial stability and concerns about Bitcoin’s association with illicit activities.
In the Senate, the 53-47 Republican majority is not filibuster-proof. Legislation requires 60 votes to advance to a vote, meaning Trump would need bipartisan support. Convincing at least seven Democrats to back a national Bitcoin reserve is improbable, given the party's broader skepticism of cryptocurrencies.
Public Skepticism
American voters remain divided on cryptocurrency. Many view Bitcoin as a tool for speculation or criminal activity rather than a legitimate financial asset. Using taxpayer money to buy Bitcoin could provoke significant backlash, especially during periods of economic uncertainty.
8. Strategic Alternative: The Crypto Dollar
Preserving U.S. Control
Instead of adopting Bitcoin, Trump may order the U.S. government to develop its own crypto dollar, or central bank digital currency (CBDC). This approach would allow the government to harness the benefits of blockchain technology while retaining control over monetary policy.
Advantages of a Crypto Dollar
- Reinforcing Dollar Dominance: A U.S. CBDC would counter rival currencies like China’s digital yuan and ensure the dollar remains the global standard.
- Enhancing Financial Efficiency: Blockchain technology could improve cross-border payments and reduce transaction costs.
- Regulatory Oversight: A crypto dollar would allow the U.S. to maintain robust anti-money laundering (AML) and sanctions compliance mechanisms.
Political Feasibility
A U.S. crypto dollar is more likely to gain bipartisan support than a Bitcoin reserve. It aligns with U.S. strategic interests and avoids the pitfalls of adopting a decentralized, volatile asset.
9. Why Bitcoin Will Remain a Rhetorical Tool for Trump
Shortly after his inauguration, Trump would be briefed by national security, financial, and economic advisors as part of standard procedures for a new administration.
These briefings will almost certainly outline the strategic, economic, and geopolitical risks associated with adopting Bitcoin at the national level.
National Security Briefings Will Undermine the Case for Bitcoin
Advisors are likely to emphasize the following:
- Bitcoin’s Role in Empowering Rivals: Briefings will highlight how Bitcoin adoption could strengthen adversaries like Russia, China, and North Korea, who already use cryptocurrencies to evade U.S. sanctions.
- Erosion of Dollar Dominance: Trump will be reminded that the dollar’s status as the global reserve currency is a cornerstone of U.S. geopolitical power. Any move that undermines this dominance could weaken the U.S.’s ability to influence global trade, enforce sanctions, and borrow at lower costs.
- Lack of Strategic Value: National security officials will point out that Bitcoin does not offer tangible benefits in emergencies, unlike oil, metals, or gold, and that its speculative nature introduces unnecessary risks to U.S. reserves.
- Economic Instability: Economic advisors will stress the risks of tying national assets to Bitcoin’s extreme volatility, which could expose the U.S. economy to systemic financial risks.
Faced with these realities, Trump will likely recognize that the promise of a Bitcoin reserve does not align with the broader goals of U.S. national security, economic stability, or geopolitical strategy.
Trump’s Likely Pivot: Political Gamesmanship
While Trump may privately shelve the idea of a Bitcoin reserve, he is unlikely to abandon the rhetoric altogether. Instead, he may use political maneuvering to maintain support from the pro-crypto base while avoiding the practical risks of implementing the policy. Likely strategies include:
- Blaming Congress: Trump could claim that Congress, particularly opposition from Democrats or “rebel Republicans,” blocked his efforts to create the reserve. This narrative allows him to deflect responsibility while appearing committed to his promise.
- Citing Bureaucratic Hurdles: Trump may argue that the creation of a Bitcoin reserve is a long and complex process requiring extensive legislative and regulatory changes, conveniently distancing himself from the lack of progress.
- Symbolic Actions: To appease crypto supporters, Trump might direct federal agencies to explore blockchain technology or promote private-sector crypto adoption without committing to a full-scale Bitcoin reserve.
Little Incentive to Act
At the end of the day, Trump will likely conclude that there is little value in pursuing a Bitcoin reserve when compared to other policy priorities. With a limited window to establish a legislative legacy, he will focus on more practical and politically feasible goals, such as tax reform, immigration policy, and infrastructure development. Additionally, pursuing a divisive and speculative policy like a Bitcoin reserve could alienate moderates and fiscal conservatives within his party, jeopardizing his broader agenda.
The Symbolic Role of Bitcoin in Trump’s Presidency
Bitcoin will likely remain a symbolic talking point in Trump’s administration rather than a cornerstone of his economic policy. Trump’s embrace of crypto rhetoric serves a dual purpose:
- Rallying the Crypto Community: By keeping Bitcoin in the spotlight, Trump can retain support from pro-crypto voters, donors, and investors without taking substantial political risks.
- Projecting Innovation: Associating with Bitcoin allows Trump to position himself as a forward-thinking leader embracing cutting-edge technologies, even if the policies remain largely rhetorical.
Promises Without Action
The practical, strategic, and economic obstacles are simply too great, and the risks far outweigh the benefits. Instead, Trump will likely use the Bitcoin promise as a political tool to galvanize his base while quietly abandoning the policy behind closed doors.
In the long run, the focus of U.S. crypto policy will likely shift toward creating a crypto dollar, supporting blockchain innovation, and ensuring that the U.S. retains its leadership in global finance. While Bitcoin may remain a rallying cry for Trump’s supporters, it will ultimately serve as a rhetorical device rather than a substantive policy priority.
U-Turn: Trump Against Bitcoin
There is another plausible scenario in which Trump’s administration, after assessing Bitcoin’s risks, actively seeks to undermine it globally. This approach would align with U.S. interests in preserving dollar dominance and countering adversaries.
Why Trump Might Undermine Bitcoin
- Countering Rivals: By targeting Bitcoin, Trump could hinder its use by countries like China, Russia, Iran and North Korea to evade sanctions and fund illicit activities.
- Preserving Financial Control: Restricting Bitcoin’s growth would protect the dollar’s dominance and maintain U.S. influence over global finance.
Trump's Balancing Act: Public Rhetoric vs. Policy Reality
Again, while Trump might act against Bitcoin behind the scenes, he is unlikely to abandon his pro-crypto rhetoric entirely. Maintaining public support from the crypto community serves his political interests, as it allows him to:
- Keep the loyalty of crypto-friendly donors and voters.
- Project an image of innovation and forward-thinking leadership.
- Blame others (Congress, regulatory agencies, or foreign powers) for the lack of progress on pro-Bitcoin policies.
This balancing act would enable Trump to play both sides - appearing to champion Bitcoin publicly while quietly undermining it to protect U.S. strategic interests.
For a government like the U.S., which thrives on control and influence over global financial systems, Bitcoin’s fundamental characteristics render it strategically pointless. This lack of a clear long-term benefit further solidifies the argument that a U.S. Bitcoin reserve is more of a rhetorical idea than a practical policy objective.
Risk Warning: Cryptocurrency is a unregulated virtual notoriously volatile instrument with a high level of risk. Any news, opinions, research, data, or other information contained within this website is provided for news reporting purposes as general market commentary and does not constitute investment or trading advice.
