Trump's Strategic Bitcoin Reserve – Reading the Tea Leaves

The announcement of bitcoin as a national strategic asset should not be dismissed as just another random pellet in the scattershot of Trump executive orders. It is much more important than that.

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President Trump's late Thursday Executive Order (EO) declaring a 'Strategic Bitcoin Reserve' along with a 'Digital Asset Stockpile' for a few other chosen cryptocurrencies was not a total surprise - it had been rumoured and leaked for weeks. That didn't prevent a great gleeful roar of excitement from the cryptofolk and a mixture of shrugs, WTFs, befuddlement or a soupçon of anxiety from everyone else. The long-term effect of this announcement is going to be profound but, to reach that conclusion, some tea leaves need to be read.

The whole idea behind a strategic reserve asset in the US (starting with the Gold Reserve Act of 1933) has been to stockpile some critical resource as a buffer against emergencies like supply shocks or price volatility. The acquisition and custodianship of these resources are considered so critical to security that the rules around the acquisition and release of assets are stern and unbreachable, except in extreme circumstances. The SPR (Strategic Petroleum Reserve, launched after the OPEC embargo in 1974), gold, dollars, foreign exchange, agricultural products, call facilities with the IMF - they all are (or have been) stuffed under the government mattress for a rainy day.

This seems a long way from Bitcoin, which does not have the sort of stolidity and predictability one would expect of a national reserve. Bitcoin is indeed a financial asset, novel and ill-understood as it may be, but hanging the garland of 'reserve asset' around its young neck requires some explanation.

The language of the EO holds some clues to the currents swirling beneath the announcement.

The first, and most important, point is that the Strategic Reserve title was given to Bitcoin alone. The other four crypto aspirants (ETH, SOL, ADA and XRP), selected from among thousands currently traded, are to be relegated to the Digital Asset Stockpile at the back of the bus (not nothing, to be sure, but not the big 'strategic reserve' prize). Bitcoin dominates the field; it is the oldest and most stable of all cryptotokens, representing 60% of the value of the entire cryptoverse.

Its most passionate adherents, the so-called Bitcoin 'Maxis', have long argued that Bitcoin is the only true monarch, all others being pretenders to the crown, apostates, poseurs or pathetic simulacra. This is not really true (other cryptotokens have different and important use cases), but yes, the Bitcoin network that hosts the still volatile BTC cryptocurrency was the first blockchain and it has never been hacked. It is the most stable, the most secure and has had a network uptime of 100% since 2014 (compare that with the performance of your bank or cellular provider).

The struggle for dominance between Bitcoin and the rest has been, at times, vicious and ugly, involving name calling, threats, insults, ruined alliances and friendships - the whole toxic brew. But the battle is now over. Bitcoin is now king; it is unlikely that any other cryptocurrency will usurp it.

There are some key phrases in the EO which suggest what is going on here.

It costs money to create a strategic reserve of some critical asset. The US had to buy petroleum and store it for the Strategic Petroleum Reserve. Ditto gold and the others. But they will not be buying Bitcoin, at least not initially. It will be funded by the Bitcoin seized from criminals over many years and which is still lying around at various federal and state agencies. $17 billion at current value, not chicken feed.

So the question arises, will this pile ever shrink? Will the US sell some of it occasionally to pay for this or that? The wording of the EO is firm on this:

"The United States will not sell bitcoin deposited into this Strategic Bitcoin Reserve."

So no, it is not going to be used, but stored. Good for price stability.

Will the pile get bigger? Here is where it gets interesting. The EO says the following:

"The Secretary of the Treasury and the Secretary of Commerce shall develop strategies for acquiring additional Government BTC provided that such strategies are budget neutral and do not impose incremental costs on United States taxpayers."

Voters need not worry, the government will not be raiding citizens' pockets to grow the pile. But look at the sentence again. Treasury and Commerce are instructed (commanded, even) to "develop strategies for acquiring" more BTC if they are "budget neutral." This is the biggie. There are myriad ways of doing this. Sell some gold, buy some BTC. Cancel some government program and use the money to buy BTC. Move money from this pocket to that pocket. They are on a very long leash when it comes to future Bitcoin acquisition.

The BTC pile is going to grow quickly under this EO, and the laws of supply and demand (especially for a finite resource like BTC) mean that the price is going to go up.

There are a number of theories as to why Trump and team have done this, not including the need to pay back the millions of crypto-enthusiastic voters who were promised it by Trump, and who duly cast their vote for him. Consider this simple and compelling story. The US is deep into a spiraling debt crisis which shows no signs of slowing down. If they can find a painless way to pay it down, everyone would win, especially the president. So, if the US owns a pile of BTC and other countries follow (which they will), then the increase in price is collateral to do with whatever they please, including borrowing against it to pay down their debt. Borrowing against a reliably rising asset is the secret sauce of the rich - it carries little risk.

If you think this is too cynical to believe, consider this wording from the very first paragraph of the EO:

"Because there is a fixed supply of BTC, there is a strategic advantage to being among the first nations to create a strategic bitcoin reserve."

Imagine if you are the finance minister of China or Russia or even a small poor country. You will quickly realize what is being said here - the early bird gets the worm, and the US is that bird. You won’t hesitate to have a quiet word with your head of state and things will move rapidly from there.

There are many who will claim that this entire crypto malarkey coming out of the Oval Office is simply a way for those in the know to make some fast bucks. And yes, the cynicism, the complete shamelessness, of some of the wealth creation at the top has been breathtaking. But the announcement of Bitcoin as a reserve asset is something else entirely. It did not come freshly hewn from the mind of Trump or Musk or Sacks.

A cadre of rigorous thinkers from within the intellectual core of the crypto space have been writing on this subject for a long time. As the old global financial order has begun to strain and tear under debt, inflation and central mismanagement, they have carefully constructed sober arguments in favour of a strategic reserve in crypto.

The announcement of Bitcoin as a national strategic asset should not be dismissed as just another random pellet in the scattershot of Trump EOs. It is much more important than that.

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Steven Boykey Sidley is a professor of practice at JBS, University of Johannesburg, columnist-at-large for Daily Maverick and a partner at Bridge Capital. His new book "It's Mine: How the Crypto Industry is Redefining Ownership" is published by Maverick451 in SA and Legend Times Group in UK/EU, available now.