The reason why the market "votes with its feet" on the Bitcoin war reserve plan

On March 7, David Sacks, the White House cryptocurrency director, revealed that Trump had signed an executive order to establish a strategic Bitcoin reserve and a digital asset reserve. This long-awaited milestone has finally landed. However, as soon as the news was announced, Bitcoin crashed, falling more than 6% during the session, showing a typical "good news dies in the light" trend.

The reason why the market chose to "vote with its feet" is that the main source of Bitcoin reserves is not the special fiscal plan (issuing bonds) or fiscal appropriations expected by the market, but Bitcoin confiscated through criminal and civil penalties, as well as other Bitcoins obtained based on neutral budgets. This result has dashed the expectation that the government, which had previously been the most vocal, would directly go out and buy up. Therefore, the decline is essentially a correction to the market's overly high expectations.

In the executive order on the strategic reserve of Bitcoin signed by Trump, the most eye-catching highlight is that the order requires the Department of Commerce and the Treasury to explore more ways to obtain Bitcoin based on a neutral budget. The so-called neutral budget means that the operation does not involve new spending or deficit financing. Therefore, asset replacement - that is, changing the asset mix in government reserves and funds - is generally considered to be the way with the largest operating space. For example, replace the assets in the digital reserve with Bitcoin; replace part of the gold reserves with Bitcoin; or replace part of the foreign exchange reserves in the foreign exchange stabilization fund with Bitcoin. However, under the federal legal framework, only the first method is feasible, because the management of confiscated assets falls within the jurisdiction of the Treasury Department, while other operations involve the amendment of existing bills or the introduction of new bills, which require congressional approval. It is worth noting that the assets in the federaldigital reserve are only US$500 million, and the scale of replacement is very limited.

In fact, Trump's launch of the Bitcoin strategic reserve has fully exerted the maximum effectiveness of the presidential power. As David Sacks said, at this stage, their focus is not on how to accumulate Bitcoin, but how to prevent the sale of 200,000 Bitcoins to avoid losses to the country (the sale of Bitcoin in the past has caused the country to lose billions of dollars). In other words, Trump first established a prototype of a Bitcoin strategic reserve, and then improved the corresponding legal support (promoted the implementation of the corresponding bill) and strived for more incremental sources. Many people think that Trump's plan is lower than expected because they overestimated the power of the US president from the beginning.

Although it is still unknown whether the supporting bill for the Bitcoin strategic reserve can be successfully passed, Trump's Bitcoin strategic reserve will still bring two long-term benefits to the market: First, during Trump's term, the market does not need to worry about the impact of the US government's selling of Bitcoin on the market; second, the establishment of the world's Bitcoin strategic reserve will have a huge demonstration effect. In short, except for a few countries such as the United States and El Salvador, other countries still have no Bitcoin reserves. Once these countries follow the example of the United States, the potential incremental scale will be very considerable. At the same time, according to the ratio of gold to Bitcoin market value of 10:1, the theoretical allocation ratio of global sovereign wealth funds and pensions to Bitcoin can reach 0.1%-0.2% (1%-2% of gold), that is, 67 billion to 134 billion US dollars.

In the past month, DOGE, the government efficiency department led by Musk, has achieved remarkable results, pushing 17 government agencies to lay off 62,000 people, a year-on-year increase of 41,000%. At the same time, more than 1,000 unreasonable government expenditures were cancelled. According to data released by DOGE, they have saved the government $100 billion by cutting funding and laying off employees. However, Bloomberg statistics show that the contract amount involved in the specific projects of cost saving announced on the DOGE website is actually only $8.6 billion. It is worth noting that on March 7, Musk's DOGE was taken back by Trump for being too radical, which also means that the work of reducing the deficit has encountered great resistance.

Compared with layoffs, the effect of lowering interest rates is more significant. According to statistics from Larry McDonald, founder of Lehman Brothers, for every 1% reduction in interest rates, the government can save $400 billion in interest expenses. This is also the reason why Trump and Treasury Secretary Bessant have been calling on the Federal Reserve to cut interest rates. However, this proposal was rejected by Powell without exception as "the time is not ripe". Therefore, the turmoil in the US stock market since late February is considered to be the result of fierce game between the two sides. As long as Powell does not compromise on interest rate policy, the artificial pressure of non-agricultural employment in the United States will continue to impact the market. As long as Powell does not compromise on interest rate policy, the artificial pressure of non-agricultural employment in the United States will continue to impact the market. Therefore, whether the market can reverse the decline in the future depends on whether the Federal Reserve cuts interest rates in advance or ends the balance sheet reduction. Before that, the market will continue to bottom out for some time. Be patient!

In the operation of altcoins, what type of trading opportunities investors focus on mainly depends on their personal risk preferences and profit expectations. For prudent investors, I think the platform coins of the top exchanges still have a certain safety margin. After all, the current valuation and growth are still very good. ETH, which is relatively lagging behind in this round of rise, can also be considered. After all, the lifting of ETH pledge ban and the launch of hybrid crypto ETFs can still bring a lot of incremental growth.