Why Trump is right about crypto reserves

Author: Chip Daniels, CoinDesk; Compiler: Baishui, Golden Finance

President Trump's proposal for the federal government to hold cryptocurrencies has been met with pushback from some media and politicians, with dire warnings about the impact on the dollar. But the reality of Trump's proposal is very different from what Trump's hysterical critics portray. BTC poses no threat to the dollar, and the U.S. government's holding of BTC or any other digital currency is not an endorsement.

According to the International Monetary Fund, as of December 2024, the U.S. dollar remains the world's dominant currency, accounting for nearly 60% of all currencies held by central banks. Unlike fiat currencies, Bitcoin and other cryptocurrencies are not regulated by any central bank. Therefore, Bitcoin issuers can never have an adversarial relationship with Bitcoin issuers.

Most of the foreign exchange reserves held by the United States are in euros and yuan. But no one is asking the United States to stop holding euros. That's because holding a currency as a reserve does not represent an endorsement of that currency. Countries hold foreign exchange reserves primarily for liquidity purposes - primarily to facilitate foreign trade with counterparties that use another currency. And, since BTC and ETH are the largest cryptocurrencies, with the most liquidity and the largest volume traded in USD, it makes sense for the US to hold these cryptocurrencies. On top of that, the USD is far larger than BTC. The USD is worth over 1,150 times more than BTC at $2.3 trillion, while BTC is around $2 billion. As of early 2024, BTC is only the 16th largest foreign currency in the world in terms of USD. So if the US held 50,000 BTC, it would represent less than 5% of its foreign exchange reserve holdings. Additionally, the US has large reserves of gold and silver, but neither of these currencies is currently used by any major country. It seems unlikely that these reserves held by the U.S. would be seen as an endorsement of gold as money, even though part of the reason the U.S. holds gold is that it is a great store of value.

Critics of cryptocurrencies argue that they have no intrinsic value — but that’s like saying a Picasso has no intrinsic value other than that of dried paint and an old canvas. A Picasso has social value and scarcity value — the same sources of value as BTC. Bitcoin’s social value stems from its purpose of functioning outside of government control. Its scarcity value supports BTC’s price and increases its utility as a store of value.

There is another reason for the U.S. to hold virtual currencies. They represent a major leap forward in financial technology, and it is in the U.S.’s primary interest to be at the forefront of fintech. This is not only about making the U.S. the most efficient financial actor, but also about being best prepared for the changes that may come in the future. It turns out that blockchain technology has many uses beyond cryptocurrencies, including reducing transaction costs, which benefits all consumers.

So not only is Trump's proposal based on solid economic foundations and consistent with holding other foreign currencies, but it also promotes the development of the fintech industry. It's smart and far-sighted. Sounds like a win-win for the United States.