Here's Why Crypto Fans Are Underwhelmed By Trump's Plan
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Donald Trump's election sent a shockwave of excitement through the crypto world, propelling Bitcoin to record highs of over $100,000. There was a lot of uncertainty on whether we would have a crypto-friendly administration here in the US. The answer is a resounding yes. And so I think we're seeing all this pent-up demand.

The US president has become a strong advocate for digital assets. He even has his own meme coin. So investors were bracing for a big moment when he gathered industry executives for a digital asset summit at the White House and appointed David Sachs as his crypto czar. We've decided that Bitcoin is scarce, it's valuable, and that it's strategic for the United States to hold on to this as a long-term reserve asset.

Donald Trump also signed an executive order, creating a US Bitcoin reserve and a separate stockpile of other tokens. But investors didn't seem impressed. The price of Bitcoin and other crypto assets slumped after the announcement. Here's why crypto fans are underwhelmed by Trump's plans.

Let's bring in our executive editor for crypto, Stacey-Marie Ishmael, for more. Stacey-Marie, great to have you with us. What exactly are the reserves that Donald Trump now wants to create? That is the $100,000 question. So to start, I think it's important for folks to understand that

This was a big campaign pledge from now President Donald Trump when he was still pre-election. He stood at a huge gathering of Bitcoin fans in Nashville in the United States last July and said, we want to make the U.S. the crypto capital of the planet. We're going to do it with Bitcoin. We're going to have this idea of a Bitcoin Fort Knox idea.

And at the time, what people thought that meant was the U.S. government is going to become a buyer of Bitcoin, right? Like, to use the industry parlance, the U.S. government was going to become a Bitcoin whale and hold a whole bunch of these tokens, buy a whole bunch of these tokens.

Fast forward to March and this executive order that you just mentioned, and the reality is a little bit more muted, shall we say, because this idea of the reserve is formalizing the idea that for any Bitcoin the U.S. government currently owns, they're not going to sell it. But there isn't this enormous mandate to go out and buy a huge amount more.

So why does the Trump administration want to be invested in crypto at all, even if they're not going to buy it? There are a few ways we've attempted to answer this question. The first is, and it's very much related to this idea of why was...

the president's at a Bitcoin conference in last July anyway. And the answer is, over the past few years, the crypto industry, and in particular, some very wealthy individuals in the crypto industry, became mega donors to political campaigns.

presidential campaigns, congressional campaigns, up and down the ballot, Democrats, Republicans. And politicians realized that this was a new constituency to be courting for their considerable financial reserves. And so this idea of appealing to that audience by making promises about crypto, by making promises about Bitcoin, was definitely something that happened.

Fans of Bitcoin will often say something to the effect of, there are only ever going to be a certain number of tokens. That introduces this idea of scarcity. And so if the U.S. government buys some of those tokens, it's going to help the price go up even further. And so everybody who's currently holding Bitcoin is really going to benefit, including the U.S. government.

Now, there's a little bit of circularity to that argument, if everybody buys it and nobody sells and the price will go up, you know, which is kind of like, okay, well, if you have a reserve, sometimes you might want to use that to do other things, not just hold it infinitely into the future. But that's also one of the reasons this idea of having a big strategic investor, shall we say, like the US government, giving a vote of confidence to this often very volatile digital asset.

will introduce a floor for the price of this thing. So, OK, the reason that we explain the price reaction is because the US government isn't investing in it. I've got that part. What other things, though, has President Trump said, like, for example, on regulation that are being more broadly perceived as positive for crypto? As you mentioned, this idea of the Bitcoin Fort Knox, the strategic reserve, was only one of the promises made to the crypto industry. Another really big one was to...

undo what was perceived by the industry as this hostile regulatory climate. So under the previous chair of the Securities and Exchange Commission, a really important U.S. regulator,

A lot of crypto companies had been sued, investigated. Famously, there was the FTX crypto exchange fraud that saw Sam Bankman-Fried go to jail for a relatively long amount of time. But there were also allegations against Binance, still the world's largest crypto exchange.

who were sued for $4.3 billion on kind of very significant allegations, including failure to prevent money laundering and other such crimes. So there was a perception from the industry that what they described as a few bad actors

had unreasonably tainted everybody else and that the SEC was overly aggressive in attempting to police them. Trump at this same conference in Nashville said on day one, I'm going to fire Gary Gensler. He didn't have to fire Gary Gensler.

Chair Gensler resigned. And, you know, on the same day that Trump was inaugurated, that took effect. But since then, you know, under Trump, regulators have taken a really different approach. The same SEC, which was doing all of these investigations, has dropped or paused most of the open investigations and cases. Other regulators have come out and said, we're going to be effectively much more chill on this than we were previously.

One of the features that's helped to boost the price of Bitcoin in recent years has been more professional investors getting involved in this space. What's their view of these changes? And what about the economist perspective in all of this? Do they think that a strategic reserve is a good idea? I'll start with the economists because it's very much linked to the atmosphere that we're in right now. If anyone has ever thought of a strategic reserve, I don't know what kind of dinner party conversation everybody else has.

But my friends and I talk about this all the time. So when you talk about a strategic reserve, you're often thinking about, oh, OK, foreign exchange or gold or oil, things that are traditionally perceived as having some sort of value or utility that can be exchanged, used, sold as might be necessary to either support the ongoing operations of a country or for other financial reasons.

And so the critics of this idea of a reserve are like, well, what are you going to do with the Bitcoin though? What is the problem that you are trying to solve here? And there has been a certain amount of skepticism around

that this makes sense. You know, we had an opinion piece from Bill Dudley, former president of the Federal Reserve Bank of New York and now a Bloomberg columnist, who said, without mincing words, it's hard to fathom how this would benefit most Americans. And that's the idea of other than inherent speculative value or this idea of, you know, if you buy and hold, the price might depreciate.

There isn't necessarily a widespread utility for Bitcoin as a means of payments, for instance. Enter those institutional investors that you mentioned, a big thing that has rallied or

contributed to the rally in Bitcoin over the past year or so has been the introduction of exchange traded funds that are backed by Bitcoin. And so you can now go to a financial advisor here in the US and say, I want to get some crypto exposure in my portfolio. What is one of the ways that I can do that? You can buy an ETF. And ETFs are some of the most popular kind of retail products that are available to different kinds of investors. And the problem, though, is that

When you institutionalize an asset class, when you have it being bought at very large size by other people who take macroeconomic considerations into account...

When the economy is perceived as not doing too well or when people's risk profile changes, anything that they have in those portfolios that they consider to be risky gets sold off with everything else. You have a correlation problem. And that's really been something we've been seeing with crypto. You know, there's concern about tariffs. Stocks are falling. Bitcoin is falling. There's concern about slowing rates of growth. Stocks are falling. Bitcoin is falling. Stacey Marie Ishmael, our executive editor for crypto. Thank you.

For more explanations like this from our team of 3,000 journalists and analysts around the world, go to bloomberg.com slash explainers. I'm Stephen Carroll. This is Here's Why. I'll be back next week with more. Thanks for listening.

Thank you.

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