Trump EO on crypto reserves rightly eschews government purchases

After much anticipation, President Donald Trump’s newly issued executive order (EO) on a “Strategic Bitcoin Reserve” and “digital asset stockpile” does not call for large-scale government purchases of Bitcoin and other cryptocurrencies. Instead, it focuses on the government maintaining the crypto it already has, calling for agencies to inventory the cryptocurrencies in their possession from actions such as civil asset forfeiture and send these listings to Treasury Department for potential inclusion in the reserve and stockpile.

Coming on the eve of the White House Crypto Summit with industry leaders, the EO disappointed many in the crypto sector looking for the subsidy of big government purchases to pump up prices. But by eschewing such a subsidy – at least for now – the Trump administration has done the right thing for American taxpayers and ultimately for the crypto sector itself. As I have written previously, “the many problems with government reserves and technology subsidies in general should persuade even Bitcoin and crypto enthusiasts to back away from this idea.”

A cryptocurrency reserve or stockpile in which the government makes large scale purchases of any type of cryptocurrency is a foolish subsidy that would distort the crypto market. In response to legislation to create a Strategic Bitcoin Reserve, I wrote that among its flaws is that it would have the powerful hand of government favoring Bitcoin over other cryptocurrencies. As I wrote here, such favoritism could mean that “investment dollars that might have gone to other cryptocurrencies would flow into Bitcoin, and thus potential innovation from other cryptos and associated blockchains and smart contracts they could enable might be lost.”

Favoritism would not be fixed by simply having the government purchase other cryptocurrencies, as many thought Trump was proposing after he mentioned specific cryptos – including Solana and Cardano – that would be supposedly included in the stockpile in Truth Social posts last weekend. There are currently more than 25,000 cryptocurrencies trading. The government purchasing 5, 10, 100, or even 1,000 of these cryptos for a reserve or stockpile would give them an unfair and market-distorting competitive advantage of those not included and harm innovation in the sector.

Innovation would also be harmed, even for those cryptocurrencies included in the government purchases. As I wrote in the case of the Bitcoin reserve proposed in legislation:

Given Bitcoin’s fixed quantity at 21 million units, the US government’s hoarding of 5 percent of the global supply may well keep Bitcoin from reaching its own potential. Innovations such as the Lightning Network that enables faster payments through the use of the Bitcoin blockchain may suffer with a reduced Bitcoin supply.

Similarly, Anatoly Yakovenk, co-founder of Solana Labs which issues the cryptocurrency Solana, posted yesterday on X that his preference is “no reserve,” because “if you want decentralization to fail you’d put the government in charge of it.”

If the cryptocurrency players at today’s summit really want a prosperous, innovative sector in the long run, they should put notions of grandiose reserves on reserve, and urge the Trump administration to continue its deregulation of the sector. In just one month, the administration has already made some notable deregulatory strides.

The Securities and Exchange Commission, for instance, reversed in late January its widely panned piece of “dark matter” – to use the terminology of my colleague Wayne Crews notices and “guidances” that have the effect of regulation – Staff Accounting Bulletin 121. Through its treatment of cryptocurrencies held by customers at a bank as if they were owned rather than simply custodied by that bank, this rule was a key part of the Biden administration Operation Choke Point 2.0 that attempted to wall off crypto from the banking sector. This rule garnered widespread opposition from Republican and Democratic lawmakers. Then-Rep. Wally Nickel (D-NC) chastised the rule last year, saying “SAB 121 hinders well-regulated banks from safeguarding digital assets, making the industry less safe for consumers.”

Ultimately, the success of the crypto sector – or any sector – must not be measured by the price of an asset in that particular sector. It should be measured on how free the sector’s entrepreneurs and investors are to innovate, access capital, and take risks to build a business or a portfolio.

CEI Research Associate Ari Patinkin contributed to this post