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“Don't think money does everything or you are going to end up doing everything for money.”

— Voltaire

Crypto strategic reserves are just about the money

The Holy Roman Empire, as Voltaire famously quipped, was neither holy, nor Roman, nor an Empire (it was a mostly secular, mostly Germanic confederation of semi-independent fiefdoms).

President Trump’s proposed US crypto strategic reserve is similarly mislabelled, being neither American, nor strategic, nor a reserve (the “crypto” part is accurate, however). 

The reserve’s ostensible purpose, according to the president’s post yesterday, is to make the US the “crypto capital of the world.”

It’s difficult to see how, though, because two of the three tokens slated for inclusion are more Alpine than American: The Cardano Foundation is a “Swiss-based non-for-profit organization” and the Solana Foundation is “a non-profit foundation based in Zug, Switzerland,” as they prominently self-identify on their respective websites.

The Cardano blockchain was also developed by an entity in Hong Kong, and its token was initially launched in Japan — two locations that do not constitute part of the United States (yet).

As an afterthought, President Trump added Ethereum, whose foundation is also Swiss-based, and Bitcoin, which is of no nationality whatsoever.

(Or maybe Bitcoin and Ethereum are the primary thoughts, it's hard to tell.)

To the extent any crypto token can be said to have a nationality, the other one mentioned, XRP, is identifiably American, at least: Ripple Labs (the largest holder of XRP and largest contributor to the XRP blockchain) is incorporated in Delaware and headquartered in San Francisco.

But it’s hard to imagine what might make XRP “strategic.”

By comparison, the US keeps a reserve of petroleum as a defensive measure to reduce OPEC’s ability to strategically manipulate the price of oil for either economic or geopolitical reasons.

There is no comparable cartel controlling the supply of cryptocurrencies for the US government to worry about, nor would it put the US to any strategic disadvantage if there were.

The US also stockpiles reserves of medical supplies (in case it has to fight a pandemic) and various minerals and metals (in case it has to fight a war) — critical resources whose supply chains are vulnerable to disruption during medical or military emergencies.

(The US discontinued its reserve of helium in 2021; I guess because the feared invasion of balloon animals never materialized?)

There are no comparable supply chains of cryptocurrencies for anyone to worry about — the whole point of cryptocurrencies is that they’re available to everyone, on equal terms, at all times.

There is no sign of a shortage, either.

Users of the Cardano blockchain, for example, only needed about 64,000 ADA tokens to pay fees last week, a small fraction of the 36 billion tokens in circulation.

Nor does either Cardano or XRP need the government’s help in attracting investors: ADA has a market cap of $35 billion (putting it at a price-to-fees ratio of 6,845x) and XRP has a market cap of $146 billion (for a price-to-fees ratio of 8,100x).

I therefore see no discernible logic in a strategic reserve that buys tokens few people use, in projects that are already so richly capitalized. 

There is some logic to a bitcoin strategic reserve, however: The US still holds gold, so there’s an argument to be made that the government should hold digital gold, too.

(I agree with George Selgin that it’s not a very good argument, but at least there’s an argument to be had.)

But the absurdity of stockpiling the likes of XRP, ADA, SOL and “other valuable cryptocurrencies,” as the president phrased it, gives the strong impression that the only possible purpose of a crypto strategic reserve is to make crypto prices go up.

Some might argue that higher crypto prices are good because they will encourage institutional adoption of an industry that might someday prove strategic.

But if the point was to build a financial system free of government control, having the government anoint the winners seems like a weird way to do it. 

Even as an endorsement of the industry generally, this seems like doing things the wrong way around.

Charlemagne, for example, wasn’t powerful because the Pope crowned him emperor — the Pope crowned Charlemagne emperor because he was powerful. 

Similarly, crypto’s goal should be to build something so valuable that governments are forced to accommodate it.

Asking the government to simply anoint crypto as "strategic" might even hinder its chances of ever achieving that status for real.

It’s been well documented, for example, that putting tariffs on imports makes domestic firms less competitive and that propping up insolvent banks burdens an economy with zombie companies.

Government support of crypto might prove to be similarly counterproductive.

Crypto markets already struggle to allocate capital productively, so how much worse will it be if taxpayer dollars are indiscriminately inflating token prices?

Also, a strategic reserve seems likely to destroy whatever remaining shred of cypherpunk credibility crypto has left, which might make crypto less attractive to developers — because what’s the fun in building a renegade financial system that the government fully approves of?

I may be overthinking this and I’m probably giving the president’s proposal too much credit by taking it even semi-seriously. 

Perhaps he’s just trolling us, as he’s so good at doing, and the idea of a crypto reserve will join Trump Gaza and the annexation of Canada as historical curiosities.

Or maybe he’s cleverly proposed this “shitcoin reserve” to make a bitcoin reserve seem more reasonable by comparison.

If so, I suspect it may backfire.

To me, the president’s latest proposal makes it obvious that there’s nothing strategic about any crypto reserve, no matter what the name implies.

— Byron Gilliam

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• Mohamed El-Erian (Allianz) on how institutional capital is navigating uncertainty.

• Nathan McCauley (Anchorage Digital) on the state of crypto banking and custody.

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• Rep. Tom Emmer (R-MN) on the regulatory fights that will define the industry.

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