He pitched the reserve as a way to offset losses in spending power caused by inflation in the US dollar. On Thursday, Sacks reiterated that line of argument, posting on X, “The U.S. will not sell any bitcoin deposited into the Reserve. It will be kept as a store of value. The Reserve is like a digital Fort Knox for the cryptocurrency often called ‘digital gold.’”
The plan to establish a reserve was met with jubilation by the crypto faithful, who saw it as a signal of their industry’s new legitimacy and stand to benefit financially from what amounts to a pledge by the US government not to depress the price of bitcoin by selling large quantities into the market.
But the plan has confounded economists, who say the idea relies on two flawed assumptions: that the price of bitcoin is guaranteed to rise and, second, that the government would be able to at some stage sell bitcoin back into US dollars without tipping the market into a nosedive. Choosing to hoard instead of sell bitcoin seized by law enforcement also comes with opportunity cost; whereas assets like stocks and bonds generate income, bitcoin does not, making it expensive to hold.
“Having a reserve that only consists of bitcoin the government possesses is less obnoxious [than using tax dollars to purchase additional coins] but still costly,” says George Selgin, director emeritus for the Center for Monetary and Financial Alternatives at the Cato Institute, a US think tank that promotes libertarian principles. “There is simply no good rationale.”
Meanwhile, Democrat lawmakers have registered concern about potential conflicts of interest related to previous investments by Sacks and other members of the Trump administration in coins set to be included in the US stockpiles. “Lawmakers deserve strong leaders who will prioritize the public interest ahead of their own bottom lines,” wrote Elizabeth Warren, senator for Massachusetts, in a letter addressed to Sacks on March 6.
One possible effect of Trump following through on the crypto reserve plan might be that individual US states and other national governments set out to form their own, says Hillmann. “I expect that US states will also start to buy some of these assets. Because if the US government is going to hold them, states are more likely to do it too,” says Hillmann. “And guess what? Other governments across the globe are going to do the same thing. The United States has always been the bellwether in finance.”
Already, members of Congress in states including Texas, Ohio and New Hampshire have introduced bills that would authorize their respective state treasuries to purchase bitcoin; as have politicians and authority figures in Brazil, the Czech Republic, Hong Kong and elsewhere.
Once the two US crypto stockpiles have been established, particularly if Trump succeeds in enshrining them in law, they are unlikely ever to be disbanded—held in place by the same political forces that brought them into being. The same firehose of crypto industry dollars used to lobby for their creation, claims Selgin, will be turned on any politician who might try to put the assets to use.
“Even if either reserve were to appreciate [in value], there’s no telling the government would ever take advantage of that appreciation by selling,” claims Selgin. “If anything, it’s quite likely the same people in the crypto community that lobbied to create them are going to lobby intensively against ever realizing them. They are interested in their own capital gains.”