The crypto community reacted differently to President Trump’s announcement of implementing a crypto reserve.
Controversy Trails President Trump’s Crypto Reserve Announcement
President Donald Trump’s two posts regarding his proposals for a US cryptocurrency reserve triggered a rebound in the digital currency market on March 2, with its overall evaluation rising by almost 7% to $3.04 trillion. On closer inspection, a crypto strategic reserve—likely modeled after the US Strategic Petroleum Reserve (established in the 1970s following the Arab oil embargo)—raises more concerns than it answers.
One notable concern was whether the US would buy cryptocurrency for the reserve or only add to it when authorities seize cryptocurrencies. Many critics also cited a lack of proper order concerning Trump’s posts on the Truth Social platform about the matter.
The original post only discussed the three tokens with the lowest market capitalizations in the expected reserve: Solana, Cardano, and XRP. A few minutes later, seemingly out of the blue, the President made another remark mentioning the two biggest cryptocurrencies, Ether and Bitcoin (BTC).
The President’s memecoin was introduced on Solana; thus, critics claim he may be biased towards including SOL (Solana’s native coin) as part of the crypto reserve. The inclusion of altcoins surprised other members of the crypto community.
Since Bitcoin was the oldest, safest, most popular, and best-capitalized cryptocurrency, some believed the US would only maintain a strategic BTC reserve.
Crypto Reserve Might Be an Unforced Mistake – Anthony Pompliano
Meanwhile, Anthony Pompliano, the founder and CEO of Professional Capital Management, believes that establishing a broad crypto strategic reserve was an unforced mistake that the President could later regret. Pompliano argued that the coins currently included in the reserve would only add value to the insiders and developers of these coins.
Also read:Pompliano also said that cryptocurrency tokens like ETH, XRP, SOL, and ADA do not suit the crypto reserve model. They resemble technology stocks more than any currency or natural resources that usually make up strategic reserves (Canada, for example, has a strategic reserve of maple syrup, a less common product).
There are also claims that Trump included XRP because the token is associated with the blockchain firm (Ripple) that donated $45 million to an industry-based PAC that helped elect Trump and other Republicans. However, some argue that the chosen cryptocurrencies more accurately represent the trend of blockchain-based currencies.
For instance, one reader who took issue with Pompliano’s letter pointed out that Cardano is more energy efficient, economical, deterministic, decentralized, scalable, and able to tackle programmability today” than Bitcoin.
Adding Altcoins to The Strategic Reserve May Have Its Drawbacks
According to Yu Xiong, a professor and director of the Surrey Academy for Blockchain and Metaverse Applications at the Surrey Business School, University of Surrey, adding altcoins to a state-backed reserve is a “double-edged sword” with advantages and disadvantages. He noted that a multi-asset reserve provides greater diversification and less dependence on Bitcoin, which now makes up over half of the market value of cryptocurrencies.
Their additions are proof of the broader applications of blockchain technology. However, there may also be drawbacks, such as regulatory ambiguity.
For example, liquidity risks: Government acquisitions or sales might cause cryptocurrency values to soar or plummet because of the low trading volume of some of these coins. Expectedly, Bitcoin’s trading volume is higher than any other currency. Bitcoin’s trade volume across all crypto platforms was $54.8 billion over the past 24 hours.
In contrast, ETH, ADA, SOL, and XRP were $23.4 billion, $3.6 billion, $5.4 billion, and $5.5 billion, respectively. This volume suggests that some altcoins lack the depth necessary for large-scale reserves.
Would The Cryptocurrency Industry Gain from A Crypto Reserve?
A US Crypto Reserve would undoubtedly boost the blockchain and cryptocurrency sectors. According to Xiong, it would enable institutional adoption, much like when BlackRock introduced its Bitcoin ETF and, within six months, reached $18 billion in assets under management.
Additionally, it might contribute to market stability. As the US Strategic Petroleum Reserve (SPR) showed in 2022, when then-President Joe Biden directed the release of over 180 million barrels of crude oil from the SPR to support global energy prices, government reserves can serve as a buffer during extreme volatility.
However, state-backed strategic reserves come with hazards. Xiong explained that Bitcoin’s 30-day annualized volatility, which regularly topped 100% before 2022, has fluctuated between 30% and 60% in the past year, while crude oil fluctuation has been below 35%.
Higher volatility raises worries about manipulation or unexpected market distortions. Beyond the crypto-verse, the possibility of using taxpayers’ money for speculative ventures has raised real concerns.
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