US President Donald Trump’s full embrace of digital assets has sent shock waves through the cryptocurrency market, driving a price surge while creating both new opportunities and heightened risks for investors and corporations.
Last week, Mr Trump said on his Truth Social network that the US was looking into creating a strategic reserve of digital assets, naming Bitcoin, Ethereum, Solana, XRP and Cardano as its potential core holdings.
The move rippled through financial markets, pushing Bitcoin up as much as 11 per cent to $95,000 on March 2, before retreating slightly to $88,000 on March 6, as traders scrambled to reposition their bets.
A crypto reserve, akin to Fort Knox for gold, would legitimise the asset class by establishing government-backed holdings. The US could use the stockpile to support its policy goals, potentially as a hedge against inflation.
But does this signal true mainstream adoption of digital assets, or are we witnessing yet another speculative frenzy? And should investors and corporations bet on crypto, or will a national reserve turn into a taxpayer-funded gamble?
The announcement comes on the heels of a tumultuous period for digital assets in which $800 billion was wiped from crypto markets in recent weeks, as the industry reeled from a series of scandals, including a record-breaking $1.5 billion Ethereum hack.
Investors, initially euphoric after Mr Trump’s November election victory, had been growing impatient with the new administration’s slow pace on crypto reforms. Many had expected immediate legislative changes to favour digital assets.
Instead, they got a so-called “memecoin” launch by Mr Trump himself – an experiment that ended with an 83 per cent collapse in value from a brief high, with the president encountering major criticism over the move.
Yet, the moment the US President name-checked crypto as a possible strategic reserve, sentiment reversed quickly. While the rally extended, many traders took the opportunity to lock in profits, causing Bitcoin to slip a bit from its recent highs.
One question no one seems to be asking is: if crypto collapses, who foots the bill in a US reserve?
The idea of a national crypto reserve is odd. Traditionally, reserve assets like gold serve as a hedge against inflation and economic downturns. Bitcoin, despite its growing acceptance in mainstream finance, remains a highly volatile asset – one that has seen multiple cycles of meteoric rise and catastrophic decline.
Last year’s all-time high of $109,225 was driven by two primary factors: the scheduled “halving” event – where Bitcoin’s issuance rate was cut in half, reducing supply – and Mr Trump’s election victory.
US law makers remain divided. Proponents argue that an official crypto reserve would force global recognition of the asset and accelerate institutional adoption. However, sceptics warn that taxpayer dollars could end up underwriting severe losses if the price crashes.
Yet, the fundamental case for Bitcoin remains unchanged. First, there is limited supply – capped at 21 million coins, a limit hardcoded into its protocol by its pseudonymous creator, Satoshi Nakamoto.
Second, there’s rising institutional investment. The approval of Bitcoin exchange-traded funds in the US last year, following a decade of rejections, attracted new investors to the asset and supported its price. The funds from big-name asset managers like BlackRock, Franklin Templeton and Invesco pulled in more than $110 billion from investors by the start of this year.
However, the volatility of Mr Trump’s influence means Bitcoin is now even more of a short-term casino than ever before. Traders hang on every word, and markets swing wildly based on his statements.
There are big implications for traditional finance. If the US reserve goes ahead, the days of dismissing crypto as a fringe asset are over. Hedge funds, wealth managers and even corporate treasuries will be forced to consider holding digital assets, if they do not already.
Companies like MicroStrategy, Tesla and Block (then called Square) have already allocated portions of their cash reserves to Bitcoin. This strategy is often employed as a hedge against inflation and potential devaluation of fiat currencies – government-issued money.
But with wider adoption comes the potential for systemic risk. If pension funds, endowments and sovereign wealth funds start holding digital coins in significant quantities, what happens if prices plunge?
Could a major downturn spill over into traditional financial markets? Could the Federal Reserve or US Treasury be forced into interventions to stabilise prices?
For investors and corporations holding crypto, the message is clear: Bitcoin is here to stay, but its price volatility is likely to remain extreme. They must ask themselves a fundamental question: what is Bitcoin’s real value?
If they believe in its long-term potential as a hedge against inflation and a decentralised alternative to fiat currency, then allocating a portion of investment portfolios or treasury reserves to Bitcoin makes sense.
But if they see it as a speculative mania driven by political theatrics, they may be better off staying on the sidelines.
For now, one thing is certain: Bitcoin has never been more entwined with US policy, and with Mr Trump at the helm, it is more volatile than ever. Every statement, every policy shift and every regulatory move is likely to trigger rapid market reactions. Investors who understand this new reality will either thrive or find themselves on the wrong side of yet another brutal crypto cycle.
Bitcoin’s fundamental mechanics remain unchanged: limited supply, increasing adoption and a maturing market structure. However, Mr Trump’s full-throated endorsement has introduced a new wild card, turning crypto into a political asset as much as a financial one.
Ultimately, Bitcoin’s fate as a reserve asset will depend on whether governments can stomach its unpredictability. If the US does follow through on large-scale crypto purchases, it could usher in a new era of financial legitimacy for these assets.
The real question now is: what will outlast Mr Trump’s presidency? In other words, what remains unchanged? Will Bitcoin still hold its place? If so, will adoption have grown?
In the midst of market turbulence, taking a long-term perspective is the key to seeing beyond the noise.
José Parra Moyano is the professor of digital strategy at IMD
THE BIO
Favourite author - Paulo Coelho
Favourite holiday destination - Cuba
New York Times or Jordan Times? NYT is a school and JT was my practice field
Role model - My Grandfather
Dream interviewee - Che Guevara
Global state-owned investor ranking by size
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United States
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China
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UAE
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Japan
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5
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Norway
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Canada
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Singapore
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Australia
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Saudi Arabia
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South Korea
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The biog
Hometown: Cairo
Age: 37
Favourite TV series: The Handmaid’s Tale, Black Mirror
Favourite anime series: Death Note, One Piece and Hellsing
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Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
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The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
The bio
Favourite book: Peter Rabbit. I used to read it to my three children and still read it myself. If I am feeling down it brings back good memories.
Best thing about your job: Getting to help people. My mum always told me never to pass up an opportunity to do a good deed.
Best part of life in the UAE: The weather. The constant sunshine is amazing and there is always something to do, you have so many options when it comes to how to spend your day.
Favourite holiday destination: Malaysia. I went there for my honeymoon and ended up volunteering to teach local children for a few hours each day. It is such a special place and I plan to retire there one day.
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