Donald Trump fires ‘starting gun’ in global crypto arms race with strategic reserve plan

Move has revitalised the digital asset market and could compel other countries to follow suit

A depiction of Donald Trump at a Coinhero store in Hong Kong. The US President continues to make good on supporting cryptocurrencies in his second term in office. Bloomberg

US President Donald Trump's announcement of moving ahead with his so-called US crypto reserve with five cryptocurrencies could set the stage for a new era of adoption and regulation for digital assets, analysts have said.

Mr Trump's move has revitalised the crypto market, which was mired in another major downturn recently over a number of issues, including some from his own doing. It will also support the global adoption of digital assets amid standardisation, said Nigel Green, chief executive of wealth management company deVere Group.

With the strategic reserve, "the US has fired the starting gun on the crypto arms race", he said. "For years, digital assets have operated in a space of uncertainty, battling regulatory ambiguity and institutional hesitance. That era now appears to be over."

Mr Trump's latest announcement follows the Securities and Exchange Commission (SEC) unveiling a crypto task force in January, which it said would help deliver a “comprehensive and clear regulatory framework for crypto assets”.

What are the five cryptos?

The cryptocurrencies Mr Trump selected are Bitcoin, Ethereum, XRP, Solana and Cardano, five of the 10 biggest cryptos that make up nearly 90 per cent, or more than $2.7 trillion, of the overall industry's market capitalisation, according to data from CoinMarketCap.

While Bitcoin is the largest, Ethereum is the third biggest by value. XRP is the token of Ripple Labs, which won a lengthy legal battle with the SEC in 2023 over XRP being treated as a security. Solana, from Solana Labs, is expected to launch futures contracts on CME Group on March 17, boosting regulatory efforts for cryptos, while Cardano, the eighth biggest by value, champions an open-source blockchain.

Mr Trump's announcement offered a much-needed push to the market. From a record of more than $109,000 on January 25, Bitcoin had declined about 23 per cent to the $84,000 level before Mr Trump's announcement. Bitcoin was hit by a fading Trump effect across markets and outflows from exchanged-traded funds, as his tariff policies and stubbornly high inflation shook investor confidence. The crypto sector was also rocked by the record hack of the Bybit exchange last week.

After the announcement, XRP, Solana and Cardano jumped as high as 32 per cent, 26 per cent and 82 per cent, respectively, CoinMarketCap data shows. Bitcoin added nearly 12 per cent, while XRP leapt by one third.

Would a US crypto reserve provide stability?

Mr Trump first broached the idea of having a Bitcoin stockpile last July during his presidential campaign. Sunday's announcement is notable as it was the first time he used "reserve" instead of "stockpile".

Those two terms are often interchanged but are different: a stockpile means a government will keep the cryptocurrency it already has and possibly any crypto that it confiscates, while a reserve would mean regularly buying an asset, which would be used in the future should the need arise.

It is unclear which tool the White House intends to ultimately use, given that Mr Trump's statement was vague.

Why is Trump promoting crypto?

Mr Trump was once a crypto sceptic. In his first term, he derided Bitcoin and its peers as “not money”, “based on thin air” and something that “can facilitate unlawful behaviour, including drug trade and other illegal activity", and even called it "a scam” after he had left office.

The turning point was when he began selling non-fungible tokens depicting himself as a superhero in December 2022, a month after he declared his intention to run for president again. He raised $8.9 million in the process and that changed his attitude towards cryptos.

He has made cryptocurrency one of the central planks of his campaign, drawing support from the digital asset community.

His son Eric, during the Bitcoin Mena conference in Abu Dhabi in December, pledged that the Trump administration would "fight like hell" to protect cryptocurrencies from overregulation. The younger Trump also said his father would be the "most pro-crypto president" and was confident that Bitcoin would hit $1 million in value.

Also, before his inauguration in January, Mr Trump launched a memecoin, Official Trump, or $TRUMP, which rose sharply in value in only a few hours. Shortly afterwards, first lady Melania Trump launched her own memecoin. Those assets rose 31 per cent and 11 per cent, respectively, in the wake of Mr Trump's announcement on Sunday.

Would US crypto reserve provide stability?

A US crypto reserve can potentially lead to clearer regulations, reducing uncertainty and encouraging institutional interest, said Christopher Tahir, a senior market strategist at Cyprus-based broker Exness.

It could "help provide stability by boosting confidence via government endorsement, which could attract more investment", he told The National. "Moreover, the reserve could improve market activity and liquidity, stabilise prices and inspire other countries to adopt similar measures. Eventually, it will also support the crypto ecosystem as a whole."

However, a number of challenges could arise, particularly in the mechanism of Bitcoin accumulation, as the targeted amount is not a small number at any scale, Mr Tahir added. "This might also raise new challenges in the pricing and venue for acquiring Bitcoin at such a scale."