De-constructing Trump’s crypto-assets gambit

Trump’s approach to the global economy reflects a neo-mercantilist logic. It is not based on free trade but on a zero-sum competition in which “one nation’s gain is another’s loss.” Thus, it rejects multilateral cooperation to promote unilateral actions. His stance on digital assets follows the same pattern. With the Executive Order “Strengthening American Leadership in Digital Financial Technology,” the US administration simultaneously banned the issuance of a public digital dollar while promoting stablecoins denominated in US dollars. This reflects a strategic effort to leverage digital assets to strengthen US influence globally.

First, dollar-backed stablecoins can serve as an additional channel to promote the global use of the US dollar. As Federal Reserve Governor Christopher Waller noted, stablecoins function as “synthetic dollars.” This shift in demand could serve as a strategic lever for the US administration to steer a new stream of global liquidity flows. Second, several countries and institutional investors appear to be scaling back their holdings of US Treasury securities amid rising concerns over US trade and fiscal policies, as evidenced by Japanese investors offloading over $20 billion in US bonds and China’s reducing their holdings by 27 per cent between 2022 and 2024. Rising demand for US-denominated stablecoins could help mitigate this trend. They are pegged 1:1 to the US dollar (or related assets). Stablecoin issuers are emerging as strategic investors in US Treasuries. In 2024, Tether was the seventh-largest buyer of US Treasuries globally. Third, if the US enacts a supportive regulatory framework for crypto-assets as indicated by the latest two legislative proposals in this field – the GENIUS Act and the Stable Act – it could influence global standards, potentially undermining multilateral and unilateral regulatory efforts.

This logic also underpins two other executive orders focused on creating a strategic reserve of crypto-assets and a strategic Bitcoin (BTC) reserve. The stated mission of the latter is to transform roughly 200,000 BTC seized by law enforcement into a sovereign hedge, complementing holdings in assets including Cardano (ADA), XRP, Solana (SOL) and potentially Ether. This reserve could serve to offset global macro-volatility. However, fundamental details remain opaque. To realise the Executive Orders, it is unclear whether the US Congress must authorise a new statute or if the Treasury’s Exchange Stabilization Fund (ESF) can be leveraged. The details of the proportional allocation among each token in the reserve(s), and the mechanism for acquiring coins (e.g. via open-market purchases, seized transfers or OTC deals to minimise slippage) further remain unaddressed at present.

Governance and deployment protocols are equally unresolved, including the conditions under which the holdings may be tapped to stabilise markets and the security infrastructure that will safeguard private keys against cyber risks. In any case, and especially given the political sensitivity of the policies, allocations to both the strategic crypto-assets reserve and the strategic Bitcoin reserve necessitate a budget-neutral approach, which carries its own trade-offs. For example, using already confiscated crypto avoids taxpayer outlays but caps the growth of the reserve volumes. Alternatively, dedicating tariff revenues or reallocating part of the ESF can supply fresh capital without direct debt issuance. A modest sale or revaluation of US gold receipts could further diversify funding, though it entails further political trade-offs. Gradual dollar-cost-average acquisitions paired with clear legal authority and bi-partisan oversight would help mitigate market shock and bipartisan backlash.

Ultimately, whatever the Trump administration undertakes, the geo-economic logic behind it serves to terraform digital assets into a durable pillar of the American neo-mercantilist toolkit.