The United States establishes a Bitcoin strategic reserve, yet the cryptocurrency market plummets in response?

Source: Talking Li, Talking Outside

Let's briefly review the recent fluctuations over the past few days:

On March 2 (Beijing time), Trump announced on Truth Social that the U.S. would advance a crypto strategic reserve including BTC, ETH, XRP, SOL, ADA, etc., ensuring that the U.S. becomes the world’s crypto capital.

With this sudden news, the market began to rise rapidly. For example, BTC soared from $85,000 to $95,000, ETH rose by 18%, XRP increased by 38%, SOL went up by 29%, and ADA skyrocketed by 80%.

However, this surge did not last long. With the opening of the U.S. stock market on March 3, combined with news about tariffs and other factors, Bitcoin and various altcoins began to experience a rapid decline again. Just about a day later, the market had completely erased all the gains brought by Trump's "strategic reserve" news.

With the expectation of a White House crypto summit on March 8 (Beijing time), the market has been experiencing continuous fluctuations in the past few days. However, today (March 7, Beijing time), news broke that Trump has signed an executive order to formally establish a U.S. strategic Bitcoin reserve. As shown in the image below.

But after this news spread quickly, the market instead entered a rapid decline mode, with Bitcoin dropping 6% within half an hour. As shown in the image below.

Here, we may need to continue thinking about a few questions:

Is the recent market's volatility an illusion? Or are whales deliberately manipulating the market and buying at low prices?

The U.S. has granted Bitcoin a national reserve status similar to gold, which will certainly enhance Bitcoin's legitimacy and value support in the long run. But why is the market reacting with a rapid decline?

Next, we will continue to discuss this topic based on our previous articles:

1. About Bitcoin's Strategic Reserve

To be honest, a few years ago, I never dared to imagine that Bitcoin could be included in the U.S. strategic reserve. At that time, I only thought that if Bitcoin could be approved for a spot ETF, it would be a significant milestone.

However, since Trump's election victory, we have mentioned in previous articles that the U.S. crypto strategic reserve has become a matter of when, not if.

From a long-term perspective, the fact that the world's most developed and influential countries can include Bitcoin in their strategic reserves is equivalent to granting Bitcoin a national reserve status similar to gold (although the current U.S. gold reserves have lost their original significance). This will certainly enhance Bitcoin's legitimacy and value support, and it is also beneficial for the better development of the crypto industry (rather than completely unregulated wild development; of course, good development, from a certain perspective, also means that opportunities for ordinary people to get rich will become fewer or more difficult).

Of course, you can also view the U.S. Bitcoin strategic reserve as a new conspiracy or scam; I do not refute that, as everyone can have different perspectives on issues.

But from a short-term speculative perspective, the news today that Trump has officially signed an executive order to establish a Bitcoin strategic reserve may lead to a rapid market decline due to several possible reasons:

- The news is interpreted by the market as a shoe dropping

A common saying in the investment field is that good news landing can be bad news. Today's news can be understood as a landing of the U.S. Bitcoin strategic reserve, which may lead to some speculative selling.

- There is a gap between expectations and actual policies

Many people expected that once the Bitcoin strategic reserve was established, the Trump administration might use fiscal funds to buy more Bitcoin. However, from today's news, the executive order signed by Trump mainly mentioned that the source of Bitcoin reserve funds is limited to confiscated assets and will not increase the burden on taxpayers. This was directly interpreted as the Trump administration not planning to inject new funds to purchase Bitcoin.

Although the public message also mentioned that "the Treasury and Commerce Departments can formulate plans to acquire more Bitcoin without increasing the taxpayer burden," it still could not prevent people's disappointment. The greater the expectation, the greater the disappointment.

Of course, the above are just some relatively intuitive reasons. Market declines are often determined by a combination of factors, such as the three core aspects of narrative, economy, and policy we mentioned in previous articles. Short-term market trends are more of a direct reflection of people's emotions influenced by news.

Since there is also a White House crypto summit tomorrow (March 8, Beijing time), we do not know what new policy-related news may emerge then, which will also have an immediate impact on the short-term market, so we should continue to pay attention.

However, if we take a long-term view, with the implementation and advancement of the U.S. crypto strategic reserve policy (which also takes time), it is foreseeable that some large whales/institutions will continue to accumulate more Bitcoin, and even other countries may announce their crypto strategic reserve plans this year or next.

I remember in an article from two years ago, we shared a saying: the best two times to own Bitcoin are ten years ago and now. I still choose to say this today.

2. About the Market's Upcoming Trends

In the previous article (March 5), we mentioned a global liquidity issue, as shown in the image below.

In fact, since last year, the market (market participants) has been expecting the end of the U.S. quantitative tightening (QT). However, from the results of the last FOMC meeting, we may not see any opportunities in this regard until June this year, and during this process, for high-risk asset classes like crypto, it is undoubtedly the biggest negative.

Additionally, public data shows that the U.S. government's debt has reached the $36 trillion limit, which seems to mean that the government cannot borrow more money until Congress raises or suspends the limit. Although the efficiency department led by Musk has been working to reduce government spending since Trump took office, the massive U.S. government still needs to spend more money to maintain operations. So, what will they do?

At this point, we noticed a TGA (Treasury General Account) data. Simply put, TGA is a checking account that the U.S. Treasury has at the Federal Reserve (equivalent to the U.S. government's checking account). As of the writing of this article, there is still nearly $522.8 billion in the TGA. As shown in the image below.

Combining some data we mentioned earlier, the U.S. government may currently be spending from the TGA account to maintain operations and provide liquidity support. Meanwhile, I have also noticed that there are reports online indicating that the risk of a government shutdown is increasing, which may also be based on our previous considerations. However, I believe that Trump will not turn a blind eye to a government shutdown, and the probability of it happening comprehensively is low.

The essence of any market is liquidity; as long as liquidity is present, opportunities exist.

In addition to the liquidity from the TGA being maintained, we have also seen some changes in other policies related to the crypto field recently, which we have already described in the previous article (March 5), so I will not elaborate further. As shown in the image below.

The continuous easing of SEC policies, along with the increasing number of altcoin ETF applications or reviews this year, suggests that we seem to have never encountered such a "good" regulatory environment compared to previous years in the crypto market. This is also one of the reasons I have consistently maintained an overall optimistic outlook for the first and second quarters of this year in previous articles (of course, this does not exclude the possibility of new black swan events occurring during this period).

In simple terms, the first White House cryptocurrency summit on March 8, the first cryptocurrency roundtable on March 21, and the potential approval of more new altcoin ETFs in the second quarter of this year… In the long run, this industry is getting better and better. In the short term, however, people seem to be increasingly pessimistic. This is a very interesting phenomenon.

Of course, this pessimistic sentiment is also very understandable, with main issues including:

- Insufficient liquidity and severe dilution

I remember mentioning in the article on January 20 that the likely sign of the end of this bull market phase could be celebrities issuing memes, but I never expected that the leading figure in issuing coins would be the U.S. president. As shown in the image below.

In a situation where market liquidity is already insufficient, the current cycle has seen a massive number of new projects, a large number of VC projects continuously unlocking and selling pressure, and liquidity being continuously drained, all of which have exacerbated the market's volatility. This is one of the reasons for people's pessimistic sentiment.

- Concerns about economic recession

In recent weeks, we have continuously seen reports and data regarding concerns about (the U.S.) economic recession. For example, last week (February 28), the Atlanta Fed released a latest forecast report (GDPNow model) indicating that the U.S. economy will shrink by 1.5% in the first quarter. If this becomes a reality, it will be the first quarterly decline in the U.S. economy since the first quarter of 2022.

Additionally, the recently released U.S. manufacturing PMI data also fell short of expectations (the U.S. manufacturing PMI for February 2025 was 50.3%, down 0.6 percentage points from the previous month), which also indicates that the U.S. economy is slowing down.

Combined with CPI and PPI data, the U.S. currently seems to be facing the problem of stagflation. And precisely because of the stagflation issue, theoretically, the Federal Reserve cannot directly continue to cut interest rates, as lowering rates usually increases inflation risks. Of course, they also cannot raise rates again, as that would further slow down the economy. This appears to be a dilemma, and this situation leaves the market in a state of overall turbulence.

Originally, the macroeconomic situation was already facing a dilemma, but after the troublesome Trump took office, he reignited the tariff war, which will undoubtedly lead to a continued rise in inflation risks, especially for high-risk assets like crypto, which is undoubtedly a pessimistic fundamental factor.

So, should we remain bullish or bearish on the upcoming market?

I do not know. In fact, I believe that in the short-term market, being bullish or bearish is not important; ultimately, it depends on your own position and trading style.

If we look back, from the end of last year to now, Bitcoin has experienced continuous and repeated fluctuations in the $70,000 to $100,000 range. Theoretically, the market should have digested various expected positive or negative impacts from news. Although many altcoins are in turmoil, Bitcoin still appears relatively "healthy." Perhaps Bitcoin may continue to drop to the $70,000 level, but I will definitely continue to hold my Bitcoin and watch the show, maintaining my trading discipline and established goals.

The market is actually very interesting; usually, most people tend to be bearish at the bottom and bullish at the top. For me, when people generally see Bitcoin at $70,000 or even lower, I will choose to see it at $100,000 or even higher. Because I have enough time and patience, when more and more people choose to give up due to pessimism, I am actually quite excited about the potential performance of the market.

The reason I usually look at news, read articles, and check candlestick charts… is mainly due to the need for writing (self-media). From a trading perspective (holding Bitcoin), I could actually go months without looking at the news, and I only occasionally check weekly charts. When you simplify what seems complex in the short term through time and quantitative dimensions, the logic inside is not complicated; you don't even need to watch the market or news every day.

In conclusion, the market is uncontrollable; the only thing we can control well is our own positions. Most people only have the ability to make slow money but always hope to make quick money. If you cannot reasonably recognize yourself, the likely outcome is loss. In the short term, we will still face various uncertainties in the market, but in the long term, we (at least I) will continue to maintain respect for the market while remaining overall optimistic.

At the end of the article, let's take a look at the current number of Bitcoins held by major institutions and governments. As shown in the image below.