Strategic Reserves and Power Games: The Crypto Order in the Trump Era (Continued)

Author: YBB Capital Researcher Zeke

Introduction

On March 6, local time in the United States, President Trump signed an executive order to officially establish a strategic Bitcoin reserve in the U.S. David Sachs, the White House cryptocurrency affairs director, further clarified the reserve details on social platform X: approximately 200,000 Bitcoins held by the federal government will all be allocated to this strategic reserve. These assets come from criminal or civil forfeiture procedures and it is explicitly stated that "they will neither be sold externally nor will new coins be acquired through the market."

In a previous article published on March 4, I speculated about some follow-up situations regarding the strategic reserve. Coincidentally, the current situation aligns closely with some of those predictions. Trump did not include altcoins such as SOL and XRP in the reserve list as previously promised, nor did he inject new fiscal funds into the BTC strategic reserve; he merely allocated all currently seized Bitcoins to the strategic reserve. What surprised me was the surprisingly swift implementation of the strategic reserve; Trump did not hesitate to play this "trump card." With this move, the market's fantasy of government buying sprees was shattered, and BTC retraced to around 77,000. Now, it seems that the cards Trump can play are few, but it is worth pondering whether this "crypto president," who has navigated both business and politics for decades, has a strategy that is truly limited to this?

I. Gold, Oil, BTC?

The collapse of the Bretton Woods system, the cracks in the petrodollar, and the rise of Bitcoin represent the dollar's repeated adaptive evolution as the anchor of the changing times.

The establishment of the Bretton Woods system in 1944 marked the dollar's binding to gold ($35 per ounce), making it the "ultimate anchor point" of the global monetary system. The core logic of this design is that the physical scarcity of gold underpins the credit of the dollar, while the network effect of the dollar amplifies the liquidity of gold. However, the emergence of the Triffin dilemma revealed the system's fatal flaw—global trade expansion requires dollar outflow (U.S. trade deficits), while the maintenance of dollar credit relies on U.S. surpluses and sufficient gold reserves. In 1971, Nixon announced the decoupling of the dollar from gold, freeing the U.S. from the shackles of gold for the sake of maintaining its hegemony. It has been proven that any monetary system rigidly bound to physical resources will ultimately collapse due to the irreconcilability of resource scarcity and economic expansion. The end of the gold dollar forced the U.S. to seek a more flexible vehicle.

The first oil crisis in 1973 provided Nixon with an answer: the importance of oil to modern industry is self-evident. In July of the following year, newly appointed U.S. Treasury Secretary William Simon and his deputy Gerry Parsky rushed to Saudi Arabia, the world's largest oil producer, to sign the "Irrevocable Agreement," breaking the deadlock after the collapse of the gold system: the U.S. promised to provide comprehensive military protection and security guarantees to Saudi Arabia, which agreed to price all oil exports in dollars and to use excess oil revenue to purchase U.S. Treasury bonds, thus exchanging military protection for Saudi Arabia and other oil-producing countries' acceptance of the petrodollar as the sole pricing currency for oil transactions. This marked the entry into the 2.0 era—oil replaced gold as the new anchor of dollar credit, and the petrodollar system formed a closed loop through "oil trade—dollar repatriation—Treasury bond purchases." Wall Street then packaged these petrodollar debts into derivatives (with a scale of $610 trillion in 2023), diluting credit risk through "debt monetization."

The essence of this cyclical logic is that the U.S. levies a "seigniorage tax" on the world through oil trade, but now the U.S. fiscal deficit is extremely high (7% of GDP), and the total debt has already surpassed $36 trillion this year. The entire system has long since evolved into a Ponzi scheme of borrowing new to pay old. As the de-dollarization of oil trade gradually expands, this cycle will begin to collapse due to the lack of an anchor. So what comes next? Who will fill the next fifty years after oil?

Trump currently holds two trump cards: Nvidia and Bitcoin. In the high-tech narrative of AI, Nvidia almost plays the role of the "digital Middle East," where everyone needs computing power, but computing power can only be produced by me. Unfortunately, a certain Eastern country has found a path where AI computing power demand can also be small and beautiful. So at least before the full arrival of the AI Agent era, computing power and digital oil cannot be equated completely. (Or some countries can be self-sufficient in oil.)

Let’s look at the other trump card, Bitcoin. The idea of using Bitcoin as a strategic reserve originated from Senator Lummis's proposal submitted to Congress last year. Its supporting logic is that the purchasing power of the dollar has been declining in recent years, while Bitcoin's average annual growth rate has reached 55%, making its excellent anti-inflation properties a new type of value storage tool that can replace gold. Trump has even said, "Give them a little cryptocurrency check. Give them some Bitcoin, and then wipe out our $35 trillion." Whether it is pegging to the dollar or repaying U.S. debt, I have consistently held opposing views on these ideas in my past articles. The first point has already been mentioned regarding the collapse of the Bretton Woods system; Bitcoin, as a digital currency with a cap of 21 million coins, has a scarcity that far exceeds that of gold, and the U.S. cannot repeat the Triffin dilemma. Second, the volatility is too high and the reserves are insufficient; based on the current reserve of 200,000 Bitcoins, the asset value is less than $20 billion, accounting for only 0.056% of the scale of U.S. debt. To achieve effective anchoring, at least 30% of the circulating supply (about 6 million coins) would need to be held, or Bitcoin's value would need to be raised dozens of times and maintained at a stable price, but clearly, neither is very realistic. Third, pegging the dollar to Bitcoin would obviously exacerbate the marginalization of the dollar; how to convert Bitcoin into a global tax base is another question.

From the current implementation of the strategic reserve, it is clear that the Trump administration cannot find a better entry point in the short term. But playing this card so quickly makes me reconsider whether they have a bigger trump card?

Based on my personal thoughts, extending the speculation from the previous article:

1. The scarcity of Bitcoin does not mean that all cryptocurrencies are scarce; most public chain tokens have deflationary mechanisms. The dollar is currently based on oil and represented by gold. The composition of the digital Fort Knox could be mixed: BTC as gold, and ETH or SOL and other public chain tokens as oil. So with the large-scale adoption of the "crypto capital," can a crypto American-style closed loop be formed? For example, various stablecoin projects like Usual and Tether can still promote so-called dollar settlements, and their composition mechanisms or profit sources are closely related to U.S. Treasury bonds. Does this bear some resemblance to the petrodollar system?

2. At the current stage, not buying or selling is reasonable, but if the killer move is limited to this, then this news should not have been announced so early. Trump is not a fool, and his crypto team behind him is even less so. There are rumors circulating in the industry that the U.S. sovereign fund (which is still in the planning stage) will purchase cryptocurrencies; I actually agree that this sovereign fund is his trump card.

3. Once thought small, Trump is merely opening some empty checks to the crypto circle for the benefit network behind him. But from the current situation, we may need to think bigger; it is only a matter of time before mainstream countries follow suit with strategic reserves. I personally believe that BTC is the most acceptable, while SOL and even XRP may have a higher status than ETH (as adoption progresses).

4. The biggest unit of the crypto struggle is no longer public chains. Trump has recently shown a clear intention to consolidate the largest CEX, public chains, and various major projects, but how to consolidate remains a question, and how will the resistors fight back?

5. There are rumors on Wall Street that Trump is creating an artificial recession to pressure the Federal Reserve to cut interest rates. Whenever the market is about to improve, it will be met with a blow from Trump and Musk (the government efficiency department). So does Trump also intend to suppress the crypto market? To turn top expectations into illusions first? However, I personally do not agree with this point. First, the AI bubble in the U.S. stock market does exist; although it cannot be compared to the internet bubble of 2000, it is certainly overheated. Second, the combination of Trump and Musk is heavy-handed, which will naturally provoke external grievances, and the left's counterattack is inevitable. The so-called recession is actually a collective force.

Regarding points 1, 3, and 5, all I can do now is speculate, while I feel I can expand a bit on points 2 and 4.

II. Sovereign Fund

On February 3 of this year, Trump signed an executive order directing the establishment of a U.S. sovereign wealth fund within the next year. He required the Department of Commerce and the Department of Treasury to submit a plan for its establishment within 90 days, including funding mechanisms, investment strategies, funding structures, and governance models. The fund's goals include funding infrastructure, supply chains, and strategic industries.

There are about 50 countries and regions globally that have sovereign funds, such as China's CIC and Hua'an, which rank second and third among the world's sovereign funds. Depending on the situation in different countries, the investment styles of sovereign funds also vary. For example, the Middle East focuses on strategic industries, Norway focuses on stock investments, and China serves private equity, real estate, and the Belt and Road Initiative. The benefits of establishing a sovereign fund for a country mainly include four points: 1. Smoothing economic fluctuations (hedging resource price risks, optimizing foreign exchange reserves management); 2. Driving economic structural transformation (for example, the tourism and technology industries supported by Middle Eastern countries); 3. Global financial discourse power; 4. Protecting society and building social welfare.

The establishment of the U.S. sovereign fund is mainly rooted in the TikTok dispute; publicly, it is said that Trump wants to buy the internet company most loved by the American people, and privately, it can alleviate fiscal deficits and infrastructure upgrades. This is also a power upgrade for Trump, allowing him to leverage his business acumen for the country while in the White House. If circumstances permit, this fund will naturally become the main source of funding for the crypto strategic reserve. This situation is not entirely my imagination; the main leader of the fund, nominee for Secretary of Commerce Lutnick, was the CEO of Cantor Fitzgerald, one of the custodians of Tether, responsible for related asset reserves. In addition, Lutnick is also a supporter of Bitcoin, so it would not be surprising for him to plan the sovereign fund to pave the way for Trump's crypto family and the interests behind him. Moreover, most sovereign funds are currently registered in offshore financial centers like the Cayman Islands and Luxembourg, taking advantage of local laws that exempt investment information disclosure, allowing for opaque operations. For example, the Saudi Public Investment Fund (PIF) holds 320,000 Bitcoins through offshore shell companies, completely detached from sovereign asset liability balance sheet supervision. The regrets of Trump's 16-year term may be fully compensated in this term.

Regarding funding sources, there are only four possibilities: earn, sell, finance, and print. Based on the current situation in the U.S., the first two are the most likely. Trump hopes to fill the fund through tariff revenues, while another way is to monetize the $5.7 trillion in assets currently held by the federal government. Of course, it doesn't matter which method is ultimately used to establish the fund; we are just getting a glimpse of the ideal fund size. If this comes true, then the main core points are only three: 1. Government purchases will become a fact; 2. American-style crypto projects will be the most significant, if not the only, Alpha in the future crypto space; 3. Whether top projects accept sovereign fund investments will be crucial for their survival.

III. Surrender?

Binance has made two significant moves this month: first, it partnered with the UAE royal family to secure an investment of up to $2 billion from the sovereign fund MGX. It is rumored that the U.S. has also discussed investment matters with Binance, and the Wall Street Journal has explicitly stated that CZ is suspected of exchanging equity for a pardon from the Trump family. Second, BSC is seamlessly integrated into its own CEX, meaning that CEX users can use stablecoins to participate in BSC's on-chain transactions seamlessly. These two moves reflect the issue that traditional finance and geopolitical forces have systematically co-opted crypto; moreover, embracing centralization seems to be the only way for public chains to thrive. Crypto is being divided among various countries, and public chains either choose to embrace the powerful or must embed themselves in CEX to grow stronger through the distribution of traffic valves.

Ethereum, which chooses not to select anything, still maintains its proud attitude, while its exchange rate with BTC continues to create new lows. The doubts within the circle regarding the Ethereum Foundation and Vitalik have persisted for almost a whole year. However, from my personal perspective, the survival and even counterattack of Ethereum are crucial for crypto. Today, there are only two paths in the world: submission or resistance.

Those who submit can share the glory with the powerful and gain temporary peace. But today, if five cities are cut off, tomorrow ten cities will be cut off; what can Web3, which continuously bleeds into centralization, be called? One day, the seven states will return to Qin. Although Ethereum has a strange dictator, it is, in itself, the only public chain worthy of the term decentralized ecosystem. Yes, even today it is so. I am not a loyal supporter of Ethereum, but I also do not wish for it to become the Handan City of crypto. The so-called value should be the code pulsating on the blockchain, not a line of signature on a White House executive order.