Trump's Crypto Summit: What Fuels His Interest in Cryptocurrency?

TradingKey - Bitcoin has surged nearly 10% in the past five trading days, reaching nearly $90,000. A key driver of this increase may be President Donald Trump’s announcement of the first-ever cryptocurrency summit to be held in Washington. 

According to AI and cryptocurrency expert David Sacks, attendees are expected to include CEOs from Coinbase (COIN), Crypto.com, Robinhood (HOOD), crypto wallet provider Exodus (EXOD), as well as the chairman of Bitcoin investment firm Strategy (MSTR), formerly known as MicroStrategy.

Trump posted on his Truth Social platform, “I will make sure the U.S. is the Crypto Capital of the World.” 

Prior to this summit, an executive order was issued to establish a strategic Bitcoin reserve and other digital asset reserves—this could be another catalyst. The Treasury will establish an office to manage this reserve, which will consist of Bitcoin (BTC) seized by the government through criminal or civil asset forfeiture procedures.

The executive order also mandates a comprehensive accounting of the government’s digital asset holdings. David Sack noted that the government possesses approximately 200,000 Bitcoin, estimated to be worth around $17.5 billion. More details on the executive order are expected to be announced at the summit on Friday.

Meanwhile, Trump has shown interest in Ethereum. His cryptocurrency venture, World Liberty Financial, has begun to amass significant holdings of Ether, with on-chain analytics indicating that World Liberty Financial has greatly expanded its holdings, acquiring $10 million worth of Ether.

Earlier this week, five tokens mentioned by Trump—Bitcoin, Ethereum, XRP, Solana, and Cardano—saw a rapid price increase following his announcement.

However, cryptocurrency leaders have criticized Trump’s approach, asserting that if a reserve is to be established, it should be based solely on Bitcoin. Commerce Secretary Howard Lutnick remarked that Bitcoin would receive a “unique status” under Trump’s framework, while other cryptocurrencies would be regulated differently.

Notably, Trump and First Lady Melania Trump launched their own meme coin in January, which is a digital currency inspired by viral trends but lacks the financial backing or technological support of real cryptocurrencies.

The cryptocurrency reserve is viewed as part of "Trump economics," a strategic layout aimed at reconstructing the U.S. financial discourse. On one hand, by incorporating BTC and ETH into reserves, the U.S. government seeks to gain an edge in the digital finance race. On the other hand, this move aims to use the global liquidity of cryptocurrencies to hedge against the U.S. debt crisis and the decline of the dollar’s credibility.

Cryptocurrencies are linked to the dollar through stablecoins. In the current cryptocurrency system, over 95% of stablecoins are dollar-denominated. Stablecoins serve as the settlement medium for investing and trading other crypto assets, fulfilling the "payment settlement" function of currency and occupying a "core position" in cryptocurrency trading. Native cryptocurrencies like Bitcoin and Ethereum can only be translated into real-world purchasing power for investment, consumption, and trading after being exchanged for stablecoins or fiat currency.

More importantly, approximately 80% of stablecoin reserve assets are invested in U.S. Treasury bonds, making them one of the top 20 holders of U.S. debt. The dollar circulates back to the U.S. financial market through the process of “buying stablecoins—supporting cryptocurrency trading—investing in U.S. Treasury,” while still being influenced by U.S. monetary policy. This helps to reinforce the dollar's position in the global monetary system.

Moreover, the government is increasingly viewing cryptocurrencies like Bitcoin as tools for hedging against inflation. Bitcoin’s scarcity ensures that its value is less affected by inflationary pressures. This became evident in 2021 when the U.S. inflation rate surged to 7%, while Bitcoin appreciated over 300%, serving as a safeguard against currency depreciation.

However, Trump's strategic reserve announcement has drawn criticism from economists and even some of the staunchest supporters of cryptocurrency. The U.S. has long established strategic reserves for key assets like oil to ensure funding during crises and stabilize prices. 

Stephen Cecchetti, an economist and professor at Brandeis International Business School, stated that this cryptocurrency reserve appears fundamentally different because it does not depend on the asset's importance to the nation but rather on the belief that its price will rise in the future. He has been skeptical of cryptocurrencies for years.

In July of last year, Senator Cynthia Lummis proposed a Bitcoin reserve bill, arguing that Bitcoin’s returns could help halve the debt within 20 years. However, experts warn that relying on volatile assets like Bitcoin to reduce debt is risky. 

Stephen Cecchetti described this strategy as akin to a homeowner gambling with credit cards, hoping to pay off their mortgage faster. He also argued that using U.S. debt to acquire large amounts of cryptocurrency could 'increase the likelihood of credit rating agencies downgrading the U.S. rating, raising borrowing costs.'

While there are many dissenting voices, Bitcoin remains noteworthy. In the U.S. stock market, several cryptocurrency-related stocks may benefit from these developments:

Cryptocurrency Exchange Coinbase Global, Inc. (COIN): Cryptocurrency trading, storage, and related services  

Bitcoin Mining Marathon Digital Holdings, Inc. (MARA): Bitcoin mining  

Bitcoin Mining Riot Blockchain, Inc. (RIOT): Bitcoin mining  

Corporate Crypto Investment MicroStrategy Incorporated (MSTR): Bitcoin investments  

Bitcoin Mining & Data Center Hut 8 Mining Corp. (HUT): Bitcoin mining and Bitcoin investments