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Trump has ‘bailed out’ crypto. The US taxpayer risks being the biggest loser
As the cryptocurrency market fell to its lowest level since the days after his father’s November election victory , Eric Trump urged investors not to lose faith. “Buy the dips!!!” he tweeted last week.
The phrase is a common one in the volatile world of cryptocurrency , where shared momentum and optimism drive the markets. But a few days later, observers might wonder whether there was more behind the message.
On Sunday, Donald Trump announced that his administration was pressing ahead with plans to set up a US crypto reserve, identifying three digital coins – XRP, Solana and Cardano – that would be included in the fund.
The values of the three lesser-known tokens, popular in crypto circles but obscure to much of the general public, instantly surged by up to 20pc.
Trump later added that Bitcoin and Ethereum, the two biggest cryptocurrencies would “obviously” be included, adding: “I also love Bitcoin and Ethereum!” The two digital coins subsequently enjoyed their own price spike.
In the space of an hour, roughly $250bn (£197bn) was added to the value of the cryptocurrency market. There is no evidence that Eric Trump’s advice was informed, but it was certainly profitable.
In Trump’s first term, he saw the stock market as a proxy approval rating. In his second, he may prefer the price of Bitcoin.
While Wall Street has been relatively languid since his second election win, cryptocurrencies have traded at all-time highs.
Trump cheered as Bitcoin hit $100,000 for the first time in December , posting on Truth Social: “Congratulations Bitcoiners … You’re welcome!!!”
The Bitcoin price – a single, simple metric – may also appeal to the president as the wider US economy appears to struggle .
On Friday, an economic tracker from the Federal Reserve Bank of Atlanta suggested that the economy could shrink at an annualised rate of 1.5pc in the first quarter of the year. Inflation fears have also returned, in part owing to Trump’s tariffs .
The momentum-fuelled crypto market has proven an easier beast to tame.
After a crackdown by the Biden administration, which fretted about the lack of protections around digital assets, Trump has been able to boost prices with a series of crypto-friendly appointments at key government agencies and promises to make America the world’s “crypto capital”.
Once a sceptic who criticised cryptocurrency as a scam, Trump himself has demonstrated little personal passion for the industry. Policies such as freeing Ross Ulbricht, the founder of online drug market The Silk Road, have appeared designed to win the community’s support rather than demonstrate a coherent vision of what cryptocurrency means in Trump’s America.
But they have endeared the president to a new legion of supporters who felt that their industry was under threat.
The crypto industry, despite being set up on libertarian principles, spent $133m to help elect Trump and dozens of other supportive candidates in last year’s election , becoming a devastatingly effective new power in Washington DC.
Among Trump’s big supporters were Marc Andreessen, the Silicon Valley venture capitalist whose firm has become one of the crypto industry’s heaviest backers; Cameron and Tyler Winklevoss, the twin brothers who became billionaires through Bitcoin; and Brian Armstrong, the boss of crypto exchange Coinbase.
Most prominent has been David Sacks, the former PayPal executive and close ally of Elon Musk, who was a relatively early Trump backer in Silicon Valley and has since been appointed the president’s “crypto tsar”. He will be charged with developing plans for Trump’s crypto reserve, which is likely to be outlined in more detail at a “summit” on Friday.
Trump’s announcement led to a backlash on concerns that taxpayer money would be used to prop up an asset disproportionately held by a rich clique.
“Torn as to whether this is more dumb or more corrupt,” wrote Jason Furman, a key economic adviser to Barack Obama.
Joe Lonsdale, the founder of tech firm Palantir and a major Trump supporter, wrote: “It’s wrong to steal my money for grift on the Left; it’s also wrong to tax me for crypto bro schemes.”
Trump’s specific shopping list of cryptocurrencies also raised eyebrows.
XRP, Ripple and Solana, whose combined value is roughly one seventh of Bitcoin’s, are relatively niche even among those who have parked money in Bitcoin. One meme spreading among Bitcoin fans on Sunday called the plan a “s---coin reserve”.
Others pointed out that the list closely mirrored a cryptocurrency fund that Sacks had invested in – despite Trump’s crypto tsar having denied any conflict of interest on Monday, saying he had sold all of his cryptocurrency holdings before Trump took office.
The sense of injustice rose when it emerged that an anonymous “whale” had made a highly leveraged bet on Bitcoin and Ethereum on Sunday on the trading service Hyperliquid, closing the position after the cryptocurrencies’ price rise and making a $7m profit.
The move led to frenzied social media speculation about the trader’s identity and whether they might have an inside line to the White House.
Regardless, the Trump family itself stands to benefit from soaring crypto prices. Eric Trump and Donald Trump Jr have positions at crypto company World Liberty Financial, and the technology company behind Trump’s Truth Social has said it will put up to $250m into assets – including cryptocurrencies.
So far, the design of Trump’s crypto reserve is unclear. Some have speculated that it could merely be funded by cryptocurrencies seized from criminals by law enforcement, a stockpile estimated to be worth almost $20bn. Meanwhile, US senator Cynthia Lummis has suggested a 1m Bitcoin reserve, which would cost $93bn at today’s prices.
“Government waste and expenditures are under the microscope right now, especially with the emergence of DOGE, so I strongly doubt a majority of Americans will take kindly to the government using taxpayer dollars to accumulate Bitcoin or other crypto assets (especially more obscure coins like Cardano or XRP),” says Nic Carter, of cryptocurrency investment firm Castle Island Ventures.
“Bitcoin (and crypto) holders are still a small minority of Americans. Trump’s close associates have a lot of interests in cryptocurrency, so to the broader public, and especially his critics, these moves will seem self-interested, even if they are made with sincere intentions.
“I think Bitcoiners underestimate the political backlash that they will face if the general public views the policy as a government bailout for a small set of (already affluent) Americans, at the expense of the US taxpayer.”
Sacks pushed back on the idea that any fund would be financed by new taxes, saying more details would come. But as American citizens fret about the price of eggs, any suggestion that Trump is bailing out his crypto-owning backers is unlikely to be popular.
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