Speaker 1: Bloomberg Audio Studios, podcasts, radio News. I'm Stephen Carroll, and
Speaker 1: this is Here's Why, where we take one new story
Speaker 1: and explain it in just a few minutes with our
Speaker 1: experts here at Bloomberg.
Speaker 2: I promise to make America the bitcoin superpower of the
Speaker 2: world and the crypto capital of the planet, and we're
Speaker 2: taking historic action to deliver on that promise.
Speaker 1: Donald Trump's election sent a shock wave of excitement through
Speaker 1: the crypto world, propelling bitcoin to record highs of over
Speaker 1: one hundred thousand dollars.
Speaker 2: There was a lot of uncertainty on whether we would
Speaker 2: have a crypto friendly administration here in the US. The
Speaker 2: answer is a resounding yes, and so I think we're
Speaker 2: seeing all this pent up demand.
Speaker 1: The US President has become a strong advocate for digital assets.
Speaker 1: He even has his own mean coin, so investors were
Speaker 1: bracing for a big moment when he gathered industry executives
Speaker 1: for a digital Asset summit at the White House and
Speaker 1: appointed David Sachs as its cryptos are.
Speaker 3: We've decided that bitcoin is scarce, it's valuable, and that
Speaker 3: is strategic for the United States to hold on to
Speaker 3: this as a long term reserve. Asset.
Speaker 1: Donald Trump also signed an executive order creating a US
Speaker 1: Bitcoin reserve and a separate stockpile of other tokens, but
Speaker 1: investors didn't seem impressed. The price of bitcoin and other
Speaker 1: crypto assets slumped after the announcement. Here's why crypto fans
Speaker 1: are underwhelmed by Trump's plans. Let's bring in our executive
Speaker 1: editor for crypt Stacy Mrishmel, for more. Stacey Ury, great
Speaker 1: to have you with us. What exactly are the reserves
Speaker 1: that Donald Trump now wants to create?
Speaker 3: That is the one hundred thousand dollars question, so to start,
Speaker 3: I think it's important for folks to understand that this
Speaker 3: was a big campaign pledge from now President Donald Trum
Speaker 3: when he was still you know, pre election. He stood
Speaker 3: at a huge gathering of bitcoin fans in Nashville in
Speaker 3: the United States last July and said, we want to
Speaker 3: make the US the crypto capital of the planet. We're
Speaker 3: going to do it with bitcoin. We're going to have
Speaker 3: this idea of a bitcoin Fort Knox. And at the time,
Speaker 3: what people thought that meant was the US government is
Speaker 3: going to become a buyer of bitcoin. Right, like, to
Speaker 3: use the industry parlance, the US government was going to
Speaker 3: become a bitcoin whale and hold a whole bunch of
Speaker 3: these tokens, buy a whole bunch of these tokens. Fast
Speaker 3: forward to March and this executive order that you just mentioned,
Speaker 3: and the reality is a little bit more muted, shall
Speaker 3: we say, because this idea of the reserve is formalizing
Speaker 3: the idea that for any bitcoin the US government currently owns,
Speaker 3: they're not going to sell it. But there isn't this
Speaker 3: enormous mandate to go out and buy a huge amount.
Speaker 1: More So, why does the Trump administration want to be
Speaker 1: invested in crypto at all or even if they're not
Speaker 1: going to bias?
Speaker 3: There are a few ways we've attempted to answer this
Speaker 3: question right. The first is, and it's very much related
Speaker 3: to this idea of why was the presidents at a
Speaker 3: bitcoin conference in last July anyway? And the answer is,
Speaker 3: over the past few years, the crypto industry, and in particular,
Speaker 3: some very wealthy individuals in the crypto industry, became mega
Speaker 3: donors to political campaigns, presidential campaigns, congressional campaigns up and
Speaker 3: down the ballot. Democrats, Republicans, and you know, politicians realized
Speaker 3: that this was a new constituency to be courting for
Speaker 3: their considerable financial reserves, and so this idea of appealing
Speaker 3: to that audience by making promises about crypto, by making
Speaker 3: promises about bitcoin, was definitely something that happened. Fans of
Speaker 3: bitcoin will often say something to the effect of they're
Speaker 3: only ever going to be a certain number of tokens.
Speaker 3: That introduces this idea of scarcity, and so if the
Speaker 3: US government buys some of those tokens, it's going to
Speaker 3: help the price go up even further. And so everybody
Speaker 3: who's currently holding bitcoin is really going to benefit, including
Speaker 3: the US government. Now there's a little bit of circularity
Speaker 3: to that argument if everybody buys it and nobody sells
Speaker 3: and the price will go up, you know, which is
Speaker 3: kind of like, okay, well, if you have a reserve,
Speaker 3: sometimes you might want to use that to do other things,
Speaker 3: not just hold it infinitely into the future. But that's
Speaker 3: also one of the reasons this idea of having a
Speaker 3: big strategic investor, shall we say, like the US government
Speaker 3: giving a vote of confidence to this often very volatile
Speaker 3: digital asset, will introduce a floor for the price of
Speaker 3: this thing.
Speaker 1: So, okay, the reason that we explain the price reaction
Speaker 1: is because the US government isn't investing in it. I've
Speaker 1: got that part. What other things, though, has President Trump said,
Speaker 1: like for example, on regulation that are being more broadly
Speaker 1: perceived as positive for crypto.
Speaker 3: As you mentioned this idea of the bitcoin Fort Knox,
Speaker 3: the strategic reserve was only one of the promises made
Speaker 3: to the crypto industry. Another really big one was to
Speaker 3: undo what was perceived by the industry as this hostile
Speaker 3: regulatory climate. You know. So under the previous chair of
Speaker 3: the Securities and Exchange Commission, really important US regulator, a
Speaker 3: lot of crypto companies had been sued investigated. You know. Famously,
Speaker 3: there was the FTX crypto exchange fraud that saw sam
Speaker 3: bankmin Freed go to jail for relatively long amount of time.
Speaker 3: But there were also allegations against finance at still the
Speaker 3: world's largest crypto exchange, who were you know, sued for
Speaker 3: four point three billion dollars on kind of very significant allegations,
Speaker 3: including failure to prevent money laundering and other such crimes.
Speaker 3: So there was a perception from the industry that what
Speaker 3: they described as a few bad actors had unreasonably tainted
Speaker 3: everybody else, and that the SEC was overly aggressive in
Speaker 3: attempting to police them. Trump at this same conference in
Speaker 3: Nashville said one I'm gonna fire Gary Againstler. He didn't
Speaker 3: have to fire Gary Againstler. Chair Againstler resigned And you know,
Speaker 3: on the same day that Trump was inaugurated, that took effect.
Speaker 3: But since then, you know, under Trump, regulators have taken
Speaker 3: a really different approach. The same SEC which was doing
Speaker 3: all of these investigations has dropped or paused most of
Speaker 3: the open investigations in cases, other regulators have come out
Speaker 3: and said, we're going to be effectively much more chill
Speaker 3: on this than we were previously.
Speaker 1: What are the features that's helped to boost the prize
Speaker 1: a bitcoin in recent years has been more professional investors
Speaker 1: getting involved in this space. What's their view of these changes?
Speaker 1: And what about the economists perspective and all of this.
Speaker 1: Do they think that a strategic reserves a good idea?
Speaker 3: I'll start with the economists, because it's very much linked
Speaker 3: to the atmosphere that we're in right now. If anyone
Speaker 3: has ever thought of a strategic reserve, I don't know
Speaker 3: what kind of dinner party conversation everybody else has, but
Speaker 3: my friends and I talk about this all the time.
Speaker 3: So when you know, when you talk about a strategic reserve,
Speaker 3: you're often thinking about oh, okay, foreign exchange or gold
Speaker 3: or oil, things that are traditionally perceived as having some
Speaker 3: sort of value or utility that can be exchanged, used
Speaker 3: sold as might be you know, necessary to either support
Speaker 3: the ongoing operations of a country or for other financial reasons.
Speaker 3: And so the you know, the kind of the critics
Speaker 3: of this idea of a reserve are like, well, what
Speaker 3: are you going to do with the bitcoin?
Speaker 2: Though?
Speaker 3: Right? Like, is what is the problem that you are
Speaker 3: trying to solve here? And there has been a certain
Speaker 3: amount of skepticism that this makes sense.
Speaker 2: You know.
Speaker 3: We had an opinion piece from Bill Dudley, former presidents
Speaker 3: of the Federal Reserve Bank of New York and now
Speaker 3: Bloomberg columnist, who said, without mincing words, it's hard to
Speaker 3: fathom how this would benefit most Americans. And that's the
Speaker 3: idea of other than inherent speculative value, or this idea
Speaker 3: of you know, if you buy and hold, the price
Speaker 3: might appreciate. There isn't necessarily a wide bread utility for
Speaker 3: bitcoin as a means of payments. For instance, enter those
Speaker 3: institutional investors that you mentioned. A big thing that has
Speaker 3: rallied or contributed to the rally in bitcoin over the
Speaker 3: past year or so has been the introduction of exchange
Speaker 3: traded funds that are backed by bitcoin. And so you
Speaker 3: can now go to a financial advisor here in the
Speaker 3: US and say, I want to get some crypto exposure
Speaker 3: in my portfolio. What is one of the ways that
Speaker 3: I can do that. You can buy an ETF, and
Speaker 3: ETFs are some of them, like the most popular kind
Speaker 3: of retail products that are available to different kinds of investors.
Speaker 3: And the problem, though, is when you institutionalize an asset class,
Speaker 3: when you have it being bought at very large size
Speaker 3: by other people who take macroeconomic considerations into account, when
Speaker 3: the economy is perceived is not doing too well, or
Speaker 3: when people's risk profile changes, anything that they have in
Speaker 3: those portfolios that they consider it to be risky gets
Speaker 3: sold off with everything else. You have a correlation problem.
Speaker 3: That's really been something we've been seeing with crypto. You know,
Speaker 3: there's concern about tariffs, stocks are falling, Bitcoin is falling,
Speaker 3: there's concern about slowing rates of growth. Stocks are falling,
Speaker 3: Bitcoin is falling.
Speaker 1: Stacy Murriy shmel Our, executive editor for Crypto. Thank you.
Speaker 1: For more explanations like this from our team of three
Speaker 1: thousand journalists and analysts around the world, go to Bloomberg
Speaker 1: dot com slash explainers. I'm Stephen Carol. This is here's why.
Speaker 1: I'll be back next week with more. Thanks for listening.