WEBVTT - Here's Why Crypto Fans Are Underwhelmed By Trump's Plan

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<v Speaker 1>Bloomberg Audio Studios, podcasts, radio News. I'm Stephen Carroll, and

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<v Speaker 1>this is Here's Why, where we take one new story

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<v Speaker 1>and explain it in just a few minutes with our

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<v Speaker 1>experts here at Bloomberg.

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<v Speaker 2>I promise to make America the bitcoin superpower of the

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<v Speaker 2>world and the crypto capital of the planet, and we're

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<v Speaker 2>taking historic action to deliver on that promise.

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<v Speaker 1>Donald Trump's election sent a shock wave of excitement through

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<v Speaker 1>the crypto world, propelling bitcoin to record highs of over

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<v Speaker 1>one hundred thousand dollars.

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<v Speaker 2>There was a lot of uncertainty on whether we would

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<v Speaker 2>have a crypto friendly administration here in the US. The

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<v Speaker 2>answer is a resounding yes, and so I think we're

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<v Speaker 2>seeing all this pent up demand.

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<v Speaker 1>The US President has become a strong advocate for digital assets.

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<v Speaker 1>He even has his own mean coin, so investors were

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<v Speaker 1>bracing for a big moment when he gathered industry executives

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<v Speaker 1>for a digital Asset summit at the White House and

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<v Speaker 1>appointed David Sachs as its cryptos are.

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<v Speaker 3>We've decided that bitcoin is scarce, it's valuable, and that

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<v Speaker 3>is strategic for the United States to hold on to

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<v Speaker 3>this as a long term reserve. Asset.

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<v Speaker 1>Donald Trump also signed an executive order creating a US

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<v Speaker 1>Bitcoin reserve and a separate stockpile of other tokens, but

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<v Speaker 1>investors didn't seem impressed. The price of bitcoin and other

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<v Speaker 1>crypto assets slumped after the announcement. Here's why crypto fans

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<v Speaker 1>are underwhelmed by Trump's plans. Let's bring in our executive

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<v Speaker 1>editor for crypt Stacy Mrishmel, for more. Stacey Ury, great

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<v Speaker 1>to have you with us. What exactly are the reserves

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<v Speaker 1>that Donald Trump now wants to create?

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<v Speaker 3>That is the one hundred thousand dollars question, so to start,

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<v Speaker 3>I think it's important for folks to understand that this

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<v Speaker 3>was a big campaign pledge from now President Donald Trum

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<v Speaker 3>when he was still you know, pre election. He stood

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<v Speaker 3>at a huge gathering of bitcoin fans in Nashville in

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<v Speaker 3>the United States last July and said, we want to

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<v Speaker 3>make the US the crypto capital of the planet. We're

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<v Speaker 3>going to do it with bitcoin. We're going to have

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<v Speaker 3>this idea of a bitcoin Fort Knox. And at the time,

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<v Speaker 3>what people thought that meant was the US government is

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<v Speaker 3>going to become a buyer of bitcoin. Right, like, to

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<v Speaker 3>use the industry parlance, the US government was going to

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<v Speaker 3>become a bitcoin whale and hold a whole bunch of

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<v Speaker 3>these tokens, buy a whole bunch of these tokens. Fast

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<v Speaker 3>forward to March and this executive order that you just mentioned,

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<v Speaker 3>and the reality is a little bit more muted, shall

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<v Speaker 3>we say, because this idea of the reserve is formalizing

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<v Speaker 3>the idea that for any bitcoin the US government currently owns,

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<v Speaker 3>they're not going to sell it. But there isn't this

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<v Speaker 3>enormous mandate to go out and buy a huge amount.

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<v Speaker 1>More So, why does the Trump administration want to be

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<v Speaker 1>invested in crypto at all or even if they're not

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<v Speaker 1>going to bias?

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<v Speaker 3>There are a few ways we've attempted to answer this

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<v Speaker 3>question right. The first is, and it's very much related

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<v Speaker 3>to this idea of why was the presidents at a

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<v Speaker 3>bitcoin conference in last July anyway? And the answer is,

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<v Speaker 3>over the past few years, the crypto industry, and in particular,

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<v Speaker 3>some very wealthy individuals in the crypto industry, became mega

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<v Speaker 3>donors to political campaigns, presidential campaigns, congressional campaigns up and

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<v Speaker 3>down the ballot. Democrats, Republicans, and you know, politicians realized

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<v Speaker 3>that this was a new constituency to be courting for

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<v Speaker 3>their considerable financial reserves, and so this idea of appealing

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<v Speaker 3>to that audience by making promises about crypto, by making

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<v Speaker 3>promises about bitcoin, was definitely something that happened. Fans of

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<v Speaker 3>bitcoin will often say something to the effect of they're

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<v Speaker 3>only ever going to be a certain number of tokens.

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<v Speaker 3>That introduces this idea of scarcity, and so if the

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<v Speaker 3>US government buys some of those tokens, it's going to

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<v Speaker 3>help the price go up even further. And so everybody

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<v Speaker 3>who's currently holding bitcoin is really going to benefit, including

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<v Speaker 3>the US government. Now there's a little bit of circularity

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<v Speaker 3>to that argument if everybody buys it and nobody sells

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<v Speaker 3>and the price will go up, you know, which is

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<v Speaker 3>kind of like, okay, well, if you have a reserve,

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<v Speaker 3>sometimes you might want to use that to do other things,

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<v Speaker 3>not just hold it infinitely into the future. But that's

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<v Speaker 3>also one of the reasons this idea of having a

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<v Speaker 3>big strategic investor, shall we say, like the US government

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<v Speaker 3>giving a vote of confidence to this often very volatile

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<v Speaker 3>digital asset, will introduce a floor for the price of

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<v Speaker 3>this thing.

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<v Speaker 1>So, okay, the reason that we explain the price reaction

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<v Speaker 1>is because the US government isn't investing in it. I've

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<v Speaker 1>got that part. What other things, though, has President Trump said,

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<v Speaker 1>like for example, on regulation that are being more broadly

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<v Speaker 1>perceived as positive for crypto.

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<v Speaker 3>As you mentioned this idea of the bitcoin Fort Knox,

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<v Speaker 3>the strategic reserve was only one of the promises made

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<v Speaker 3>to the crypto industry. Another really big one was to

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<v Speaker 3>undo what was perceived by the industry as this hostile

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<v Speaker 3>regulatory climate. You know. So under the previous chair of

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<v Speaker 3>the Securities and Exchange Commission, really important US regulator, a

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<v Speaker 3>lot of crypto companies had been sued investigated. You know. Famously,

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<v Speaker 3>there was the FTX crypto exchange fraud that saw sam

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<v Speaker 3>bankmin Freed go to jail for relatively long amount of time.

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<v Speaker 3>But there were also allegations against finance at still the

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<v Speaker 3>world's largest crypto exchange, who were you know, sued for

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<v Speaker 3>four point three billion dollars on kind of very significant allegations,

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<v Speaker 3>including failure to prevent money laundering and other such crimes.

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<v Speaker 3>So there was a perception from the industry that what

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<v Speaker 3>they described as a few bad actors had unreasonably tainted

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<v Speaker 3>everybody else, and that the SEC was overly aggressive in

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<v Speaker 3>attempting to police them. Trump at this same conference in

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<v Speaker 3>Nashville said one I'm gonna fire Gary Againstler. He didn't

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<v Speaker 3>have to fire Gary Againstler. Chair Againstler resigned And you know,

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<v Speaker 3>on the same day that Trump was inaugurated, that took effect.

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<v Speaker 3>But since then, you know, under Trump, regulators have taken

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<v Speaker 3>a really different approach. The same SEC which was doing

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<v Speaker 3>all of these investigations has dropped or paused most of

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<v Speaker 3>the open investigations in cases, other regulators have come out

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<v Speaker 3>and said, we're going to be effectively much more chill

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<v Speaker 3>on this than we were previously.

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<v Speaker 1>What are the features that's helped to boost the prize

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<v Speaker 1>a bitcoin in recent years has been more professional investors

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<v Speaker 1>getting involved in this space. What's their view of these changes?

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<v Speaker 1>And what about the economists perspective and all of this.

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<v Speaker 1>Do they think that a strategic reserves a good idea?

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<v Speaker 3>I'll start with the economists, because it's very much linked

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<v Speaker 3>to the atmosphere that we're in right now. If anyone

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<v Speaker 3>has ever thought of a strategic reserve, I don't know

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<v Speaker 3>what kind of dinner party conversation everybody else has, but

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<v Speaker 3>my friends and I talk about this all the time.

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<v Speaker 3>So when you know, when you talk about a strategic reserve,

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<v Speaker 3>you're often thinking about oh, okay, foreign exchange or gold

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<v Speaker 3>or oil, things that are traditionally perceived as having some

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<v Speaker 3>sort of value or utility that can be exchanged, used

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<v Speaker 3>sold as might be you know, necessary to either support

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<v Speaker 3>the ongoing operations of a country or for other financial reasons.

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<v Speaker 3>And so the you know, the kind of the critics

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<v Speaker 3>of this idea of a reserve are like, well, what

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<v Speaker 3>are you going to do with the bitcoin?

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<v Speaker 2>Though?

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<v Speaker 3>Right? Like, is what is the problem that you are

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<v Speaker 3>trying to solve here? And there has been a certain

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<v Speaker 3>amount of skepticism that this makes sense.

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<v Speaker 2>You know.

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<v Speaker 3>We had an opinion piece from Bill Dudley, former presidents

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<v Speaker 3>of the Federal Reserve Bank of New York and now

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<v Speaker 3>Bloomberg columnist, who said, without mincing words, it's hard to

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<v Speaker 3>fathom how this would benefit most Americans. And that's the

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<v Speaker 3>idea of other than inherent speculative value, or this idea

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<v Speaker 3>of you know, if you buy and hold, the price

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<v Speaker 3>might appreciate. There isn't necessarily a wide bread utility for

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<v Speaker 3>bitcoin as a means of payments. For instance, enter those

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<v Speaker 3>institutional investors that you mentioned. A big thing that has

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<v Speaker 3>rallied or contributed to the rally in bitcoin over the

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<v Speaker 3>past year or so has been the introduction of exchange

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<v Speaker 3>traded funds that are backed by bitcoin. And so you

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<v Speaker 3>can now go to a financial advisor here in the

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<v Speaker 3>US and say, I want to get some crypto exposure

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<v Speaker 3>in my portfolio. What is one of the ways that

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<v Speaker 3>I can do that. You can buy an ETF, and

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<v Speaker 3>ETFs are some of them, like the most popular kind

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<v Speaker 3>of retail products that are available to different kinds of investors.

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<v Speaker 3>And the problem, though, is when you institutionalize an asset class,

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<v Speaker 3>when you have it being bought at very large size

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<v Speaker 3>by other people who take macroeconomic considerations into account, when

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<v Speaker 3>the economy is perceived is not doing too well, or

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<v Speaker 3>when people's risk profile changes, anything that they have in

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<v Speaker 3>those portfolios that they consider it to be risky gets

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<v Speaker 3>sold off with everything else. You have a correlation problem.

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<v Speaker 3>That's really been something we've been seeing with crypto. You know,

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<v Speaker 3>there's concern about tariffs, stocks are falling, Bitcoin is falling,

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<v Speaker 3>there's concern about slowing rates of growth. Stocks are falling,

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<v Speaker 3>Bitcoin is falling.

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<v Speaker 1>Stacy Murriy shmel Our, executive editor for Crypto. Thank you.

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<v Speaker 1>For more explanations like this from our team of three

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<v Speaker 1>thousand journalists and analysts around the world, go to Bloomberg

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<v Speaker 1>dot com slash explainers. I'm Stephen Carol. This is here's why.

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<v Speaker 1>I'll be back next week with more. Thanks for listening.