To investors,
The big news over the weekend was President Trump announced his intention to create a crypto strategic reserve for the United States. While there were plenty of surprises in the details of how this will be implemented, the idea of a crypto-related reserve had been rumored for weeks.
Trump posted on Truth Social the following message:
The internet immediately exploded in hot takes, but the most popular response was whether this crypto reserve would include bitcoin or not because Trump’s post on Truth Social did not explicitly name the largest crypto asset.
Within minutes, Trump posted again to clarify that bitcoin and ethereum would be included in the crypto reserve as well.
It is important to call out that we don’t have all the details on the administration’s plan yet. We can only go off of what we have been told — it will be crucial everyone keeps an open mind until we have more information.
With that said, there is a lot to unpack in this development, so lets start with the historical context. President Trump promised the bitcoin community that he would create a strategic bitcoin stockpile while speaking at the Bitcoin Conference in Nashville last year. There was no mention of other crypto assets being included in the reserve.
Various people will claim that Trump made a promise on the campaign trail and now he is fulfilling it — I completely disagree.
And I say this as someone who stands to substantially benefit financially from the announcement over the weekend. Even though Solana is our second largest crypto position, and various public equities I hold are heavily correlated to altcoins, I still think this decision on a wide-ranging crypto strategic reserve is an unforced error that will be regretted in the future.
Instead of the United States creating a reserve of hard money, which has strategic importance due to the finite supply, the relationship with low-cost energy, and the backing of the strongest computer network in the world, we seem to be getting a random smattering of speculative tools that will enrich the insiders and creators of these coins at the expense of the US taxpayer.
See here is the thing — the United States is not in the business of buying stocks or other investment assets. Maybe the soon-to-be-formed sovereign wealth fund will do that, but there is no precedent for the government to play capital allocator in this way. Instead, the US has strategic reserves of assets like gold, oil, cheese, and other assets that are important to the strength of our balance sheet or have national importance.
Crypto tokens like ETH, SOL, XRP, and ADA don’t fit that framework. These tokens are more akin to technology stocks, rather than hard money or natural commodities.
If the United States is willing to put these tokens on their balance sheet, we should also be willing to put stock from Amazon, Facebook, Tesla, Palantir, and Gamestop. If we are speculating on capital appreciation, we can even add LP interests in Blackstone, Citadel, Millennium, Tiger Global, Sequoia, Andreessen Horowitz, and your favorite real estate or private credit fund.
We obviously wouldn’t put those stocks or funds on the country’s balance sheet, so we shouldn’t put these altcoins on the balance sheet either. There is nothing strategic about ETH, SOL, XRP, or ADA.
This begs the question — how did we get here? How did the President of the United States get swindled into announcing a shitcoin fund?
The answer will probably surprise you. See, the crypto industry is a magnified version of the traditional finance industry. Anything you can find on Wall Street, you will find in crypto but on steroids.
The perfect example is what just happened. We watched crypto projects, lobbyists, and special interest groups co-opt the President of the United States. There pitch was perfectly laid out. They told the President that any crypto-related reserve should hold tokens that were “made in America.” This pitch was the perfect trap for a President who ran on the America First agenda.
How do I know? Because numerous people who met with the President told me that was their pitch. I remember thinking to myself when I heard their pitch — “I hate how good that probably sounds to the President.” I never thought the pitch would actually work though. My belief was the President is surrounded by too many people who deeply understand bitcoin and the geopolitical importance of the asset.
It appears I was wrong in that assumption.
You have to hand it to these crypto projects and their ecosystems — they understood exactly how to appeal to President Trump and his administration. The “America First” agenda was weaponized to provide exit liquidity using taxpayer dollars for crypto businesses.
The crypto projects that are being included in the reserve didn’t hire the boring K Street lobbyists who wear cheap suits and work the political system like a cocktail party. They were much more blatant. These organizations had their leadership teams meet directly with the President, his family, and the administration.
If you want something done, I guess you have to do it yourself.
But here is the thing — the crypto strategic reserve in its current form is a horrible precedent to set. I would understand if these assets were put into the sovereign wealth fund (although I would disagree with that decision). But adding these crypto tokens to the balance sheet of the United States makes no sense.
I know some people are arguing the government has found a strategic argument to do this, but I just don’t buy it. Take Milk Road’s Kyle Reidhead:
“The US Crypto Reserve is NOT the government speculating on crypto tokens. The US also has foreign currency reserves. And commodity reserves.
They do this with important global assets to hedge against large price fluctuations (to ensure the economy can function in short term changes). The US isn’t buying random crypto tokens as investments. They are buying specific L1 tokens, which are seen as commodities.
If blockchains become an integral part of the financial system and how global trade/commerce works, then L1 tokens have importance as gas/utility to use these technologies. The US is simply building a reserve of assets for when that world becomes a reality.
So no, the US won’t be buying tokens that represent businesses/apps.
And no the US likely won’t be buying tech stocks either (unless it makes sense for data or other commodity like reasons). They are preparing for a world where everything is done on-chain. Currently, we don’t know what chain that will exist on.
Which is why they will probably hold a basket of L1 tokens, even random ones like ADA, though I imagine this is being done more-so to promote American made blockchains.
Don’t confuse a reserve with the US speculating on random crypto tokens. There is a method to their madness.”
I understand the argument. It sounds good. But I don’t agree with it. The world is not going to be run on XRP or ADA. People don’t use those assets right now in the same way they use Ethereum, Solana, or Bitcoin. Again, there is nothing strategic about this.
Now that we are on the same page for how I am thinking about the announcement, let’s discuss the ramifications of this crypto strategic reserve.
First, the stock markets are likely to make a big push to make trading 24/7/365 after this weekend. It is objectively hilarious that Trump announced a crypto strategic reserve, yet Wall Street can’t participate because they have antiquated hour of operations at their exchange. Expect this to change in the coming months or years.
Second, we should expect a flurry of other countries to announce strategic reserves of their own. The smart ones will acquire as much bitcoin as possible, while leaving the altcoins for the United States. But the American strategy should provide cover fire for any politician or country that wants to implement a crypto reserve in their country. If it is good enough for the US, it will be good enough for them.
Third, institutional investors will expand their purview into altcoins. Most firms have deemed bitcoin interesting, but they avoided the other assets out of caution. That is harder to do if the United States government is acquiring and holding the financial asset.
Fourth, the coins in the strategic reserve should increase in dollar price. Not only do you have the government buying large quantities, you also have other countries and institutional investors who emulate the allocation mix. Increased demand leads to increased prices.
Fifth, the chaos is just beginning. We are only six weeks into Trump’s presidency and it feels like ten years. The only guarantee is that nothing is guaranteed. Trump’s announcement this weekend surprised almost the entire crypto industry. Bitcoiners were besides themselves. And we haven’t even implemented the reserve yet. I am sure there will be plenty of drama around the implementation details, including what percentages each asset gets and where the assets will be held for safekeeping.
Sixth, this may be the most important prediction I could make — Trump is potentially negotiating in public with this announcement. If he wanted to get a bitcoin strategic reserve done, then The Art of the Deal would suggest Trump should ask for much more at the outset. As the idea of the reserve works through the political process, Trump is well positioned to give up the idea of adding altcoins to the reserve and can fall back on only adding bitcoin.
I am not saying this will happen, but it would not surprise me if there is some dealmaking at play here that is not immediately apparent. Only time will tell if we could be so lucky for the President of the United States to be positioning himself to ultimately get the bitcoin-only strategic reserve.
Hope you all have a great start to your week. I’ll talk to you tomorrow.
- Anthony Pompliano
Founder & CEO, Professional Capital Management
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