Will Trump’s crypto plans boost or break the US dollar?
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Crypto bros are hoping that Donald Trump’s second term will continue to boost the BTC token’s fiat value, while others fear that Trump’s desire for a strong U.S. dollar could undermine the dollar’s status as the world’s reserve currency.
While last month’s re-election of Trump to a second term as U.S. president added significant fiat value to the BTC token, many crypto bros won’t be satisfied until Trump makes good on his vow in July to establish a “strategic national [BTC] stockpile.” Trump said the ‘core’ of this stockpile would be the 210,000 BTC tokens seized by the federal government over the years, supplemented by additional BTC the government “acquires into the future” (by unspecified methods).
The ’core’ of that plan could be in jeopardy following reports of movement by a digital wallet containing nearly 20,000 BTC tokens seized by the feds a few years ago from an individual linked to the Silk Road darknet marketplace. The nearly $2 billion worth of BTC was transferred to the Coinbase (NASDAQ: COIN) exchange, suggesting that the feds are either planning to sell or have already sold these tokens to take advantage of BTC’s recent price pump.
While the report appears to have contributed to a modest 1% decline in BTC’s price, crypto bros fear a much greater decline should outgoing President Joe Biden order a fire sale of the government’s other 190,000 BTC. Conspiracy theorists also suspect that this is Biden giving a giant middle finger to Trump’s ‘stockpile’ plan.
Amid fears that Trump’s ‘stockpile’ plan could be undone should the BTC cupboard be bare by the time he’s sworn into office on January 20, federal politicians like Sen. Cynthia Lummis (R-WY) want the government to simply buy 5% of the total 21 million BTC supply. This would be funded by the government selling off its gold reserves, but it’s unclear how the gold-loving Trump feels about this idea.
(Side note: Federal Reserve chair Jerome Powell said Wednesday that BTC was “a speculative asset” but “not a competitor for the dollar; it’s really a competitor for gold.” BTC crossed the magical $100,000 barrier shortly thereafter. Read into that what you will.)
We’ll leave the question of whether relying on a token with a history of rollercoaster value rides is a really, really bad idea for another day. A much bigger question is what impact Trump’s financial policies—including his promises/threats to impose massive tariffs on America’s trading partners—will have on the U.S. dollar, including a potential move away from viewing the dollar as the world’s reserve currency.
Throwing BRICS through windows
During his first term, Trump imposed steep tariffs against countries he perceived to be abusing fair trade rules. Tariffs were also imposed as leverage to convince foreign governments to acquiesce on other areas of policy Trump was trying to implement.
During the 2024 election campaign, Trump called tariff “the most beautiful word” in the dictionary, based on his belief that tariffs repatriate jobs/businesses that left the U.S. long ago in search of cheaper labor, looser regulations, etc. Economists are dubious about Trump’s view of tariffs as an economic cure-all, noting that the costs are largely borne by average consumers who can no longer access inexpensive products and that retaliatory tariffs will act as a drag on the global economy as a whole.
Trump has already vowed to impose new 25% tariffs on Canada and Mexico, plus 10% tariffs on products from China if these nations don’t kowtow to his policy wishes. But he recently went nuclear on the so-called BRICS nations, threatening them with 100% tariffs if they proceed with plans to issue a common currency to replace the dollar as the common denominator of international trade.
BRICS (Brazil, Russia, India, China, and South Africa) has been on an expansionist tear of late, inviting six additional countries to join the club in 2023, and invitations went out to a further 13 countries this October. This expanded body would represent around 45% of the global population and 35% of global GDP.
Brazil, Russia, and Iran, in particular, have been pressing for the launch of a BRICS common currency, in part to neuter America’s ability to impose economic sanctions on countries/individuals/entities Uncle Sam doesn’t like. So far, these efforts have failed to garner universal support among BRICS members (but that hasn’t stopped some Chinese ‘crypto’ cowboys from trying to pass off a bogus ‘BRICS Pay’ system as an alternative to the global SWIFT network).
Trump’s BRICS threat was anything but subtle, saying America wanted “a commitment from these countries that they will neither create a new Brics currency nor back any other currency to replace the mighty US dollar or they will face 100% tariffs and should expect to say goodbye to selling into the wonderful US economy. They can go find another sucker.”
Russia’s response was equally unsubtle, with Kremlin spokesman Dmitry Peskov warning that the dollar “is beginning to lose its appeal as a reserve currency for a number of countries.” Peskov added that if the U.S. was to use “economic force to compel countries to use the dollar it will further strengthen the trend of switching to national currencies [in international trade].”
BTC is the new oil, stablecoins the new barrel
Trump’s views on the U.S. dollar have shifted over time. At one point, he claimed to want a weaker greenback to close America’s trade deficit, which stood at $773 million in 2023 (a modest improvement over 2022’s nearly $1 billion deficit). But America’s long-term debt is another beast entirely, currently standing at over $35 trillion, and Trump’s tariffs and plans to extend tax cuts in 2025 are expected to add trillions more.
Trump drew chuckles in September when he floated the idea that BTC’s fiat value would grow so much under his second term that he could use the gains to “pay off” the debt. As always, distinguishing Trump’s jokes from his actual policies isn’t easy, so who knows how seriously he believes this flawed logic.
Is such a move even possible? Theoretically, according to analyst Luke Gromen, who in a recent interview referenced Trump’s claim this July that BTC is “the new oil.”
Gromen recalled an anecdote by Saudi Arabia’s former oil minister in 2011 regarding a pivotal moment in the early 1970s. Gromen’s interpretation of this story is that America decided to make the global oil market “big enough to back U.S. deficits” through a plan to “basically recycle the flows back into U.S. debt.” This plan allegedly took America off the gold standard and put it on “the oil standard.”
Referencing Trump’s ‘new oil’ comment, Gromer suggested that BTC “is going to be inflated like oil was so that it will inflate stablecoins so that stablecoins will buy a lot more [Treasury bills].”
In July, Trump declared his intention to “create a framework to enable the safe, responsible expansion of stablecoins… allowing us to extend the dominance of the U.S. dollar to new frontiers all around the world.” (Temporarily ignore the glaring conflict of interest of Trump personally profiting from a blockchain project that plans to make money by “supporting US dollar-based stablecoins and DeFi applications that seek to preserve the US Dollar’s status.”)
This ‘stablecoins save the dollar’ view has become dogma for crypto bros, who claim that T-bill purchases by issuers of major stablecoins such as Tether (USDT) and Circle (USDC) are offering badly needed support for America’s finances (despite total T-bill holdings by all stablecoin issuers currently amounting to 0.0035% of that $35+ trillion).
The thing is, on December 4, Reuters reported that “Trump’s pro-crypto stance” is convincing a growing number of companies to invest spare cash in BTC rather than T-bills. D’oh!
With friends like these…
Trump is famously not much of a reader, relying instead on one-on-one conversations with people he believes know what they’re talking about. There are those who suspect Trump’s understanding of all things ‘crypto’ has been tainted by individuals with ulterior motives and will ultimately lead to a few individuals getting rich and a lot of Americans getting hosed. But it could also do damage to Trump’s desire to preserve the dollar’s status as the world’s reserve currency.
Consider Elon Musk, the noted BTC and Dogecoin fan and, more recently, the ‘Trump whisperer’ appointed to co-lead the non-departmental Department of Government Efficiency (D.O.G.E.). Musk has been a critic of America’s use of economic sanctions and the Federal Reserve’s money-printing binges for some time, but these critiques have grown louder and more frequent as he more closely aligned himself with Trump.
Musk agrees with calls to bring the Fed under the president’s direct control, but economists warn that robbing the Fed of its traditional independence wouldn’t inspire confidence in the markets, whether at home or abroad. Similar independence concerns are partly why the world isn’t clamoring for a BRICS currency, given the involvement of China and Russia’s authoritarian leaders in the policies of their respective central banks.
Ever since Musk bought Twitter and rebranded it as ‘X,’ he’s been promising to add payment channels as part of its transformation into an ‘everything app’ like China’s WeChat. Musk has played coy with precisely what form those online payments might take, but his views on the diminishing dollar suggest the platform would focus on digital alternatives (likely including DOGE).
Then there’s Peter Thiel, who, along with Musk, is a member of the ‘PayPal mafia.’ In his 2014 book Zero to One , Thiel notes that PayPal’s original goal was to “create a new internet currency to replace the U.S. dollar … [with] a digital currency that would be controlled by individuals instead of governments.”
In addition to his history with Musk, Thiel is largely responsible for vice-president-elect J.D. Vance’s political career. Vance is a BTC fan, declaring ownership of $250,000-$500,000 worth of BTC in his financial disclosure forms earlier this year.
In 2022, Thiel gave a speech at the BTC Miami conference during which he ripped up some hundred-dollar bills and declared that “we are at the end of the fiat money regime.” Oh, and Thiel infamously declared in 2009 that “I no longer believe that freedom and democracy are compatible.”
If you still think these guys have an agenda that has your best interests at heart, you’re not paying attention.
Careful what you wish for
Thiel backed Trump in 2016 but opted against contributing to the 2024 campaign (while still supporting Vance). Thiel may come to regret that parsimonious approach should another U.S. bank in which he or his companies keep money fail, much like Silicon Valley Bank (SVB) did in March 2023.
Thiel’s Founders Fund venture capital group was reportedly the cause of the bank run that led to SVB’s demise. SVB’s depositors—including USDC-issuer Circle—were ultimately rescued from billions in potential losses by the big bad federal government and the American taxpayer. (You’re welcome.)
The tech VCs expect to gain greater access to the traditional banking system under Trump but when—not if—they overextend themselves again, they shouldn’t count on Trump directing the government to open its bailout wallet. In a Fox News interview shortly after SVB’s collapse, Trump said “I wouldn’t have supported the bailout. The bank would have to get along by itself.”
Of course, Trump wasn’t in office at the time, and his tech bro buddies might still find a way to convince him that the big strong U.S. dollar is best used pulling their butts out of fires of their own making.
Not for the first time, Trump appears to be pursuing conflicting goals: ensuring dollar supremacy while simultaneously boosting alternative assets that haven’t been shy about their desire to replace the dollar. His tariff threats are aimed at shoring up America’s finances but would push other nations to trade more with each other and less with America, which would accelerate de-dollarization faster than any BRICS buck.
Ironically, the sum total of Trump’s policies may provide a bigger boost for BTC adoption outside America. On December 4, Russian President Vladimir Putin suggested countries should stop holding dollar reserves because the U.S. can seize those funds at any time. Putin went as far as to suggest BTC as a legitimate alternative because “who can prohibit it? No one.”
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