What is Donald Trump doing creating a Bitcoin strategic reserve and stockpile of other cryptocurrencies? - Syed Noman Ali Sherazi

This adoption of crypto at the government level positions the US at the forefront of financial innovation but also raises complex questions about feasibility, security and long-term economic stability.

Regulating crypto will provide a legal channel for users to invest, trade and use crypto and will encourage mass adoption of blockchain technology. However, crypto (like Trump) is notoriously volatile. The fact that it is prone to dramatic, often sudden fluctuations in price, represents a tangible risk and one that will not be mitigated by the creation of a strategic reserve.

Bitcoin has been chosen for the strategic reserve because it has a fixed supply and has never been hacked. Altcoins on the other hand remain vulnerable to cyber-attacks. While many in the industry welcome the creation of a crypto strategic reserve, the question now is how to administer and control it.

Most crypto is kept in so-called digital wallets, of which there are two kinds: custodial, where crypto is kept in a wallet owned by a third-party, such as an exchange, and non-custodial, where users themselves hold the ‘keys’.

The dangers of leaving crypto in custodial wallets was evidenced recently after hackers stole $1.3 billion of Ethereum from the Bybit exchange. The 2023 collapse of trading platform FTX provides yet another cautionary tale.

It remains to be seen how the US Treasury will keep its crypto safe. Non-hackable solutions are available in the form of hardware wallets and software-based multi-signature wallets, which require multiple signatures to both access accounts and approve transactions. But security concerns extend beyond digital wallets. A federal crypto reserve would be a high-value target for state-sponsored cyberattacks.

Regulatory ambiguity in the cryptosphere further complicates matters.

Accounting practices also present hurdles that must be overcome. For example, how would the US Treasury market a reserve that could potentially lose 50 per cent of its value in a matter of weeks? Environmental concerns add another layer of complexity. Bitcoin mining consumes more energy annually than Sweden, clashing with federal climate goals.

Governance remains the major issue, though. Who controls the keys? How will transactions be audited without exposing vulnerabilities? The US Treasury would not be able to approve transactions and control the keys alone – what is needed is a ‘crypto reserve board’, requiring consensus among multiple agencies to balance security and transparency.

Despite these obstacles, the creation of a digital assets reserve creates huge opportunities. A well-managed crypto reserve could counter China’s digital yuan and El Salvador’s Bitcoin experiment (it became the first country in the world to recognise Bitcoin as legal tender in 2021), asserting US influence in the digital economy.

Syed Noman Ali Sherazi is an alumni of the University of Bradford, where he studied an MSc Cyber Security, and director at Progeco Ltd.