Trump’s bitcoin bet

The price of the cryptocurrency bitcoin climbed beyond $105,000 per token on Friday, just three days before President-elect Donald Trump’s inauguration. Weeks after Trump’s election, bitcoin’s price soared past $100,000 for the first time—a signal of investor confidence in the new administration’s crypto-friendly stance.

Trump has spoken openly of his support for cryptocurrency, a type of digital money traded online. At a bitcoin conference last year, he promised to make the United States “the crypto capital of the planet.”

While Trump brings a pro-crypto Cabinet lineup and plans to establish a federal crypto reserve, financial experts disagree on the long-term implications for investors. Crypto has been largely unregulated and is volatile by nature.

Roughly 27 percent of Americans owned some form of crypto last year. Cryptocurrency dates back to 2008, when someone using the pseudonym Satoshi Nakamoto hypothesized about “electronic cash.” Bitcoin, which debuted the following year, is a decentralized currency allowing “peer-to-peer” transactions within minutes without a third party like a bank. Transactions are recorded in a “blockchain,” a sort of ledger ensuring no bitcoin is used twice.

Many platforms have introduced their own cryptocurrencies, such as ethereum and dogecoin. But bitcoin is the most successful so far.

Still, the industry has been mired with scandal. FTX, the third largest crypto exchange platform, collapsed in 2022, and its CEO, Sam Bankman-Fried, was later convicted of using the company to embezzle roughly $8 billion in customer deposits.

Gary Gensler, the outgoing chair of the U.S. Securities and Exchange Commission (SEC), spoke frequently against crypto and led a crackdown by bringing actions against exchange platforms like Coinbase and Binance.

With Trump back in the White House, pro-crypto regulators will take charge of the regulatory levers. In December, Trump announced that Paul Atkins, a businessman and crypto enthusiast, would head the SEC. Venture capitalist David Sacks is Trump’s pick for the newly established role of AI and crypto czar.

According to Arthur Herman, director of the Quantum Alliance Initiative at the Hudson Institute, cryptocurrency has become a “flagship of free market capitalism,” possibly explaining some of the GOP’s enthusiasm about its expansion.

Trump has floated plans to establish a strategic bitcoin reserve similar to the U.S. petroleum reserve. Introduced to the Senate last July, the BITCOIN Act of 2024 would require the Treasury Department to purchase 1 million bitcoins over a five-year period to fund the reserve.

But David Bahnsen, founder of the Bahnsen Group wealth management firm, is critical of that idea. “It just makes absolutely no sense to me that they would go buy one of the most speculative investments in the world … with borrowed money when we have $36 trillion of debt.”

Bahnsen describes bitcoin as an unstable vehicle. With only 21 million mineable tokens, bitcoin’s scarcity gives it value, at least theoretically. That makes bitcoin speculative by design since it relies on investor interest to set its value.

“We generally call that Ponzi scheme,” said Bahnsen, who compares the current bitcoin boom with the Beanie Babies craze of the late ’90s.

Herman, though, thinks a bitcoin reserve could be “a tool in the fiscal arsenal as a way of keeping the dollar strong and keeping the dollar’s opponents at bay.”

He calls bitcoin a good bet for the GOP: “Blockchain technology as a unique and important way in which to advance the security of digital technologies and of the internet itself, I think, will outlive whatever happens with cryptocurrency.”