Trump Bets on Bitcoin: What Does It Mean for the Global Economy?

Trump here, Melania there, cryptocurrencies everywhere: the newly minted US president Donald Trump is planning to use bitcoin as a strategic reserve asset, which will have far-reaching consequences, and not just for the financial markets. Alfred Taudes, a seasoned lecturer at the WU Executive Academy and head of WU’s Research Institute for Cryptoeconomics, analyzes what’s behind Donald Trump’s crypto strategy and the repercussions his decision to use it as a state reserve asset will have on other countries, the global financial system, and investors all over the world.

Personalized meme coins to support Donald Trump and the First Lady, bitcoin as a state reserve asset – cryptocurrencies feature heavily on the political (and personal) agenda of the new US president. About 16 years after its inception, the price of bitcoin crossed the 100,000-USD mark for the first time in December of last year. The announcement of the newly reinstated US president Donald Trump’s plans to use cryptocurrencies strategically in the future played a big part in this. Donald Trump is also planning to nominate former PayPal boss David Sacks to be in charge of all things crypto and AI.

What economic and geopolitical consequences could Donald Trump's bitcoin strategy have? Alfred Taudes, founder of WU’s Research Institute for Cryptoeconomics and scientific head of the Austrian Blockchain Center, sheds light on some possible scenarios.

The United States plans to accumulate Bitcoin as a strategic reserve currency, managed by the Exchange Stabilization Fund (ESF), which currently holds US dollars, foreign currencies (mainly the euro), and government bonds.

Trump aims to invest at least $20 billion in Bitcoin, with procurement set to conclude within a year. Combined with 200,000 bitcoins already seized by the government, this would bring the total to 400,000 bitcoins, making the US one of the largest holders - behind Bitcoin's creator Satoshi Nakamoto, investment giant BlackRock, and software firm MicroStrategy.

As per the order, Bitcoin will be held as a strategic reserve and sold only in extreme crises. Under normal conditions, they must be held for at least 25 years, with any sale requiring presidential approval.

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This executive order to establish a strategic bitcoin reserve could be implemented as soon as the second half of 2025. It doesn’t require the Fed’s or Congress’s approval. However, the next president could overturn it.

A different way to go about it would be to pass a law through Congress. On the one hand, this would take longer and prompt more debate. On the other hand, this approach would offer more legal stability in the long run.

What exactly is Trump aiming to achieve with his focus on Bitcoin? “There’s a clear strategy behind this,” explains Alfred Taudes. It’s about reinforcing America's financial dominance and ensuring the US dollar remains central to the country’s power strategy.

Leading the way in establishing a national Bitcoin reserve could be as strategically vital in the 21st century as gold reserves were in the past. Nations facing US sanctions are already turning to gold, amassing larger reserves than others. Bitcoin provides an alternative, enabling transactions outside traditional banking systems. State-backed Bitcoin mining also offers a way to create financial reserves independently - positioning the cryptocurrency as a potential complement or rival to the dollar and gold.

By being the first to accumulate Bitcoin, the US makes it more costly for other nations and reduces the risk of Bitcoin undermining the dollar.

The new institutionalized demand of countries could drive the price of bitcoin to exceed a million USD by 2027 or early 2028, forecasts say. The reason for that: the strategic stockpiling done by the US is cutting into the amount of available bitcoin, which could prompt other countries to pursue a similar strategy. These states would then compete for the remaining bitcoin, which, in turn, would no longer be available on the free market, further upping both scarcity and the value of this cryptocurrency.

Using bitcoin as a state reserve asset will require investments in administration and especially security. In order to safely store the country’s bitcoin, a “digital Fort Knox” including cyber-security standards and quantum-safe cryptography will be needed. “US investments in this field will be massive and could leave behind Europe in yet another key technology,” Alfred Taudes warns.

There might also be repercussions on mining, i.e., creating bitcoin. Countries with a large mining capacity, such as Kazakhstan, would be awarded more strategic importance. China might have to reconsider its current ban on mining. Mining could even be used as a strategic energy reserve, from which especially countries with access to a lot of cheap renewable energy would benefit. Bhutan, to name just one example, has mined bitcoin corresponding to 750 million USD through hydropower. New financial centers could evolve close to mining hubs.

The central banks remain skeptical of bitcoin. Its high volatility, limited liquidity, and operational risks curtail banks’ acceptance of the cryptocurrency. Especially the European Central Bank has voiced criticism of bitcoin and similar cryptocurrencies, suggesting the Digital Euro as an alternative. “However, this is not a genuine cryptocurrency and couldn’t replace bitcoin as a strategic reserve asset,” Alfred Taudes explains.

Most recently, Switzerland and Czechia were among the countries discussing investments in bitcoin, and even the former German finance minister has advocated for a bitcoin reserve at the ECB and Deutsche Bundesbank (the German federal bank). Several US states are also pursuing initiatives to establish a strategic Bitcoin reserve following Trump’s example.

What’s clear is that European countries would need new security standards and compliance guidelines to safely integrate bitcoin into their financial systems. Arguments against cryptocurrencies, such as their use for criminal activities like money laundering, are increasingly losing their heft.

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As states are entering the scene as active holders of bitcoin, the integration of cryptocurrencies into the traditional world of finance is moving into the next phase. In the US, private investors are already using bitcoin ETFs to diversify their portfolios with crypto assets. This could soon also happen in other countries, prompting the development of new financial products, derivatives, and portfolio strategies.

Another consequence: in Europe, financial service providers such as Bitpanda could gain in importance, putting traditional banks under pressure. Even on the labor market, the use of bitcoin as a state reserve would have consequences: the demand for specialists would rise also in state institutions, and traditional financial professions might forever be transformed.

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