Opinion Express view: After US, a rethink on cryptocurrency framework is needed

In 2019, Donald Trump, wrote on a social media platform that he was “not a fan of bitcoin and other cryptocurrencies, which are not money, and whose value is highly volatile and based on thin air.” However, thereafter, Trump has reversed his position. In 2024, he promised to appoint crypto-friendly regulators and make the US the “crypto capital of the planet”. Days ahead of his inauguration, he launched a memecoin called $Trump. Last week, he went a step further. The president signed an executive order to establish a Strategic Bitcoin Reserve and a US Digital Asset Stockpile. And on Friday, the White House hosted a crypto summit.

As per the executive order, the reserve will be capitalised with bitcoin possessed by the Treasury department, “forfeited as part of criminal or civil asset forfeiture proceedings”. Other government agencies will also “evaluate their legal authority” to shift bitcoin to the strategic reserve. There has, however, not been a complete audit of the US government’s bitcoin holdings which are spread across various agencies. As per David Sacks, the White House AI and cryptocurrency czar, the US government owns about 2,00,000 bitcoin. The executive order raises several questions. It says that the bitcoin deposited will not be sold. So what purpose will it serve? Strategic reserves are created by countries — for instance, the US has a petroleum reserve while Canada has one for maple syrup — so as to be able to intervene during times of need, in order to smoothen out market imbalances. The executive order also states that the government will not acquire additional assets for the stockpile, and that any further additions to the reserve will be budget neutral. This implies that as of now there will not be a new large buyer in the market. However, if that changes, the US government could become a major player with the ability to influence prices. But, if not, will future additions be limited to the bitcoin that are forfeited? And what about the four other coins that Trump mentioned would be included in the stockpile?

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A US strategic reserve does, however, signal a major change in how Washington views cryptocurrencies. And with more countries ushering in regulatory frameworks, given the borderless nature of such assets, it will be difficult to have a regulatory stance that is an outlier. A more carefully considered approach is thus required. In this regard, recent reports that the Indian government is reexamining its discussion paper on cryptocurrencies are welcome. Navigating this increasingly complex and rapidly growing area requires regulatory clarity and coherence and the institutional mechanisms that safeguard the interests of investors and ensure the integrity of markets.