The Crypto Presidency

This essay first appeared at John Ellis’s Substack newsletter News Items. Rebecca Patterson is a senior fellow at the Council on Foreign Relations.

What will the U.S. economy and markets look like if President Donald Trump fulfills his pledge to make America the “crypto capital of the planet”?

HODL (hold on for dear life). Crypto enthusiasts put hundreds of millions of dollars into Republican Party campaigns because they see a bright future. They expect they and others will reap personal wealth gains as regulatory clarity and explicit government support lead to broader demand for digital assets. They envisage an economy that benefits from blockchain-driven innovation in the financial sector and beyond. And importantly, the crypto crowd sees this future as private sector driven, with minimal government or central bank meddling.

As with all policy choices, however, this crypto future comes with potential costs. They range from a new source of systemic risk for financial markets and the economy, to a relatively poor use of energy and government funds, to the possibility that a generation of Americans fail to save sufficiently thanks to a structurally changing investment ecosystem. A privately led “crypto capital” could also erode the U.S. government’s role helping to define the world’s digital financial system.

The current U.S. political landscape, with Republicans decidedly in charge but facing some risk in 2026 midterm elections, means that whatever crypto capital is built will try to move quickly. The potential benefits and risks merit getting past the hyperbole to understand both sides of the digital coin and their macro implications.

The Case for Bitcoin (and Digital Assets Broadly)

Before exploring the potential benefits and risks of this crypto presidency, it is worth reviewing a few key terms. Digital or crypto assets include a wide array of instruments. Cryptocurrencies range from so-called meme, or novelty coins that often go in and out of business quickly, to stablecoins where the value of the coin is pegged to an underlying traditional asset like the dollar or gold. Digital assets also include tokens, such as Non-Fungible Tokens (NFTs) that record ownership of a physical or digital asset on the blockchain (the decentralized ledger that records transactions).

Among cryptocurrencies, investors often use Bitcoin as shorthand to speak about trends across the broader digital-asset ecosystem. Bitcoin is the crypto equivalent of the U.S. dollar in terms of its dominance. Its market capitalization was nearly 56% of the total cryptocurrency market as of end-2024, according to CoinGecko, a crypto data aggregator.

Crypto advocates see multiple benefits from broader adoption of digital assets, but the most frequently highlighted is wealth creation for Americans - which in turn could support consumer spending and the broader economy.

Since 2013, Bitcoin has posted extremely high volatility but even higher returns. (Price trends have correlated positively with U.S. technology equities, perhaps not surprisingly as digital assets are a form of “fintech”). A measure of risk-adjusted returns suggests Bitcoin (if one bought and held since 2013) would have been a much better investment than the S&P 500 or the Nasdaq.

Bitcoin bulls see finite supply (Bitcoin has a maximum total supply of 21 million coins) as tipping the odds in favor of further price appreciation, especially if the government encourages demand. And if new investors include longer-term institutions like pensions or endowments, this could at least marginally reduce volatility, which in turn might attract buyers who are currently squeamish about crypto’s roller-coaster price swings.

Trump’s January 23^rd Executive Order laid out steps to increase adoption, including explicit government endorsement and clear rules of the road for market participants. The latter is critical for traditional finance and crypto-centric firms to have confidence working together and clarity around what products they can offer the public.

The opportunity is significant. Pew Research Center in an October survey found that only 17% of U.S. adults say they had invested in crypto currencies, effectively unchanged since 2021 even with the rollout last year of spot-market, exchange-traded funds (ETFs) by well-known firms like Blackrock. Further, 63% of respondents said they had little or no confidence that current ways to invest in crypto are reliable and safe.

Crypto advocates, including members of Congress, believe a White House stamp of approval would help reduce such concerns. As part of lobbying efforts over the last year, they are pushing for a Treasury-held stockpile of cryptocurrencies – what they refer to as a Strategic Bitcoin Reserve.

U.S. strategic reserves are not new. The U.S.’ Strategic Petroleum Reserve, created in 1975 in response to the 1973-74 oil embargo, ensures the country always has supplies of affordable energy to keep the economy running. The U.S. also holds gold and foreign exchange reserves.

In terms of a Bitcoin Reserve, proponents want to start with roughly 207,000 Bitcoin already in government hands (seized from illegal activities). At $100,000 per Bitcoin, that would be a $20.7 billion reserve.

The BITCOIN Act proposed by Senator Cynthia Lummis (R, Wyoming) would mandate that these Bitcoin be transferred to the Treasury Department and that more would be bought for eventual reserves of a million Bitcoins to be held at least 20 years before considering sales. (Lummis has suggested funding Bitcoin purchases with gold reserve sales.) At current prices, that would leave the U.S. with roughly $100 billion in Bitcoin reserves.

Even if the Bitcoin Reserve doesn’t become reality, government support for crypto adoption seems highly likely. We now have a first-ever Crypto Czar, a First Family with quickly growing personal investments in crypto, and more amenable heads of key regulatory agencies like the Securities Exchange Commission (SEC).

Such a crypto-friendly backdrop highlights a second potential benefit for the U.S. as crypto capital: financial innovation through an array of new investment products and/or greater use of crypto’s underlying blockchain technology.

A country’s financial sector acts like the economy’s heartbeat, pumping capital to households and businesses so they can be healthy and grow. The U.S.’ deep and broad financial sector, with only about 30% of corporate financing coming from traditional banks, according to think-tank OMFIF, contributes to so-called U.S. exceptionalism since borrowing can take place fairly easily throughout the business cycle.

Indeed, there is ample research to support what the World Bank concluded in 2016: “Countries with better-developed financial systems tend to grow faster over long periods of time, and a large body of evidence suggests that this effect is causal.”

One specific innovation that a crypto capital can support was highlighted last month by Bank of America CEO Brian Moynihan: payments. In a CNBC interview, he said “if the rules come in and make it a real thing that you can actually do business with, you’ll find that the banking system will come in hard on the transactional side of it…. This would just be another form of payment. We have hundreds of patents on blockchain already, we know how to enter the field.”

As discussed in a December paper by the Bretton Woods Committee, blockchain (crypto’s tech underpinning) could make cross-border payments significantly more efficient. Among other possible benefits, it could reduce remittance costs which in turn could support lower-income households with family members working overseas. It could also increase financial inclusion and foster trade and economic integration, particularly in small open economies.

Beyond consumer wealth and beneficiaries of financial-sector innovation, crypto advocates believe a government-supported stablecoin that acts as a globally available digital dollar would make America stronger.

While primarily used today as an on/off ramp between traditional fiat currency and digital assets, stablecoins have gained adoption for other uses, including accessing dollars in parts of the world where the local fiat currency is not attractive, both to store wealth and to facilitate 24/7 cross-border transactions. Today, stablecoins represent the majority of global cryptocurrency transactions, with most trades still relatively small, suggesting a dominance of retail users.

Stablecoins such as Tether’s USDT (by far the largest USD-based coin by market capitalization) and Circle’s USDC are particularly attractive to investors who are happy to pay a fee in exchange for a fiat-currency equivalent that provides less direct government oversight than traditional instruments. Like their crypto peers, stablecoins are expected in the coming months to get more regulatory clarity, which is likely to increase adoption. Already, Tether’s USDT has daily trading volume near $100 billion, according to CoinMarketCap.

The White House sees greater global use of USD-backed stablecoins as a way to “promote and protect the sovereignty of the U.S. dollar.” Maybe even more importantly given the US’ large and rising government debt, an increasingly used dollar stablecoin could boost demand for U.S. government securities. As of the end of 2024, Tether reported $113 billion in direct and indirect Treasury holdings in its reserves. For context, those Treasury holdings are just a touch higher than total Treasury securities held by Germany and Mexico as of end-November, according to the U.S. Treasury Department data.

Private sector stablecoin providers, meanwhile, would also see benefits to their bottom lines. As an example, Tether reported more than $13 billion in net profits last year, in turn driven primarily by returns in gold, Bitcoin and Treasury-related holdings, according to the company.

The Case for Caution

While digital assets have already created tangible benefits, there are still risks that should be seriously considered as crypto policy is drafted and implemented.

Within the U.S., the health of the U.S. consumer tops the list of reasons for a careful crypto approach, since consumption drives about two-thirds of GDP. While Bitcoin has been a good investment for those who bought early and held, the same hasn’t been true for many other (often young, speculative) investors.

The Bank for International Settlements (BIS) published a study in July 2023 looking at crypto investors globally. The report’s conclusion, examining the period between 2015-2022, suggests caution in assuming future broad-based wealth gains from crypto (italics below mine):

“Our analysis has shown that, around the world, Bitcoin price increases have been tied to greater entry by retail investors. Using a novel dataset on crypto app use over 2015–22, we show that users are more likely to make active use of crypto exchange apps in the months after a rise in the price of Bitcoin…. An analysis of an unanticipated shock that led to a fall in the price of Bitcoin in January 2022 suggests that the relationship can be interpreted as causal. Our findings… support the notion that, by and large, investors view cryptocurrencies as a speculative investment. Furthermore, our findings show that as the Bitcoin price rises, larger investors (“whales”) tend to sell while smaller investors are buying. This evidence raises concerns around consumer protection: if users are driven primarily by backward-looking price movements, are they fully prepared for the potential consequences of a price correction? Our estimations that 73–81% of global investors have likely lost money on their crypto investment, and pro-cyclical trading behavior characterizing small investors, may give grounds for deeper investigation of claims that crypto will “democratize” the financial system.”

At least two risks emerge from U.S. retail investors who lose more than gain in crypto. First, building on the BIS’ observations, a financial ecosystem that has gamified investing, in part by increasing the number of inexpensive financial products that allow for quick (including intraday) and leveraged “bets,” could work against a generation’s longer-term savings. Multiple studies in recent years, along with a research review conducted by the U.S. government’s National Library of Medicine in 2023, suggest overlap between people engaged in problem gambling and crypto trading.

More immediately, a loss of wealth impacting a larger part of the population as crypto adoption broadens could weigh on overall consumption – in turn acting as a marginal drag on the economy.

Households and businesses not even directly involved with digital assets could be at risk from a larger crypto industry integrated with traditional finance. A hint of this came in 2022, when capital flight from crypto-focused banks Silvergate and Signature led to not only to both firms (and Silicon Valley Bank) going out of business the following year but a more than 20% collapse in U.S. bank equity prices in a matter of days.

Since late 2013, Bitcoin has had four selloffs in excess of 70%. For context, the largest drawdown for the S&P 500 over that period was 34% (in early 2020). Violent crypto price declines are in part driven by relative market illiquidity. For now at least, daily trading volume in cryptocurrency is a tiny fraction of the daily trading volume of the S&P 500 or U.S. Treasury market. The more traditional financial firms are involved with crypto, the greater the potential for contagion should a large Bitcoin decline occur.

Along with the need to better educate the public about crypto investing and establish appropriate guardrails to protect consumers and supervise holdings by financial participants, policymakers and crypto leaders will need to address two other issues as adoption increases: energy usage and illegal activity.

Bitcoin and some other cryptocurrencies use “proof of work” to release new currency units through a process called mining, the latter requiring significant computational power. The U.S. Energy Information Administration (EIA) released a study last year looking at how much energy is needed to mine Bitcoin. Their estimate represented between 0.6% and 2.3% of all U.S. electricity demand in 2023. That would be the equivalent of the energy needed for between 3-6 million homes, with the low end of the estimate roughly equal to total electricity usage for states like Utah and West Virginia.

More adoption suggests electricity needs could rise meaningfully in the coming years, especially if interest remains focused on “proof of work” currencies like Bitcoin. That will occur at the same time that energy demand by artificial intelligence data centers also increases (such data centers accounted for about 4.4% of U.S. electricity demand in 2023, and are expected to see that demand double or triple by 2028).

Meanwhile, a crypto-friendly government looking to build trust and adoption must stay focused on preventing illegal activity. Even though illicit use of cryptocurrency remains a tiny percent of total transaction volume, according to Chainanalysis’ coverage of 2023 crypto crime, it still reached well over $24.2 billion. Ransomware attacks in particular have grown and are increasingly targeting high-profile institutions and critical infrastructure, including government agencies and hospitals.

A final cautionary note focuses on Trump’s plan to use a private-sector stablecoin solely, rather than in tandem with a central bank digital currency. A globally reliable USD stablecoin needs ample, liquid, safe reserves. But even after being fined $41 million in 2021 for false claims about reserves, Tether’s USDT has 15% of its reserves (as of its latest report) in assets that have notably higher volatility, including corporate bonds, precious metals, Bitcoin, secured loans and “other investments.”

The White House is adamantly opposed to stablecoin sharing the stage with a central bank digital currency. Indeed, Trump’s Executive Order said the White House would “protect Americans from the risks of Central Bank Digital Currencies (CBDCs), which threaten the stability of the financial system, individual privacy, and the sovereignty of the United States, including by prohibiting the establishment, issuance, circulation and use of a CBDC within the jurisdiction of the United States.”

The U.S.’ view stands in sharp contrast to most governments that are actively exploring central bank digital currencies. According to the Atlantic Council’s digital currency tracker, three countries as of late 2024 have operating CBDCs, 44 have digital currencies in pilot programs, and another 59 countries are actively researching or developing CBDCs.

A leading concern for many U.S. crypto users has been privacy, perhaps fueled in part by China’s decision to allow central bank monitoring of larger digital yuan transactions. (China’s digital yuan or e-CNY has been in use since 2020.)

Yet western central banks are finding ways to assure the public that privacy will not be overshadowed by steps to prevent illegal activity. The European Central Bank (ECB), potentially launching its digital euro as soon as this year, provides a good example. Its CBDC has been constructed, free and accessible with or without the internet, so that the central bank cannot identify users by their purchases. Further, details of payments made offline would mimic cash in that they would only be known by the users, since there wouldn’t be a payment provider as part of the transaction.

Instead, the digital euro simply mirrors other digital payment methods in that “intermediaries like your bank would only have access to personal data that are necessary to comply with EU law, such as anti-money laundering and terrorism finance regulations.”

By preventing work on a CBDC, the U.S. may limit how much it can influence global rules of the road and best practices currently under development for digital assets, allowing countries like China a relatively greater voice at the table. That works against Trump’s goal of defending the dollar’s global dominance. It could also hurt the Federal Reserve’s ability to stay on top of risks posed by digital assets that could influence financial stability.

Markets and Politics Will Determine the Crypto Capital’s Outlook

Four years ago, Trump said Bitcoin was “not money,” criticizing it as “highly volatile and based on thin air.” Today, he is leading a Crypto Presidency, his change of heart likely influenced by substantial campaign support and his family's experience in building digital-asset businesses.

Longer-term, it seems highly likely that U.S. and global finance and payments systems will become increasingly digital. But the near-term direction of crypto in the U.S. as part of this longer-term path will depend heavily on politics and broader financial market trends.

Crypto has a window – especially before 2026’s midterm elections when Republican control might be weakened - to move from a questioned corner of the financial sector to centerstage. It has a supportive administration, technology leaders literally standing side by side with the White House, and recent price gains that are attracting more Americans’ interest. (In just four months, from October through end-January, Bitcoin’s price rose by about 60%).

Party lines are not black and white. Last year, for instance, 71 Democrats voted in favor of a bill that would likely lighten the regulatory burden on crypto. But overall, Democrats are more focused on innovation coupled with consumer-protection guardrails, a relatively greater role for public-sector bodies like the Fed, and global collaboration. They have ammunition that could slow the crypto capital’s construction, including conflicts of interest within the Executive branch. Whether or not they do is a question of relative legislative priorities.

Perhaps a bigger risk than politics for crypto is the broader U.S. tech sector and specifically the Magnificent 7 mega-cap tech companies. Already vulnerable given concentrated ownership and high valuations, a sustained bout of profit-taking would likely trigger contagion to crypto, as it has done in the past. Between 2013-2023, when the Nasdaq fell 5% or more in a month, Bitcoin had an average return of -4.6%, with losses occurring in the majority of those instances. (For context, gold’s average return in those periods was a positive 0.8%). A poorly timed Bitcoin selloff could cool America’s crypto enthusiasm and lead politicians to shift their focus to other policy issues.