The crypto market was on fire in Sunday trading after President Trump said he wants to create a crypto strategic reserve. This is something the industry hoped for when supporting President Trump and it could be moving closer to reality.
The biggest moves were tokens that could see huge buying pressure if a crypto reserve is created. In the last 24 hours, Cardano (ADA 2.92%) is up 60.6%, XRP (XRP 1.72%) jumped 31.7%, and Solana (SOL 2.60%) was up 22.6% after being explicitly named as part of the crypto reserve. President Trump later clarified he wanted to put those cryptocurrencies in along with top tokens Bitcoin (BTC 3.02%) and Ethereum (ETH 3.15%). The larger tokens jumped 9.9% and 12.1%, respectively.
CRYPTO: XRP
Key Data Points
What we know about the crypto strategic reserve
What we know right now is that President Trump has asked his Presidential Working Group to move forward with a Crypto Strategic Reserve that would "include" the tokens above. Early reporting indicates the government may simply keep the tokens it has seized as part of law enforcement activity rather than buying anything. The U.S. government is already one of the largest holders of Bitcoin, for example.
Next, it's not really clear crypto can be part of a reserve in the U.S. without an act of Congress. Digital assets are still a relatively new class of investments, and the legal framework around it is evolving. Legal experts are already debating the legality of such a move, and with crypto itself operating in a legal and regulatory grey area, it's no surprise this reserve is as well.
We don't know what will ultimately happen with any potential reserve, but obviously that didn't stop the crypto market from moving higher today.
Challenges are surely ahead
Cryptocurrencies have been extremely volatile over the past five years, following the price of growth stocks more than inflation or any hedge to the economy. And in the last few weeks the market has moved lower because economic indicators are showing early signs of economic weakness and even the potential for a decline in GDP, according to the Atlanta Fed's GDPNow estimate.
It's this volatility that could end up hurting the argument for a crypto reserve. Plus, ownership of most of these tokens is highly concentrated among a few people or institutions.
Since this is currently a political move, it has to be acknowledged there may be a political backlash, especially if an act of Congress is needed to start the reserve. And that caution should be considered by investors today.
CRYPTO: BTC
Key Data Points
A long road ahead
I don't think the crypto reserve is a done deal given the legal grey area and slim likelihood of it passing Congress.
The crypto market has already had some wins with the SEC dropping charges against numerous firms last week. The introduction of exchange-traded funds based on Bitcoin and Ethereum prices is another step forward, and others may soon follow. But buying digital tokens is another bridge that may be too far for even the most bullish investors on the blockchain.
While the moves today are big, they could also reverse if a crypto reserve doesn't happen. And the drop could unwind many bullish positions that have hoped for the year that a crypto reserve would become a reality.
I'm skeptical that today would be a great day to buy tokens given the speculative bounce and uncertain future ahead. The road ahead still looks bumpy.
