It's hard to imagine a larger catalyst for cryptocurrencies than the one on March 6, when the White House issued an executive order that the U.S. would be forming both a Strategic Bitcoin Reserve and a national Digital Asset Stockpile.
And yet in the wake of that ultra-bullish announcement, the prices of major cryptos including Bitcoin (BTC +0.82%), Ethereum (ETH +1.11%), Solana (SOL +1.55%), XRP (XRP +0.47%), and Cardano (ADA +0.57%) are all down, and substantially in most cases.
So what's going on here? Let's dig into the details of the new reserve announcement and add some context.
CRYPTO: BTC
Key Data Points
This catalyst didn't excite anyone
Under the plan for the Strategic Bitcoin Reserve and the Digital Asset Stockpile, the government will not be buying any of the cryptocurrencies mentioned above, at least not in a way that involves spending from the nation's budget.
Aside from the executive order mandating the creation of the stockpile and the reserve, there are many steps remaining before these repositories will actually exist. Those steps may or may not be taken, depending on various political, financial, and bureaucratic contingencies.
As far as Bitcoin goes, the order -- as well as the administration's stated vision for the reserve -- makes it clear that the government should now retain any of the cryptocurrency that comes into its possession via asset seizure or forfeitures, rather than sell it. Some investors had been hoping for overt purchasing activity on a regular basis, funded with discretionary and budgetary capital, much like the other strategic resource reserves maintained by the country. Therefore, there is a bit of a disconnect between expectations and outcomes, which explains the coin's decline.
CRYPTO: ETH
Key Data Points
For Ethereum, Cardano, Solana, and XRP, as well as other assets intended for the stockpile, the picture is slightly different, but the gist is the same.
Based on the president's initial remarks on social media in advance of issuing the executive order, those cryptos would be included in the newly formed stockpile. Yet according to the executive order, as well as the White House crypto summit on March 7, it's very unlikely that the government will devote a meaningful amount of money to actually stockpiling them beyond retaining what it obtains via asset forfeitures. It will be subject to the same budget-neutral conditions as with Bitcoin. That's hardly what investors wanted.
Either way, the negative price impact on these altcoins is sharper than with Bitcoin because they had more to gain from potentially being purchased by the government since they're smaller assets. Without a mandate for federal crypto purchases to fill the repository, investors were left to reprice their assumptions about the value of those cryptos.
CRYPTO: XRP
Key Data Points
Now is a time of great opportunity
If you're terrified by the crypto price action during the past few weeks, you aren't alone. It could be reasonable to rebalance your holdings if you think that there are hard times ahead.
But if you can convince yourself to buy the dip rather than sell your coins in fear, there probably are profits waiting for you down the line. Here's why:
The government picks up cryptocurrency from criminal and civil asset forfeitures and seizures all the time. If it decides to hold those coins and stockpile them indefinitely instead of selling them, that's less circulating supply. Every little bit helps support higher prices over the long term.
There's nothing bearish in the stockpile announcement; there's just the market's reaction to good news that wasn't as bullish as what was (unjustifiably) anticipated.
The longer your time horizon, the more supply the government will hold rather than sell. For Bitcoin in particular, this will mesh favorably with its supply dynamics, which ensure that it's perpetually in scarcer supply because of the steadily increasing difficulty of mining new coins. But other coins also will benefit, as long as there are disreputable actors who use crypto to break laws and have their assets seized.
And that's almost guaranteed to happen. So, take advantage of these lower prices and load up on the coins you think will be around in 10 years, and let the government do some of the work of increasing their value for you.
