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President Trump Establishes US Cryptocurrency Strategic Reserve, Market Reacts with Decline

On March 7, 2025, President Trump officially signed an executive order establishing the U.S. Cryptocurrency Strategic Reserve, which includes Bitcoin (BTC), Ethereum (ETH), Ripple (XRP), Solana (SOL), and Cardano (ADA) as reserve assets. While this historic decision was anticipated as a positive milestone for the crypto industry, it paradoxically triggered a broad market downturn, with BTC falling by 4.47% in a single day, dropping below $88,000. This seemingly contradictory response reflects the interplay of market sentiment, policy specifics, and long-term expectations. Below, we examine the underlying factors driving this reaction and explore the broader implications for the cryptocurrency market.

Four Key Reasons Behind the Short-Term Market Decline

1. "Budget-Neutral" Strategy Dampens Market Optimism
David Sachs, the White House Cryptocurrency Affairs Officer, clarified that the reserve funds would come from confiscated cryptocurrencies seized during law enforcement operations, rather than new government purchases funded by taxpayers. While this "budget-neutral" approach avoids fiscal strain, it dashed market hopes for large-scale government buying, thereby increasing short-term selling pressure.

2. Unclear Policy Details Erode Market Confidence
The executive order lacks clarity on critical details such as the size of the reserves, operational mechanisms, and tangible benefits for taxpayers. For instance, relying solely on confiscated assets raises concerns about the reserve’s growth potential. This ambiguity has led many to question the policy's significance, fearing it might be more symbolic than substantive.

3. Concerns About Favoritism and Credibility
Controversy over alleged connections between the Trump family and certain cryptocurrency projects, such as Solana (SOL) and Ripple (XRP), has raised eyebrows. Critics argue that these projects might have gained favorable policy inclusion due to their financial contributions to Trump’s political endeavors. Meanwhile, the strategic value of assets like Cardano (ADA) remains unclear. These controversies have undermined trust in the policy's legitimacy.

4. Profit-Taking After Prior Market Optimism
Since the initial announcement of the reserve plan on March 2, BTC surged over 10%, while altcoins like ADA experienced gains exceeding 40%. Following the official signing of the order, many investors opted to cash out on these gains, leading to a natural correction in prices.

Three Long-Term Implications of the Policy

Despite the short-term volatility, the policy’s long-term impact on the crypto industry cannot be overlooked:

1. Progress Toward Regulatory Clarity and Institutional Entry
The Trump administration has established a digital asset working group aimed at finalizing comprehensive cryptocurrency legislation within six months. This includes advancing stablecoin regulations and compliance frameworks, such as the "Payment Stablecoin Clarity Act" and the "Lummis-Gillibrand Stablecoin Act." These efforts pave the way for traditional financial institutions to enter the crypto space more easily. Additionally, the SEC’s recent withdrawal of lawsuits against key crypto firms signals a more supportive regulatory environment.

2. Global Influence and Increased Liquidity Expectations
By incorporating cryptocurrencies into its strategic reserves, the U.S. sets a precedent that could inspire other nations to follow suit. Countries such as Japan and the Czech Republic are reportedly exploring similar policies. A coordinated adoption of crypto reserves by multiple countries could generate trillions of dollars in incremental demand. Moreover, the anticipated Federal Reserve interest rate cuts in late 2025, along with continued global liquidity expansion, could provide a supportive backdrop for the crypto market.

3. Technological Innovation and Ecosystem Expansion
Ethereum’s upcoming Pectra upgrade in April, which includes 20 efficiency-enhancing proposals, represents a significant step forward for blockchain technology. Similarly, public chains like Solana and Cardano are expanding their use cases, driving growth in Web3 and DeFi ecosystems. With policy support and ongoing innovation, these developments could attract more users, developers, and investment to the sector.

Looking Ahead

While the market’s immediate reaction to the establishment of the U.S. Cryptocurrency Strategic Reserve may seem pessimistic, the broader implications of this policy point to significant long-term opportunities. As regulatory clarity improves, global adoption gains traction, and technological advancements accelerate, the cryptocurrency market could be poised for robust growth in the coming years. The current turbulence may simply represent a necessary adjustment before the next wave of innovation and institutional adoption.

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