Trump signed an executive order on Bitcoin strategic reserves. Why did the market plummet?

This morning, the long-awaited executive order on the strategic reserve of Bitcoin in the crypto industry finally came. At around 8 a.m. on March 7, David Sacks, director of AI and cryptocurrency at the White House, posted on social media that President Trump had signed an executive order to establish a strategic Bitcoin reserve a few minutes ago. However, after this huge good news came out, the price of Bitcoin actually plunged immediately, falling from around $90,000 to below $85,000 within an hour. As of writing, the price of Bitcoin has rebounded to around $88,000.

It is worth noting that the reserve of the strategic reserve will be capitalized with Bitcoin owned by the federal government, that is, Bitcoin confiscated by the U.S. government in criminal or civil asset forfeiture proceedings. The U.S. government will not sell any Bitcoin deposited in the reserve, but it is also unlikely to purchase more Bitcoin. "This means that it will not cost taxpayers a penny," David Sacks wrote in a tweet.

Hoarding without buying triggers Sell The News

In January, Trump signed an executive order directing his government to assess the "possibility of establishing and maintaining a national digital asset reserve" and set up a working group to study the feasibility, chaired by David Sacks. 10x Research analyst Marcus pointed out in his report on strategic reserves that there is a key difference between "reserve" and "creating and maintaining a national digital asset reserve."

The word "reserve" indicates an active strategy to acquire more assets, while "establishing and maintaining" implies a more passive approach, namely a "hoarding without buying" strategy. Marcus mentioned in the report that although the executive order targets a wider range of digital assets rather than Bitcoin, it also means that the US government prefers to continue holding existing cryptocurrencies rather than buying more crypto assets.

On the other hand, Trump's Bitcoin strategic reserve executive order is far from being approved by Congress, and it will take several months for it to be officially passed and take effect, which further stimulates traders' Sell The News sentiment and motivation.

The U.S. government's handling of currency, reserves and financial assets is governed by laws and institutions such as the Treasury Department and the Federal Reserve. Unlike gold or oil, Bitcoin is not a physical asset that the government can store in the traditional sense. It is a decentralized digital currency, so reserves mean that the government needs to store Bitcoin through a series of safe and reliable formal processes, which will further raise questions about funds, security and other aspects.

However, many practitioners who have close ties with this pro-crypto government have also expressed positive views on the executive order.

David Sacks, director of AI and cryptocurrency at the White House, posted on social media that "the U.S. government's premature sale of Bitcoin has cost U.S. taxpayers more than $17 billion. Now, the federal government will develop a strategy to maximize the value of its Bitcoin holdings." Coinbase director Conor Grogan posted on social media, "According to my estimate, the US government holds 198,109 bitcoins. This executive order will reduce the selling pressure by about $18 billion.

It is also worth noting that in addition to the federal government's efforts in the strategic reserve of bitcoin, many states in the United States have also responded positively in this regard. So far, 18 states in the United States have considered or proposed legislation to establish state-level strategic bitcoin reserves. On February 27, the Texas Commerce and Business Committee took the lead in reviewing and passing the Bitcoin Reserve Act and submitted it to the Senate for review.

The bill aims to establish a state-controlled bitcoin reserve to enhance financial security and promote digital asset innovation. Its main contents include: authorizing the Texas government to hold bitcoin as a financial asset, the Texas Comptroller's Office is responsible for management, implementing cold storage solutions and conducting regular audits, and prohibiting the acquisition of bitcoin from foreign entities or individuals involved in illegal activities. If passed by a two-thirds majority in the Senate, the bill will take effect immediately, otherwise it will officially take effect on September 1, 2025.

On March 7 On the 25th, the Texas Senate passed the Strategic Bitcoin Reserve Act SB-21 with 25 votes in favor and 5 votes against. After that, SB-21 needs to be submitted to the Texas House of Representatives, where the bill will be assigned to relevant committees for review, modification, and hearings.

If the House of Representatives makes changes to SB 21, the Senate must agree to these changes, otherwise the two sides need to coordinate the final version through the conference committee. The final version agreed by both parties needs to be voted on separately. After passing the House and Senate, the bill will be sent to the Governor of Texas for signature. The governor can choose to sign the bill to make it law.

Soul-searching question: Should the Bitcoin confiscated in the Bitfinex case be returned?

At present, the US government holds about 200,000 Bitcoins, which are worth about $18 billion at current prices. These Bitcoins were seized through various law enforcement actions, the two main sources of which are the Bitcoin confiscated in the Silk Road case and the Bitcoin seized in the Bitfinex platform hacking case in 2016.

Related reading: "What are the Bitcoin addresses of the US government"

2022 February In July, the U.S. Department of Justice (DOJ) seized more than 90,000 bitcoins from the Bitfinex hack. The hackers involved, Ilya Lichtenstein and Heather Morgan, were arrested and convicted for money laundering hacking, and Lichtenstein admitted to planning the hacking attack. Since then, the U.S. government has held the seized bitcoins as confiscated assets.

After the signing of the Bitcoin Strategic Reserve Executive Order, "Should Bitfinex's Bitcoin be returned?" became the most concerned issue for many industry participants, because this part of Bitcoin accounts for nearly 50% of the U.S. government's Bitcoin holdings.

The key reason lies in Bitfinex's post-hacking compensation plan: After the 2016 hacking attack, Bitfinex reduced all customer balances by 36% and issued BFX (LEO) tokens, which were all redeemed within eight months, which in fact made customers "whole" in the eyes of the government. Therefore, Bitfinex, the entity that bears the loss, is considered the primary claimant.

In October 2024, the U.S. Attorney's Office for the District of Columbia filed a motion suggesting that Bitfinex may be the "only victim" eligible for compensation under the Crime Victims Rights Act (CVRA) and the Mandatory Victims Compensation Act (MVRA). This position was reinforced in a January 2025 filing, where the government proposed returning Bitcoin to Bitfinex "in kind" (BTC, not cash).

Related reading: "US government says funds from 2016 hack should be returned to Bitfinex"

Previously, Bitfinex promised to buy back LEO once it got back the hacked Bitcoin. Many former Bitfinex customers believe that they are entitled to the recovered Bitcoin given Bitcoin's sharp appreciation since 2016, and claim that Bitfinex's LEO token compensation does not reflect the future value of BTC.

So after the news that the US government applied for an alternative notification procedure to inform potential victims of the 2016 Bitfinex hack in October 2024, the Bitfinex platform token LEO quickly rose by nearly 40%, indicating the market's high expectations for the US government to return the stolen Bitcoin and the Bitfinex travel repurchase plan.

Of course, with the signing of the strategic reserve executive order, the US government's position may change at any time.

What else can we expect from the White House Crypto Summit?

In addition, David Sacks mentioned in a tweet this morning that the executive order also established the "US Digital Asset Reserve", which is intended to manage government digital assets under the leadership of the Treasury Department.

For David Sacks, the White House Crypto Summit, which is about to be hosted, is the top priority at the moment. This summit is the first time that the White House has held such an event, and the specifications are very high. According to multiple media reports, the most eye-catching thing about this summit may be the "National Crypto Strategic Reserve" plan. The plan intends to include mainstream cryptocurrencies such as Bitcoin, Ethereum, Solana, Cardano and Ripple (XRP) into the national reserve system, with a scale and functional positioning similar to traditional oil reserves. According to Forbes, the selection of reserve assets takes into account the characteristics of each currency: Bitcoin's anti-inflation properties as "digital gold", Ethereum's smart contract ecosystem, Solana's high-performance application platform, Cardano's scientific research-driven security architecture, and Ripple's cross-border payment efficiency advantages.

In terms of regulatory system construction, the summit will focus on the top-level design of stablecoins and the overall regulatory framework. Cointelegraph revealed that Trump adviser David Sachs advocated strengthening the hegemony of the US dollar through stablecoins, and this view may affect the federal regulatory plan. The draft bill currently being promoted by the House Financial Services Committee shows that stablecoin institutions with an issuance volume of more than 10 billion US dollars may be included in the Federal Reserve's regulatory system, forming a two-tier regulatory structure of the federal and state governments. At the same time, the 21st Century Financial Innovation and Technology Act proposed in 2023 may see substantial progress. Its core is to coordinate the regulatory powers and responsibilities of the SEC and the CFTC and build a digital asset regulatory paradigm that takes into account both innovation and security.

In order to achieve the strategic goal of the "Crypto Capital", the summit may launch a series of innovation incentives and tax-related policies. CryptoBriefing analysis pointed out that the government may relax regulatory restrictions during the Biden era. An unexpected detail is that the summit may also discuss crypto-related tax reforms. According to BeInCrypto, tax reforms may be part of the agenda and may affect investors' tax burdens, involving simplifying tax reporting for crypto transactions or providing tax incentives to promote industry growth.