The Real Reason Trump Backs Crypto
Bitcoin, it just seems like a scam,” remarked Donald Trump back in 2021. Yet Trump went on to run for president again on a pro-crypto platform, promising attendees of the 2024 Bitcoin conference in Nashville that he would make America “the crypto capital of the planet.” Since taking office, Trump has been the most pro-crypto president to date. Upon taking office, he appointed the tech investor David Sacks as his “crypto czar,” and last week, the White House hosted a crypto summit, at which Trump announced the creation of an official Bitcoin strategic reserve and cryptocurrency stockpile.
It is easy to dismiss Trump’s reversal as a reflection of the preferences of donors like Sacks. That is no doubt part of the story. Yet a statement from Treasury Secretary Scott Bessent at last week’s summit was the latest indication that there is a deeper strategy: maintaining dollar hegemony in an increasingly multipolar world.
Bessent declared: “We are going to keep the US [dollar] the dominant reserve currency in the world, and we will use stablecoins to do that.” Stablecoins are cryptocurrencies that maintain a one-to-one peg with a fiat currency based on a stablecoin provider, usually a centralized private firm, maintaining real reserves of the currency. They provide the non-volatile value of a fiat currency, but with the regulatory flexibility of cryptocurrencies.
Stablecoins are mostly used for trading cryptocurrencies within market exchanges. About 75 percent of trades are done with stablecoins. In short, there is no crypto sector without stablecoins. And it just so happens that 99 percent of stablecoins are pegged to the US dollar. That means that increasing cryptocurrency demand increases stablecoin demand, which increases US dollar demand. This is because the expanding market of cryptocurrencies is dollar-denominated, so dollars are needed to buy stablecoins to buy cryptocurrencies. Stablecoin demand, in turn, also increases demand for US Treasuries, because stablecoin providers convert customer dollars into Treasuries to hold as reserves, instead of non-interest bearing cash. Stablecoin providers own $120 billion worth of US debt through Treasury purchases. This makes them the 18th largest holder of US debt in the world, larger than countries like Germany.
The approach taken by World Liberty Financial (WLF), a dollar-pegged stablecoin project launched by Trump last year, is consistent with the strategy of using stablecoins to support dollar and Treasury demand. WLF’s X account stated in September: “By spreading US-pegged stablecoins around the world, we ensure that the US dollar’s dominance continues.”
Boosting dollar and Treasury demand matters to the current administration because of the rising risk of de-dollarization. The US dollar fell from about 73 percent of global currency reserves in 2000 to about 58 percent in 2022. Over the same period, foreign demand for US Treasuries also shrank. From 2000 to 2012, foreign-owned US debt grew at an average annual rate of 13 percent; from 2013 to 2024, the average was down to 1 percent. Foreign-owned debt fell from an $8.5 trillion high in 2021 to $7.9 trillion in 2024—a 7 percent drop.
Japan and China are the top two holders of US debt, but Japanese-owned debt fell from its high of $1.6 trillion in 2014 to $1.1 trillion in 2024, while Chinese-owned debt fell from its high of $1.7 trillion in 2013 to $750 billion in 2024. That adds up to a shortfall of $1.4 trillion. In aggregate, all other countries kept increasing their stock of US debt, but slowed their pace from an average annual rate of 12 percent from 2000 to 2012 to only 3 percent from 2013 to 2024.
The US economy is vulnerable to the changing whims of the rest of the world because of the incentive structure of the “Treasury bill standard,” to use a term coined by the economist Michael Hudson. In Hudson’s analysis, the end of the gold standard created a new global feedback loop. The United States exported to the rest of the world more dollars than it imported. Once it was no longer able to exchange dollars for gold, the rest of the world could effectively only buy US Treasuries with excess dollars. If they didn’t, the US government would have to print more dollars to monetize its debt, which would devalue the dollar. A significantly devalued dollar would erode the competitiveness of export-dependent countries by making their goods more expensive, while also destabilizing international trade and investment mechanisms.
The only way for the rest of the world to get out of this precarious position was to slowly disentangle itself from the standard, a process that is now evident in the dual trends of de-dollarization and declining US Treasury foreign demand. Amid a ballooning federal budget heavily reliant on debt-financed spending, this shift foreshadows disaster. Elon Musk’s DOGE has made a great show of slashing government expenses, but its current estimated savings of $105 billion is still less than 2 percent of the total budget and barely makes a dent in the swelling deficit.
With no real signs of the US sufficiently cutting spending or raising taxes to decrease its need for foreign-deficit financing, it will need a short-term solution to postpone the moment of reckoning. This is what Trump’s crypto gambit purports to do by propelling cryptocurrency adoption into new demand to offset the decline in foreign purchases of US Treasuries.
Using crypto to prop up the dollar and the national debt is a risky endeavor. Cryptocurrencies have no real utility outside evading the law and volatile speculation. The expansion of this sector would enable, at best, tax dodging and at worst outright criminal activity. The embrace of crypto would also weaken the stability of the entire economy and open it up to systemic risk. Stablecoins are the crux of this new structure. If their foundational premise of 100 percent reserve backing is ever in doubt because of fraud, that could send a chain reaction, collapsing the entire crypto market and spilling over into the overall economy. Speculative cryptocurrencies could also present the same danger as more and more of the financial sector becomes collateralized by their unstable value. If any of those dominoes fall, it would be a crisis on par with 2008’s mortgage-backed securities on steroids.
Despite these risks, there is a growing consensus in favor of the stablecoin strategy. Last year, former Speaker of the House Paul Ryan endorsed the approach in The Wall Street Journal, writing: “If other countries are successful at bolstering their currencies’ influence while dumping Treasury debt, the US will need to find new ways to make the dollar more attractive. Dollar-backed stablecoins are one answer.” Trump-nominated Federal Reserve Governor Christopher Waller has also said the growth of stablecoins and cryptocurrencies would “strengthen the dominant role of the dollar.” Commerce Secretary Howard Lutnick likewise said that stablecoins are “financing the US Treasury’s debt.” His firm, Cantor Fitzgerald, is one of the largest custodians of Treasuries for stablecoin providers. This consensus, it would seem, persuaded Trump to shift his earlier negative stance on cryptocurrency because he now believes they support his core interest of protecting both the US dollar and the debt.
Unscrupulous actors will no doubt profit from the administration’s pro-crypto policies. But those who only see special interests gaining benefits miss the forest for the trees. Promoting cryptocurrency is seen as a necessary evil to sustain dollar hegemony and boost demand for US Treasuries. That is the real gambit. Like any gambit, it is fraught with risks including economic bubbles, potential lawlessness, and exacerbating the debt crisis. Averse to tax hikes and spending cuts while cognizant of the inflationary danger of money printing, the White House is opting for a dangerous new strategy: relying on a cryptocurrency bubble to sustain exorbitant spending and delay the fiscal reckoning.
Originally published in Compact Magazine on 11 March 2025.