Crypto Market Rising Due to Strategic Reserves, Why Experts Say It’s Too Optimistic

Recently, the crypto market has risen due to discussions on US strategic crypto reserves. But Eliézer Ndinga, head of strategy at 21Shares, believes that the market is too optimistic and the market may fall due to details and timing issues. Behind this, creating strategic reserves faces many complex problems.

First, asset allocation and allocation are tricky. Which cryptocurrencies and their proportions are key. Although Bitcoin is well-known and has a large market value, others such as Ethereum also have their own advantages. Whether to focus on Bitcoin or diversified configurations is still uncertain. If you only re-bitcoin, other cryptocurrency markets may be impacted; if you configure multiple times, you need to accurately weigh the characteristics and potential of each currency.

Secondly, the holding period is difficult to determine. Whether it is a flexible short-term operation or a firm holding for a long time has a significant impact. Short-term holding can make profits by grasping market fluctuations, but it is easily disturbed by short-term market conditions and misses long-term value-added. Long-term holding requires strong confidence in the long-term value of cryptocurrencies, but the market is uncertain and the long-term trend is difficult to predict.

Furthermore, the holding volume relative to the total supply of each asset needs to be carefully considered. Taking Bitcoin as an example, it accounts for 1% of its 21 million coins, and it is huge in number, which will have a profound impact on market supply and demand. Buying a large amount of money will push up prices, increase costs, and may also trigger excessive market reactions and disrupt market stability.

In addition, market integrity measures are crucial. To prevent large fluctuations or jump-starts, we need to limit the daily trading limit and other means. However, it is difficult to set a reasonable upper limit. Too low limits market vitality, and too high limits risks cannot be effectively prevented.

Finally, asset protection is a big problem. Select a crypto custodian or bank to avoid single point of failure. If you rely solely on one, such as Coinbase or BNY Mellon, the security of the asset will be threatened if there is a problem. Choosing multiple providers also faces the problem of coordination and management.

Creating strategic reserves also requires Congress’ approval, and the process is complicated. Trump used social media to propose preliminary clauses, and the draft may encounter obstacles and needs to be revised, which will undoubtedly delay the progress of the plan and make the current market hype difficult to sustain. Therefore, although the proposal of strategic crypto reserves has caused market growth, from the actual operational perspective, there are many difficulties and the current optimism in the market may lack sufficient support.