Why did it take so long for the United States to create a strategic crypto reserve? Is the market optimistic too early?

Creating a US crypto reserve faces hurdles: Congressional approval is slow due to conflicting views on crypto's risks and potential, optimal asset allocation is complex, and managing market impact requires careful planning and robust safeguards.

The United States’ creation of a strategic cryptocurrency reserve is not something that can be achieved overnight. In this process, Congressional approval is the primary difficulty. There are many interest groups within Congress, and the attitudes of various parties towards cryptocurrencies vary greatly.

Some lawmakers are worried that the anonymity of cryptocurrencies will aggravate the risks of money laundering and terrorist financing, and are cautious about their inclusion in their strategic reserves; while supporters value the potential of cryptocurrencies in financial innovation. The collision of views between the two sides makes it difficult to reach a consensus quickly, which makes the approval process slow.

The problems of asset allocation and allocation are complex and difficult to solve. There are many types of cryptocurrency markets, including mainstream currencies such as Bitcoin and Ethereum, as well as Ripple and Sorana. How to choose the right cryptocurrency to include in the reserves and determine the ratio between them has become a difficult problem.

The market performance, technical characteristics and application scenarios of different cryptocurrencies are different, and it takes a lot of time to conduct in-depth research and analysis to formulate a reasonable configuration plan.

The determination of holding periods is also challenging. Whether to choose short-term holding to flexibly adjust according to market volatility, or to hold it for a long time to obtain the long-term appreciation of cryptocurrencies, this requires comprehensive consideration of many factors such as the US economic strategy and market stability.

Short-term holdings may face market shocks and cost increases caused by frequent trading; long-term holdings must deal with the high uncertainty of the cryptocurrency market. Once the market trend is judged incorrectly, huge losses may be caused.

There is also a need to be carefully weighed relative to the total supply of each asset. Taking Bitcoin as an example, if the proportion of holdings accounts for too high a total of 21 million coins, it may cause a shortage of market supply, lead to excessive price fluctuations, and affect the normal operation of the market; if the proportion is too low, it will be difficult to achieve the regulatory effect of strategic reserves on the market.

To determine this ratio, it is necessary to accurately calculate the supply and demand relationship, price elasticity, etc. of the cryptocurrency market, and the complexity of the cryptocurrency market makes this calculation extremely difficult.

Market integrity measures are indispensable. To prevent the cryptocurrency market from fluctuating significantly or jumping in due to strategic reserve operations, strict restrictions must be formulated.

For example, limiting the daily trading limit, however, determining a reasonable trading limit is not easy. If the upper limit is too high, it cannot effectively prevent market manipulation and excessive fluctuations; if the upper limit is too low, it will affect the liquidity of the market and hinder normal trading activities. This requires finding a delicate balance between market stability and liquidity.

The asset protection process is crucial. Choosing the right crypto custodian, bank or multiple providers to avoid single point of failure is the key to ensuring the security of reserve assets.

However, the crypto-hosting industry is currently incomplete, with problems such as security vulnerabilities and insufficient supervision. The technical strength, security measures and reputation status of different trustees are uneven, and it takes a lot of time and energy to screen and evaluate to ensure that the assets are properly protected.

It may be too early to market optimism about the creation of a strategic reserve of cryptocurrency in the United States. Although Trump actively promotes the policy, there are many variables in the middle from its proposal to its implementation. During the deliberation of the Congress, the draft may be forced to be revised due to the game of interests of all parties, and may even face the risk of shelving.

Moreover, even if strategic reserves are finally established, there is uncertainty about their actual impact on the market. The complexity and volatility of the cryptocurrency market make it difficult to accurately estimate the regulatory effect of strategic reserves. With the whole process full of unknowns, the current optimism in the market may lack a solid foundation.