A crypto turn to save the US dollar?
A financialised psychosis and the end of the re-industrialisation dream
Snapshot: Don’t bank of stablecoins presaging a new period of US dollar hegemony, let alone underpinning the rejuvenation of American manufacturing. Stablecoins are likely to have a place in the wider financial ecosystem, but will be hampered by relatively high costs and risks. The creation of a US government-financed cryptocurrency reserves creates more risks than it resolves, highlighting the fact that the United States continues to operate in a state of hyper-financialised psychosis. This epitomises the detachment of fictitious capital from the process of valorisation through the production of use values. Recent episodes of memecoins with direct affiliations to the highest office of executive power are symptomatic of this psychosis. This is something of a companion piece on the cultural hollowing out of the American soul.
There’s been a bit of excitement in crypto circles that the U.S. government has set up a bitcoin reserve and is moving to regulate so-called stablecoins as there is a belief that stablecoins will somehow1 help maintain the U.S. dollar’s reserve status. Yet, in important respects, the emergence of stablecoins as the focal point of US efforts in the arena of currency digitalisation reflects not an innovative move per se, but the apotheosis of a financial psychosis in which the speculative value of exchange values2 trumps all. Despite the lofty rhetoric of reindustrialisation, moves to create a government cryptocurrency reserve point in the direction of a consolidation of extreme financialisation, rather than a return to the real economy of use value creation and production.
On Stablecoins
Stablecoins are essentially digital IOUs pegged to a fiat currency, often the U.S. dollar (USD). Their issuance relies on collateral, such as USD reserves or other assets held by private companies with varying degrees of regulation. This is the common characteristic of all stablecoins. Because of this structure, the issuer is required to ensure liquidity and collateral backing, which naturally comes with costs. These costs include the return expected by those providing the initial collateral, as well as transaction and operational expenses. Stablecoin users provide the majority of collateral as each dollar in stablecoins is backed by a users dollar of investible collateral. Stablecoin users have no expectation of return and the issuer’s profits come from the return on the assets and their growth. As the issuer’s profits depend on the rate of return and riskiness of their investments, stablecoins’ risk profiles are not equal. Stablecoins are not ‘free’ and issuers need to manage these costs while making a profit.
When it comes to cross-border transactions, stablecoins might seem to offer some advantages over traditional methods, such as reducing transaction times and potentially lowering fees due to the use of blockchain technology. However, these advantages are not necessarily as strong as the hype suggests, especially when compared to Central Bank Digital Currencies (CBDCs).
Stablecoins issued under the proposed new GENIUS Act in the US will face similar Know Your Client (KYC) and Anti-Money Laundering (AML) requirements as other USD-denominated financial products, which limits the supposed efficiency advantages in cross-border transactions. Stablecoins not complying with these KYC and AML requirements will soon find themselves blocked from dollar use. With the advent of these new regulations and added regulatory scrutiny they bring stablecoins are no more advantageous than traditional banking systems or CBDCs in terms of compliance and operational costs. Note that stablecoins wishing to go “rogue” as some do today and not comply with these requirements will likely find themselves shut out of the dollar system. Anyone doubting this should look to Tether stablecoin blocking 960 user wallets in coordination with US agencies.
CBDCs are designed to be more efficient and cost-effective for cross-border transactions. They can leverage national and international payment systems that are built with regulation and compliance baked in, reducing the operational complexities that stablecoins might face. Additionally, CBDCs have the potential to offer lower transaction fees because they don’t rely on third-party intermediaries and can be more seamlessly integrated into the existing financial system.
So, when it comes to stablecoins versus CBDCs for cross-border transactions, the major advantage of stablecoins would theoretically lie in their potential to provide a more decentralised and privately issued alternative, but this comes at the cost of the issuer’s need to maintain reserves and the risk of attracting US scrutiny for not complying with AML and KYC. CBDCs, on the other hand, can achieve similar regulatory compliance with potentially lower costs, particularly if they are integrated directly with central bank infrastructure and fall exclusively inside existing regulations for US dollar usage.
In short, while stablecoins might seem advantageous in some specific contexts (e.g., in emerging markets, internal corporate transfers, or in situations where pure decentralised transactions without any government control are preferred), they face significant competition from CBDCs, which could ultimately make them less relevant as the regulatory and cost advantages of central bank-issued digital currencies materialise.
Furthermore, stablecoins are a more expensive means of payment / IOU. As such, one wonders what the necessary conditions are for a market for stablecoins other than at the fringes of global economic transactions. For cost reasons they will be peripheral. The core issue is that, for all the benefits of decentralisation and speed, the costs associated with collateral management, transaction fees, regulatory compliance and their propensity to de-peg (not exchange 1:1 with the dollar) make them a less attractive option for mainstream use. In highly regulated, high-volume transactions, such as international trade or large-scale financial transfers, the added costs of stablecoins and increased risk may well be hard to justify in the majority of cases.
That said, stablecoins may still have a niche in certain areas, such as smaller-scale or informal markets, or regions with limited access to stable financial infrastructure. However, for the broader global economy, the cost and risk structure likely keeps them on the fringes.
Thus, the claimed benefits of decentralisation for stablecoins are watered down by the fact that issuers and users need to comply with KYC and AML regulations. The principal advantage was privacy which is undermined by these regulatory requirements. For stablecoins to function effectively in the mainstream financial system and gain regulatory approval, issuers and users must comply with the same rules that govern traditional financial products, which essentially undermines the privacy benefits. Users who might have been attracted to stablecoins for their anonymity and decentralised nature find themselves subject to the same scrutiny and regulatory oversight as they would be using conventional banking or financial services.
So, while stablecoins might still offer some degree of privacy in specific contexts (like peer-to-peer transactions), they can no longer be considered fully private or decentralised once KYC and AML compliance is factored in. This makes them less appealing to those seeking the privacy advantages they once promised.
Stablecoins and USD Reserve Status
Given these limitations, we are compelled to wonder whether and how stablecoins may contribute to bolstering the USD’s reserve status.
The idea that stablecoins could help bolster the USD’s reserve status is built on an assumption that decentralised digital assets can operate in a way that bypasses traditional regulatory frameworks, which simply isn’t the case if used legally. Stablecoins are pegged to the USD, and their issuance is subject to KYC and AML regulations, meaning they are still heavily tethered to the traditional financial system, where the USD’s reserve status is already firmly established.
In this sense, stablecoins don’t offer a novel solution to enhance the USD’s global primary status; they merely offer a more expensive, slightly more efficient time-wise, and largely centralised rather than decentralised way of conducting transactions within a framework that remains fundamentally controlled by the same regulatory bodies and institutions that govern traditional financial systems. Moreover, any advantage stablecoins might have in terms of cross-border payments is dwarfed by the regulatory and cost burdens they carry compared to CBDCs or existing financial infrastructure. As such, the push for stablecoins to strengthen the USD’s global standing seems more like a misunderstanding of the broader financial landscape than a genuine path forward. Instead of reinforcing the USD’s role, they add complexity, risk and cost without offering much in return in terms of practical benefits.
The Trump administration’s stance against CBDCs, which was framed largely around concerns about government surveillance and control, has boxed it into a difficult position. Having strongly criticised CBDCs, particularly through rhetoric about privacy and centralisation, the administration now faces the challenge of advocating for a digital currency solution that aligns with its broader political narrative while also remaining competitive in the rapidly evolving financial landscape. The dynamics of political campaigns has created a situation in which the administration has been boxed into a corner where it must promote an inferior solution so as not to look like it is behind the digital currency eight ball.
Stablecoins, despite their inherent limitations (like the need for collateral management, higher transaction costs, and regulatory burdens), offer a way out of this political predicament. They are seen as a “compromise” solution that still embraces the notion of digital currencies being provided by the private sector while avoiding the direct embrace of CBDCs. However, this move is problematic in that stablecoins are not an ideal answer. They don’t solve the underlying issues of cost, privacy, or decentralisation, and their reliance on traditional financial systems and regulatory frameworks (KYC, AML) undermines the very qualities that would have made them a truly alternative solution. In the end, stablecoins are more similar to CBDCs than made out in the press without many of their benefits.
By backing stablecoins instead of CBDCs, the US administration risks endorsing a more complex and inefficient solution, just to avoid appearing “behind the curve” on digital currency. In the long run, this could prove to be a short-sighted approach, as the global financial system increasingly shifts toward more efficient, secure, and centrally regulated digital currencies, especially CBDCs, spearheaded by countries that have been more open to their development.
The powerful irony is that in their efforts to rally against the Federal Reserve (the Fed) and its control over monetary policy, Trump and his allies are inadvertently promoting and creating a system that still relies heavily on the Fed as the backbone, since stablecoins are pegged to the USD. Despite the rhetoric against the Fed, stablecoins operate within the very framework that the Fed has established for the U.S. dollar. By pegging stablecoins to the USD, issuers are essentially anchoring their digital assets to the value and stability of the U.S. dollar, which is strongly influenced by the Fed’s policies. This undermines the anti-Fed narrative, as the stability and value of the stablecoin are fundamentally tied to the Fed’s decisions regarding interest rates, inflation, and the broader U.S. monetary policy landscape. Most importantly they do not promote the singleness of the dollar as stablecoin prices on the exchanges required to trade them can vary considerably above or below the dollar. A dollar is no longer a dollar.
In essence, this is creating a parallel financial system that mirrors traditional finance in many ways, while at the same time relying on the very institutions they criticise. The stablecoin market may promote an alternative form of digital finance, but it cannot fully detach from the existing monetary system, which ultimately remains controlled by central banks. It’s a situation where they’re attempting to bypass the Fed, but are forced to accept its dominance in practice, exposing the contradictions in their stance.
Recall that a stablecoin is essentially a digitalised, collateralised IOU, much like a “bank check” or a promissory note. It represents a claim to a certain amount of fiat currency (usually USD), backed by collateral that the issuer holds. Just as a bank check is a promise to pay a specified amount of money on demand, a stablecoin is a promise that its holder can redeem it for a set amount of fiat currency (or a claim against reserves) at any given time.
The key difference is that stablecoins use blockchain technology to facilitate these promises in a (quasi)decentralised digital environment. However, they still rely on the same underlying principle as traditional bank checks: a promise to pay, with the collateral backing that promise being the peg to the USD (or another asset). Except now, we are forced to accept the financial soundness of a third party dollar provider, all of whom seek monopoly status on stablecoin dollars.
In the end, despite the technological wrapper, stablecoins don’t fundamentally alter the nature of a non-monetary promissory note as a claim on collateral, they just digitise the process, offering a more time-efficient, albeit costlier, way to engage in exchanges, while still relying on traditional financial systems and institutions for stability and backing.
The U.S. government’s actions in blocking or restricting certain stablecoin transactions already, directly undermine the claims of “censorship resistance” and the decentralisation that are often touted as key benefits of blockchain-based systems. While blockchain technology, at its core, offers a decentralised ledger that could, in theory, allow for censorship-resistant transactions, the reality is that stablecoins, especially those that are issued by centralised entities (like Tether or USDC), are still subject to regulation and government oversight. The government can intervene, just as it does with traditional financial systems, by freezing accounts, blocking transactions, or pressuring issuers to comply with certain rules.
This shows a significant contradiction: while the technology behind stablecoins is decentralised, the stablecoins themselves, due to their reliance on centralised issuers, collateral reserves, and adherence to regulatory frameworks like KYC/AML, are not meaningfully censorship-proof or decentralised. They are subject to the same types of control and intervention as traditional financial products.
So, while stablecoins may provide some of the technological advantages of blockchain (like faster, 24/7 availability and cheaper transactions), they do not necessarily deliver on the promise of complete decentralisation or immunity from government intervention, particularly in the case of transactions tied to the U.S. dollar or other fiat currencies. This undercuts the narrative of “decentralised freedom” that is often associated with crypto, revealing that the system is, in many respects, just as vulnerable to regulation and censorship as traditional financial systems.
Cryptocurrency
Stablecoins are tightly bound to the cryptocurrency ecosystem. As long as cryptocurrencies are pegged to or denominated in fiat currencies, especially the U.S. dollar, the fiat currency will always remain the dominant partner in the pair. This is because the value of any cryptocurrency is, at the end of the day, ultimately measured in terms of fiat currency, which is still the standard for value exchange.
When cryptocurrency markets face volatility, traders typically seek the relative safety and liquidity of USD, retreating to it as a store of value or as a way to lock in monetised profits during uncertain periods. This dynamic is evident in the way liquidity shifts toward USD during market panics, or when ‘pump and dump’ schemes drive speculative activity. Even in decentralised crypto markets, the influence of the USD remains paramount because it is the accepted unit of account.
Cryptocurrencies may offer some degree of independence from fiat systems, but their role in the market is still inextricably linked to fiat currencies. This relationship is also evident in the way many cryptocurrencies (including stablecoins) are priced and traded. Essentially, they’re often seen as either a speculative asset or a mechanism for transferring value, with their worth still fundamentally tied to, and denominated in, fiat money.
In this sense, cryptocurrencies can’t fully sever their connection to fiat currencies as long as they continue to be denominated in USD or other national currencies. Their volatility, and their role in the broader financial system, will therefore always be shaped by the underlying dominance of fiat currencies.
Crypto markets have perhaps inadvertently played an important role in an increasingly financialised U.S. economy by creating another outlet for the ever growing stock of USD liquidity in the system. Thus crypto value indexes in USD terms tend to track M2 growth, and unsurprisingly also track growth in the S&P 500 and aggregate indexes of real estate value change. The rise of cryptocurrency markets can be seen as an unintentional extension of the increasingly financialised U.S. economy, particularly when viewed through the lens of liquidity. The explosion of crypto markets, with their USD-denominated valuations, has created an additional outlet for the vast and growing stock of USD liquidity circulating in the system, essentially providing another avenue for money capital to flow.
Cryptocurrencies are the apotheosis of fictitious capital.
When liquidity in the U.S. economy increases, whether through monetary policy actions, fiscal stimulus, or other mechanisms, it flows into various financial assets, including cryptocurrencies. The crypto market, particularly as it has evolved with institutional involvement and growing investor interest, has increasingly become another outlet for this excess liquidity, much like equities or real estate. Furthermore, the correlation between crypto value indexes and traditional financial markets (stocks and real estate) reflects the growing integration of cryptocurrencies into the broader financial ecosystem. Cryptocurrencies are now, in many ways, part of a broader “risk-on” environment, where easy money policies (low interest rates, high liquidity) lead to rising asset prices across the board. This further blurs the lines between crypto and traditional assets, underscoring their role as part of the larger financialised system and are tightly correlated with it.
The interaction between M2 growth, crypto markets, and traditional financial assets also suggests that crypto is not immune to the broader dynamics of financialisation. Rather than being a separate or alternative system, it has become embedded in the same economic forces that influence stock markets, real estate, and other traditional forms of capital accumulation.
Interestingly, of all the financial assets available, cryptocurrencies provide the holder with no legal right to future value other than the change in capital value at a future sale of the crypto token itself. Unlike traditional financial assets, such as stocks, bonds, or real estate, which come with some form of legal claim to future value (e.g., dividends, interest payments, or rental income), cryptocurrencies offer no such guarantees. The only “future value” that a cryptocurrency holder can claim is the potential capital gain (or loss) that arises from selling the crypto asset at a future price, ultimately denominated in fiat currency.
This lack of a future cash flow or income stream is a fundamental characteristic that differentiates cryptocurrencies from other forms of fictitious capital. While stocks provide equity ownership in a company, with potential rights to dividends or voting power, and bonds offer a promise of repayment plus interest, cryptocurrencies do not offer any formal claim to income, dividends, or even a share in any underlying economic activity. Instead, they are purely speculative, relying solely on the hope that their value will increase and that someone will buy them at a higher price in the future. Thus the mentality of “the price goes up” reigns supreme in the crypto ecosystem.
This lack of legal rights to future value also highlights the risks inherent in holding cryptocurrencies. Without any backing from tangible assets or future claims, their value can be highly unstable and disconnected from any fundamental economic activity. For many investors, this means that cryptocurrency is more about trading price fluctuations than about securing ownership in productive assets or income-generating ventures.
Cryptocurrencies do not have any inherent use in production processes or consumption. They don't contribute to the creation of physical goods or services. They are essentially digital artifacts that derive their exchange value from speculative demand and the belief that they can be sold at a higher price in the future. Unlike commodities, which are tied to real-world needs and production, cryptocurrencies don’t play a direct role in any economic cycle except as a speculative asset. In this way, crypto can't be considered a commodity in the traditional sense because it lacks the utility that drives the value of physical commodities. Cryptocurrencies are a form of fictitious capital; specifically, they function as digital speculative assets rather than productive resources.
Strategic Crypto Reserve
Now let’s return to the Trump administration’s strategic crypto reserve. Given that cryptocurrencies’ value is only based on trading activities, in what way can this reserve be anything other than a speculative vehicle? If the value of cryptocurrencies is based purely on trading activity, speculation, and market sentiment, then any reserve built around them would also be inherently speculative betraying the very definition of reserve.
The problem with treating cryptocurrencies as a strategic reserve is that, unlike traditional reserves like gold or even fiat currency, they lack a value connection to the productive economy of use values. The value of cryptocurrencies is not tied to tangible assets, future income streams, or a formalised claim on productive capacity. Instead, their value fluctuates based on investor sentiment, speculative demand, and broader market dynamics.
A crypto reserve would therefore be subject to the same volatility and speculative risk as the cryptocurrencies themselves. Unlike a gold reserve, which has historically had stable value due to its use in industry, finance, and as a store of value, or a fiat currency reserve, which is backed by the full faith, legal enforcement capabilities and credit of a government, a crypto reserve lacks these stabilising forces. It could experience wild swings in value based on market trends, regulatory actions, or technological developments that affect the cryptocurrency ecosystem. Claims that cryptocurrencies, particularly Bitcoin are “digital gold” have been consistently disproven during market disruptions.
If the U.S. government were to set up a strategic crypto reserve, it would essentially be treating cryptocurrencies as speculative assets, subject to the same risks that any investor faces in the crypto market. Any reserve based on cryptocurrencies would likely be viewed as a speculative vehicle rather than a strategic or stable asset, and its value could be highly unpredictable. This makes it difficult to justify the idea of cryptocurrencies as part of a national reserve strategy unless the primary goal is to engage in speculative investment, which seems at odds with the goals of a strategic reserve meant to provide stability and security.
It seems that the reserve has another function - to effectively be a market maker while private interests exploit market volatility. We have seen this with the $TRUMP token in which 14 wallets profited to the tune of $56m even though they had never bought the token, and as reported recently by the Financial Times, a small group of traders made off with a $99.6 million windfall by buying $MELANIA tokens minutes before it was made public. Most recently, there have been reports that the President is rewarding the top 200 $TRUMP holders with dinner at the White House. Unsurprisingly the dollar value of the token surged 60% upon this news. A strategic crypto reserve serves a secondary function as a market maker, providing liquidity to the cryptocurrency markets and smoothing out volatility, while private interests, such as those behind tokens like the $TRUMP token, exploit these fluctuations for profit. This would be a form of indirect market manipulation or stabilisation, where the reserve intervenes to ensure that the market doesn’t collapse or face extreme volatility, allowing speculative actors to thrive without the risk of a total market downturn.
By maintaining a crypto reserve, the government (or a government-backed entity) could step in as a buyer or seller of last resort, ensuring that there’s always liquidity in the market. This might help mitigate the wild swings in crypto prices and provide a buffer for traders who want to exit or enter positions without triggering catastrophic market movements at the cost of ordinary citizens.
The example of the $TRUMP token is a good illustration of how volatile markets can be used for private gain. Tokens like this often experience rapid rises in value based on speculation, marketing, and social media hype, with the expectation that those in the know can sell at the peak of the volatility. A market-making role for a government-backed reserve could provide stability in such volatile environments, creating an artificial sense of ‘legitimacy’ for these tokens by ensuring that there’s always some level of liquidity to facilitate buying and selling.
This approach would allow private entities to profit from market volatility without facing the full risks of market crashes, essentially creating a safer environment for speculative activities. However, this type of intervention could also create moral hazard, where the market participants may assume that the government-backed reserve will always intervene to prevent significant losses, leading to riskier behavior.
This raises further concerns about the potential for regulatory capture or conflict of interest if private interests are able to exploit such market-making mechanisms. The reserve could end up effectively subsidising the speculative activities of private actors, which raises questions about fairness, transparency, and accountability in the crypto space. In this sense, the crypto reserve could function less as a stabilising asset for the broader economy and more as a strategic tool to support market liquidity, potentially at the expense of creating a speculative environment ripe for private profiteering.
Furthermore, rather than being used as a stabiliser, its movements would be exploited to create volatility as the reserve could act as a pump instigator. This scenario highlights another critical concern: rather than stabilising the market, a crypto reserve could indeed be used to instigate volatility, effectively acting as a “pump” mechanism for certain cryptocurrencies or tokens. By making large, strategic movements in the market, whether through buying or selling substantial amounts of cryptocurrency, the reserve could create dramatic price swings, which could then be exploited by private actors looking to profit from volatility.
If the reserve is seen as having the power to move the market, it could inadvertently (or intentionally) create price surges, which would then attract traders and speculators looking to capitalise on these artificially induced price movements. In such a scenario, the reserve would not be stabilising the market but, in fact, making the market more volatile and speculative.
This could work similarly to how “pump and dump” schemes operate in traditional financial markets, where large players or entities manipulate prices by creating artificial demand, only to later sell off their holdings at the inflated price, leaving smaller investors holding the bag. If the reserve is large enough or operates with enough market-moving power, it could create a feedback loop of volatility whereby rising and falling prices are driven by strategic market manipulation rather than organic market forces. In this context, private actors could leverage the reserve's movements to position themselves for profit, buying up tokens before the reserve takes action, and then selling into the price spike. This would be a form of market exploitation rather than any true market stabilisation. Given the speculative nature of cryptocurrencies and the lack of regulatory oversight in some areas, a reserve’s influence could be easily used as a tool to engineer price movements that benefit certain stakeholders, particularly those with early access to the reserve’s actions or those who are able to react swiftly to market signals. Imagine a scenario for crypto that is analogous to trying to front-run Fed interest rate adjustments in the bond market.
Thus, rather than providing stability or security for the broader crypto market, such a reserve could end up further entrenching speculative bubbles and creating an environment where volatility is not only accepted but actively encouraged for profit.
As cryptocurrencies have no use value other than capital growth denominated in USD the reserve can have no real purpose unless it liquidates holdings to realise capital growth, or it leverages the reserve for borrowings. Since cryptocurrencies fundamentally derive their value from capital appreciation in USD terms (and not from use value or claim on future value), the only meaningful purpose a government-backed reserve could serve is either to liquidate holdings to realise capital gains or to leverage those holdings for borrowing, both of which carry significant risks and complications.
If the reserve’s goal is to profit from the appreciation of cryptocurrencies, it would likely need to liquidate its holdings at certain points to cash out on any price increases. This approach makes the reserve less about holding long-term value and more about timing the market; in other words, using cryptocurrencies as speculative assets. The problem with this is that it would introduce a significant amount of market risk. The reserve’s ability to profit from crypto would depend entirely on its ability to buy at low prices and sell at high prices, which is challenging in such a volatile and unpredictable market. Moreover, large sell-offs could themselves trigger significant price drops, creating instability and undermining the reserve’s value. El Salvador’s attempt and subsequent retreat from its Bitcoin reserve and recognition as national currency should serve as a warning.
Another potential use of the reserve could be to leverage the cryptocurrencies it holds to take on debt, using them as collateral for loans. This approach would allow the government or the reserve to access liquidity without having to sell the crypto assets directly. However, this strategy also introduces significant risk, especially given the volatility of cryptocurrencies. If the value of the reserve's holdings falls sharply, the government could find itself in a precarious situation, needing to either sell at a loss or inject additional capital to meet collateral requirements.
In both cases, the reserve would still be largely dependent on the speculative growth of cryptocurrencies, which are inherently volatile. If the goal is to generate wealth or financial flexibility, it would effectively make the reserve a vehicle for speculative profit rather than a genuine store of value or strategic asset. The real-world utility of such a reserve would be limited and closely tied to the unpredictable dynamics of the cryptocurrency markets, leaving it vulnerable to market crashes, liquidity crises, and other speculative risks. Additionally, if this reserve were to leverage crypto holdings for borrowing, it could amplify the risks of over-leveraging and market exposure. In essence, such a reserve would mirror the behavior of speculative hedge funds, which use high-risk strategies to chase short-term profits, but with the added complexity of cryptocurrencies’ unique volatility.
Given these factors, it’s hard to see how a cryptocurrency-backed reserve could have any real purpose other than as a speculative vehicle. It would be difficult to justify it as a stable financial tool when its value depends entirely on market movements and the potential for quick capital gains, making it a highly risky asset in the context of national financial strategy. If, however, the government never sells and holds onto its crypto assets, it risks becoming the ‘last fool’, that is the last entity to realise that the market is saturated, overvalued, or crashing. This would mean that it could be left holding assets that have no appreciable exchange value, as the speculative bubble bursts and market sentiment shifts.
The ‘last fool’ theory is a well-known concept in speculative markets, where the price of an asset is driven up by continual buying, but the last buyer, often the most committed or institutional buyer, ends up being the one who gets stuck with the asset when the price collapses. In the case of a government reserve, this risk is even more pronounced because the government’s primary responsibility is to safeguard public wealth and stability. By holding cryptocurrencies indefinitely, it could be putting taxpayer funds at risk in a highly volatile market with no guarantee of returns.
In such a scenario, the government might be unable to exit the position without triggering a massive loss, as large-scale selling of the reserve’s holdings could cause a market crash or further depreciation in the value of the cryptocurrency. This is especially problematic for a government-backed reserve that lacks the agility of private investors and may be constrained by political and legal considerations when it comes to timing its exit from the market.
Moreover, if the government were to become the largest holder of a cryptocurrency, its decisions to sell (or not sell) would carry disproportionate market influence, making it even more vulnerable to volatility. It would be at the mercy of market sentiment and speculators, who might take advantage of any signs of weakness or uncertainty surrounding the reserve’s holdings. Ultimately, a crypto-backed reserve would not only expose the government to speculative risk but also undermine the very concept of a stable reserve asset that is meant to protect the economy from such swings. Instead of being a stabilising force, it would become a highly speculative and potentially damaging liability, particularly if the reserve finds itself holding onto assets as the market turns against it.
In such an environment, the public would likely bear the brunt of any negative consequences, while those closely associated with the reserve - such as political insiders, financial elites, or private actors with early access to the reserve’s movements - could stand to gain significantly. This scenario aligns with what is often referred to as ‘privatising the gains and socialising the losses’, where the profits from speculative activities are captured by a small group of insiders, while the broader public, who may have no access to or understanding of the mechanics at play, ends up shouldering the costs when the bubble bursts.
Here’s how the dynamics might unfold:
Those with early or privileged access to the reserve’s actions, such as large institutional investors, crypto developers, or insiders, could capitalise on market movements created by the reserve’s buying or selling actions. By predicting or even influencing the reserve’s behavior, these players could buy up assets before a pump and sell at the peak, making significant profits at the expense of the broader public.
The general public, who may be unaware of the reserve’s movements or who are unable to react swiftly, would be exposed to the market volatility generated by the reserve’s speculative actions. If the reserve were holding large amounts of volatile assets and their value collapsed, it could be the public (or taxpayers) who end up facing the financial fallout - whether through the cost of supporting the reserve, potential government bailouts, or other indirect consequences like inflation or reduced public services.
The reserve could also incentivise a moral hazard where private actors take on more risk, knowing that the government (through the reserve) will act as a safety net, or that it will intervene if markets go into a tailspin. This encourages risky speculative behavior because the downside is seen as being absorbed by the public sector, not by the investors themselves.
With a reserve of cryptocurrencies, especially if it operates without clear oversight or public transparency, it would be very difficult for the public to understand the true risks involved. If insiders are able to manipulate the reserve’s activities, they could funnel funds into their own pockets without any meaningful checks, leaving the taxpayer exposed to losses without any recourse.
In the worst case, such a reserve could end up as a vehicle for wealth extraction, where the benefits of speculation flow disproportionately to those with insider knowledge or access, while the costs of any collapse are borne by the public. This could further exacerbate inequality and undermine trust in both the government’s management of financial systems and the cryptocurrency market itself. Ultimately, the idea of a government-backed crypto reserve introduces a dangerous cycle of risk, where the speculative behavior could benefit a small group of individuals while putting the general public in a vulnerable position, both financially and in terms of public trust.
Financialised Psychosis
All of this is symptomatic of an economic system that has become totally financialised and runs counter to Trump’s stated ambitions for reindustrialisation of America. The analysis so far highlights the disconnect between the broader economic ambitions of reindustrialisation, particularly as articulated by Trump and his supporters, and the reality of an economy that has become deeply financialised. This financialisation has turned the economy into one that prioritises capital flows, speculation, and short-term profits over long-term productive investment, such as manufacturing and infrastructure development.
Financialisation and productive investment define a critical contradiction at the heart of the US political economy. Financialisation refers to the increasing dominance of financial motives, financial institutions, financial instruments and markets, and financial actors in the economy. This leads to an environment where money capital is directed into fictitious capital assets (stocks, bonds, derivatives, forex, cryptocurrencies) rather than being invested in the real economy, such as infrastructure, manufacturing, or research and development. The speculative nature of fictitious capital markets, including stablecoins and cryptocurrencies and the growing trend of financial engineering, distracts from creating tangible, long-term economic value like jobs, production, and technological innovation.
On the other hand, Trump’s reindustrialisation rhetoric emphasised the idea of bringing manufacturing and productive industries back to the U.S. These industries rely on stable investments, long-term planning, and substantial money capital expenditure in production rather than the rapid churn of financial products and speculative capital.
Financialisation creates conditions in which speculation trumps productive investment. The crypto reserve is just one symptom of the larger issue of speculative wealth accumulation in a financialised system. Rather than focusing on productive uses of capital, such as building new factories or increasing domestic manufacturing, financialisation channels capital into markets that rely on volatility and short-term capital appreciation. The speculative nature of cryptocurrency markets doesn’t contribute to any productive process; it's just a way to generate capital growth denominated in USD, which isn't tied to any real output. This type of capital allocation undermines the very concept of reindustrialisation because it pulls resources away from long-term investments in physical infrastructure, labor, and innovation.
In a financialised system, the focus on short-term capital gains can create the illusion of economic success or wealth generation, even though it doesn't correlate with actual increases in productive capacity or job creation. Trump’s desire to make America “great again” through reindustrialisation involves shifting focus from these illusory wealth measures, like stock market gains or crypto bubbles, to rebuilding industries that actually produce value. But in a financialised economy, those traditional models of growth and development are undermined because the capital flows don’t support long-term infrastructure or manufacturing; they just support asset bubbles.
The disconnect is also stark in terms of public perception. The financial markets (which include speculative crypto investments) might be seen as thriving, but for most working-class Americans, this doesn’t translate into better jobs, wages, or opportunities. The focus on market-making for speculative assets might benefit private actors and insiders but leaves the broader population exposed to the volatility of those markets. The dream of reindustrialisation, which aims to benefit the broader public by creating stable, well-paying jobs, stands in stark contrast to the reality of a financialised economy, where the winners are those who can manipulate markets, rather than those contributing to the real economy.
The system’s financialisation undermines any genuine push for industrialisation. Cryptocurrency reserves and speculative vehicles may make a few people rich, but they do little to actually rebuild the country’s manufacturing or provide long-term, sustainable economic growth. Trump's push for reindustrialisation, which aims to address the country’s long-term economic decline and rebuild its industrial base, stands in stark contrast to the ongoing trend of financial speculation, which prioritises short-term profits and the manipulation of capital rather than actual productive work.
Cryptocurrencies and the reserve system are perhaps the most extreme manifestation of the financialised economy’s ‘psychosis,’ as they epitomise a system driven by speculation, volatility, and the pursuit of capital growth at the expense of tangible value. This has created an economic environment where value is increasingly disconnected from real production or utility, and the focus is entirely on financial instruments as the primary mechanism for generating wealth.
Cryptocurrencies, at their core, have no use value and their exchange value is fundamentally driven by speculative price movements. Unlike commodities, which can be used in production processes or consumed, or traditional financial assets tied to productive activity, cryptocurrencies depend entirely on market sentiment and trading activity. The idea of a government-backed reserve based on such assets, instead of being a stabilising force for the economy, would be part of this detachment from real-world value. The reserve would not be grounded in industrial growth, job creation, or infrastructure development; it would merely be capital manipulation in its most abstract form. Furthermore the use of stablecoins as a means of paying for traditional financial assets tied to productivity more deeply injects this financialisation into these existing systems essential for economic stability.
Financialised economies thrive on the movement of capital, that is the buying, selling, leveraging and speculating, rather than on the creation of real wealth through production and innovation. Cryptocurrencies are emblematic of this, as their value is primarily driven by traders and speculators rather than any productive or utility-driven force. The creation of a cryptocurrency reserve is an attempt to formalise this speculation, not to drive economic growth, but rather to fuel more speculative behavior. The system becomes a perpetual cycle of financial gaming, where value is derived not from use value output but from market actions that constantly shift with investor sentiment.
In a financialised system, much of the value of instruments of exchange value is illusory; it exists only as long as there’s market demand for it. Cryptocurrencies are especially susceptible to this, as they’re based on scarcity and demand rather than utility or production. The creation of a reserve tied to such assets only perpetuates this illusion of value. The reserve itself could be seen as a symbol of wealth that exists without any tangible backing, just a collection of digital tokens whose worth is predicated on future speculation. The illusion of value created by this system may allow it to grow and gain legitimacy in the eyes of some investors, but it doesn’t create any real long-term wealth for society.
The speculative nature of crypto markets, combined with the potential for large, market-moving actions from the reserve, essentially makes volatility itself the driving force of the economy. Rather than providing stability, the reserve would exploit volatility to achieve short-term capital growth, benefiting those who are quick to act but leaving the broader population vulnerable to sudden crashes. This dynamic is deeply psychotic in the sense that it distorts the purpose of money and capital. Rather, it shifts from being a means of exchange or a store of value to being a vehicle for risk and speculation, with little to no regard for its real-world consequences on people’s lives or the broader economy.
This system also feeds into a moral hazard, where speculative actors take on risk knowing that the government or large financial institutions will bail them out if things go wrong. If the reserves were used to artificially inflate the value of certain assets or to create speculative bubbles, the real losers would likely be the public, as the risks are socialised while the profits are privatised by insiders. This exploits the broader economy for the benefit of a small group, making it a financialised psychosis in the purest sense, an economic system where financial products, not real productivity, determine who wins and loses.
The fact that these assets (cryptos and speculative reserves) are completely decoupled from any real use value production is the most striking symptom of this financialised psychosis. In a traditional economy, value creation comes from manufacturing goods, providing services, and investing in infrastructure. But in the crypto system, (exchange) value is generated from market movements, artificial scarcity, and abstract speculation, with little to no direct link to real economic activity. The re-industrialisation Trump promoted would require a return to a system that values tangible production, not the creation of artificial value through financial manipulation. The cryptocurrency system, particularly with a reserve, would be an anathema to this, further entrenching the financialised mindset that prioritises speculation over sustainability.
The notion that dollar transactions shift to stablecoins only amplifies this financialisation. By subjecting users to the market shifts of stablecoin prices they further financialise sectors which were not financialised when trading in traditional dollars. In essence, stablecoins ensure that productive sectors are further subjected to the vagaries of stablecoin value and the credit risk of the private companies that issue them, many of which will have different regulators. The current GENIUS Act recognises state regulation and potential compliant foreign regulators.
Cryptocurrencies, stablecoins and the reserve would represent the ultimate culmination of a system that has lost sight of its real purpose, serving the needs of society through productive investment, and instead focuses solely on the creation of capital for the benefit of a small group of insiders. The public, caught in this speculative environment, risks being left with the consequences when the bubble bursts, while those with the power to manipulate the system remain largely insulated from its worst effects. It is a financialised psychosis - a system that has distorted the very nature of value, turning it into a speculative game rather than something that serves the broader needs of society.
This essay has benefited from the keen eye and expertise of my friend Richard Turrin. All errors and omissions are of course mine. Rich is the author of Cashless - the definitive account of the emergence of the digital RMB in China. Cashless is available at Amazon.
My recent essay ‘Behind the Potemkin facade: an emperor denuded’ discusses the concept of exchange value within the broader conceptual architecture that helps informs my various writings.