As the U.S. government formalises its involvement in the crypto industry, the future of digital currencies appears increasingly intertwined with national economic strategies.
In a stunning reversal that has sent shockwaves through financial markets worldwide, President Donald Trump has transformed from calling crypto a ‘scam’ to championing with his breathtaking establishment of America’s “Digital Fort Knox” – a mammoth strategic reserve of over 200,000 seized Bitcoin worth an $17 billion.
This move raises critical questions about the future of crypto worldwide, particularly for developing economies that are still lagging behind in technology and navigating the risks and rewards of digital finance. This initiative underscores the administration’s recognition of cryptocurrencies as strategic assets, aiming to solidify the U.S.’s leadership in the global crypto landscape.
David Sacks, appointed as the administration’s crypto and AI policy czar, emphasised that the reserve would be funded through forfeited assets, ensuring no burden on taxpayers. In conjunction with the reserve’s establishment, President Trump hosted a “Crypto Summit” at the White House, reaffirming his commitment to fostering a crypto-friendly environment.
Industry leaders praised the administration’s efforts to reduce regulatory hurdles and promote innovation within the sector.
The US government has nothing to lose as the reserve is based on seized Bitcoin rather than real investment from any stakeholders.
Pakistan Crypto Council officially launched
The era of crypto scepticism in Washington is over. This isn’t just a policy on paper rather this is a clear sign of economic warfare against nations that fail to embrace digital assets.
Concern is raised over potential conflicts of interest, citing the president’s previous ventures into the crypto space, including the launch of a meme coin named “$TRUMP.” The volatility inherent in cryptocurrency markets raises questions about the prudence of such a national reserve.
On the other hand, embracing cryptocurrencies positions the U.S. advantageously in the evolving digital economy. They believe that strategic holdings in digital assets could serve as a hedge against inflation and potentially reduce national debt over time.
Trump’s move signals that crypto is no longer just a speculative asset but a potential financial tool for governments. While the U.S. has the advantage of so called ‘economic stability’ and a well-established financial system, developing nations may find even greater incentives to follow the suit.
For economies struggling with inflation, currency devaluation, or limited access to traditional banking, holding Bitcoin or other digital assets as part of their national reserves:
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Many developing economies suffer from chronic inflation, weakening their local currencies. Cryptocurrencies, particularly Bitcoin, have a fixed supply, making them a potential hedge against fiat currency depreciation.
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A government-backed crypto initiative could bring millions of unbanked citizens into the financial system by enabling easy access to digital wallets.
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A pro-crypto stance could position a country as a hub for blockchain innovation, drawing in global capital and tech talent.
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Countries heavily reliant on the U.S. dollar for trade and reserves could reduce their dependency by diversifying into digital assets.
The risks of crypto volatility
With very volatile fluctuations in its value, Trump’s crypto gamble also highlights significant risks, particularly for nations with fragile economies:
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Bitcoin and other cryptocurrencies are notoriously volatile. A nation betting heavily on digital assets could see the value of its reserves swing wildly, creating instability rather than security.
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Governments worldwide are still grappling with how to regulate cryptocurrencies. Without clear frameworks, countries risk legal and financial chaos if they move too fast.
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Unlike gold or traditional foreign reserves, cryptocurrencies are digital and vulnerable to hacking. Even high-security crypto wallets have been compromised in the past.
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Unlike traditional assets such as gold or government bonds, liquidating large amounts of cryptocurrency could trigger price crashes, reducing their effectiveness as a financial safety net.
Some developing nations have already tested crypto-friendly policies, with mixed results. El Salvador became the first country to adopt Bitcoin as legal tender in 2021, hoping to boost financial inclusion and reduce remittance fees. While the move attracted global attention, it also led to concerns over financial stability, with the IMF warning against excessive reliance on crypto.
Nigeria has seen a surge in cryptocurrency adoption due to inflation and currency devaluation. But government crackdowns and regulatory inconsistencies have stifled growth and caused uncertainty.
How should Pakistan approach cryptocurrency?
Pakistan stands at a crossroads when it comes to cryptocurrency regulation. Given its economic challenges, including inflation, a struggling currency, and low financial inclusion, a well-calibrated approach to digital assets is fundamental in current economic climate.
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Before widespread adoption, educating the public about the risks and benefits of crypto is crucial. This would help prevent scams and financial losses among inexperienced investors.
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Instead of an outright ban or unregulated free market, Pakistan should develop a clear legal framework for cryptocurrency usage, taxation, and anti-money laundering measures. This would provide legitimacy while protecting investors.
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The State Bank of Pakistan could explore the development of a digital rupee to modernise financial transactions while maintaining state control over monetary policy.
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Given Pakistan’s heavy reliance on remittances, testing blockchain-based solutions for cross-border transactions could reduce costs and increase efficiency.
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Pakistan should observe and collaborate with countries that have successfully implemented crypto-friendly policies, learning from their successes and failures.
Navigating the future
Trump’s bold move places the U.S. in a leadership position within the digital financial landscape but it remains to be seen whether this gamble will pay off.
For developing economies, the key lesson is that crypto can be a valuable tool, but only if adopted with careful planning, regulatory clarity, and risk management strategies in place. The fluctuations in Bitcoin price over the period show how risky the gamble could be.
Rather than rushing into large-scale adoption, development of key infrastructure is the first step. Nations could start by experimenting with controlled reserves, integrating blockchain into government operations, and fostering a regulatory environment that encourages innovation while protecting investors.
As the world watches the U.S.’s experiment unfold, one thing is for sure, the role of cryptocurrency in global finance is no longer a question of ‘if’, but ‘how’.
The article does not necessarily reflect the opinion of Business Recorder or its owners
