Bitwise CIO says 'market has this wrong,' Trump's crypto reserve is bullish despite flaws

Bitwise Chief Investment Officer Matt Hougan said the "market has this wrong" and is "overthinking things" amid the U.S. crypto-reserve fueled Trump pump and slump.

The crypto market initially surged following the President's announcement on Sunday that he had directed a working group to "move forward" on a U.S. Crypto Strategic Reserve, including BTC, ETH, XRP, SOL and ADA — with those assets rising 10%, 15%, 25%, 30% and 70% from last week's lows, respectively.

However, bitcoin subsequently dropped over 10%, and ether plunged more than 15% after Trump's announcement of new tariffs on imports from Canada, Mexico and China fueled risk-off sentiment — erasing the crypto reserve news gains and reminiscent of the infamous President Xi bitcoin candle in 2019, albeit far quicker.

In a note to clients late Tuesday, Hougan argued that market participants soured on the announcement as the proposed reserve holds more than bitcoin, adding that if it had been bitcoin-only, prices would likely be higher. "In particular, the inclusion of speculative assets like Cardano feels more calculating than strategic," he said.

The top five assets in Bitwise's Crypto Index Fund (BITW) match those included in Trump's reserve announcement. However, CEO Hunter Horsley joined industry voices, such as Coinbase CEO Brian Armstrong and Gemini co-founders Tyler and Cameron Winklevoss, in suggesting a bitcoin-only option was the best path.

"I imagined a strategic reserve would be just bitcoin. That makes the most sense to me," Horsley said. "Many crypto assets have merits, but what we're talking about here isn't a U.S. investment portfolio — we're talking about a reserve, and bitcoin is the undisputed store of value for the digital age."

Bitwise also manages a spot Bitcoin exchange-traded fund, with $3.3 billion in assets under management, according to The Block's BITB ETF Tracker page.

Even then, questions remain over how such a reserve would be funded and how likely it is to be enacted — with Federal Reserve and Treasury Department options both likely to require new legislation to be passed by Congress.

"Despite the flawed rollout, I think the market is misreading things. In the end, this is bullish, and I think the market will come around to this view sooner or later," Hougan said, outlining three factors he believes the market is still missing.

Negotiation, replication and nation-state hodling

Hougan suggested that the first proposal would not be the final proposal, reflecting on President Trump's negotiation style, whether that be in regard to geopolitical conflict, tariffs or a U.S. crypto reserve.

That mirrors the view of Taproot Wizards co-founder Udi Wertheimer, among others, who pointed out that the broader crypto reserve may be a negotiation tactic by President Trump. "For a true reserve to happen Trump will have to convince Congress, he can't decide on his own," Wertheimer said on Sunday. "So in Trump chess language this just means he's telling Congress if you don't give me a bitcoin reserve I'm gonna ram Ripple down your throats."

Hougan noted that it's possible that pushback from the announcement could be large enough that the entire concept of a crypto reserve is scrapped or limited to assets already held via seizure. However, he sees that as unlikely, especially ahead of the inaugural White House Crypto Summit on Friday.

"In fact, I think the boldness of the initial proposal has widened the Overton window for what the reserve can be," Hougan said. "Until Sunday, the very idea of a strategic crypto reserve seemed unlikely. Now, a bitcoin-only reserve sounds almost conservative. After the dust settles, I suspect the final reserve will be nearly entirely bitcoin, and it will be larger than people think."

The second factor Hougan highlighted was the impact of the news outside of the U.S., with speculation mounting that an American reserve would spark a global accumulation race as countries position themselves for "the emergence of bitcoin as a globally important monetary asset."

"This week’s announcement — as imperfect as it is — marks the first time the U.S. has ever said that bitcoin is a strategic asset. As long as that stays intact, it feels like a game-changer to me," Hougan said.

Finally, Hougan argued that once bought, the crypto assets would likely not be sold, creating a hodler of last resort, if you will.

While some observers have suggested that even if the Republican President manages to create a reserve, if Democrats take back control in four years' time, they would sell the assets, Hougan finds this unlikely.

"There are a significant number of people who love crypto and a relatively small number who hate it," he said. "We learned this in the last election, where the GOP's courtship of crypto gained it many votes while Democratic hostility gained few. I suspect that any crypto that is purchased will be held for a very long time, like the U.S.'s gold. Democratic leaders won't want to alienate voters at little benefit to themselves."

Ultimately, Hougan expects the Trump administration to follow through on its policy goals and that some version of the reserve proposal will end up going forward. "The market's initial take strikes me as the right one: The U.S. government declaring crypto assets 'strategic' is bullish. I think the market will eventually realize that," he concluded.