Crypto’s next bubble will be politically motivated

Donald Trump is known for loving 19th-century US President William McKinley, whom he credits for improving the US “through tariffs and through talent”. Now there’s another connection.

Trump’s proposed national reserve of cryptocurrencies, including bitcoin and memecoin-focused solana, is reminiscent of the fight for a monetary system backed by both silver and gold in McKinley’s day. The danger today is of a speculative bubble with risks to the US dollar — with looming McKinley-esque tariffs also adding to the pain.

A crypto reserve is uncharted territory for any country, let alone the US, and Trump has been vague about the details. Still, his language goes beyond building a bitcoin stockpile or holding onto the US$17-billion of crypto seized by US law enforcement.

His explicit citing of other tokens such as ripple suggests unprecedented government buying of digital coins that are hugely volatile and have been subject to regulatory scrutiny. It’s a hair-raising precedent on its own: aside from the risk of loss, the Trumps have a stake in crypto’s success — including via solana-based trumpcoin – and such antics will fuel concern about grift and corruption.

There are broader implications, though, stretching back to the politicisation of popular monetary crazes in the 1890s. Back then, “Silverites” — agricultural debtors struggling with falling prices — chafed at the US’s shift to gold as the only commodity that could be accepted for dollars and called for a return to bimetallism.

This debate over sound money was as bitter as any crypto shouting match, pitting those who saw gold as the last word in honesty against those who hoped to cut their debts in half by repaying them in abundant silver. It supposedly inspired the Wizard of Oz (ounce – get it?) and its yellow-brick road.

Cause célèbre

Just as the laser-eyed crypto lobby and its grassroots fans seeded Trump’s pro-bitcoin turn on the campaign trail, bimetallism became a populist cause célèbre during McKinley’s election campaign. Silverites were the precursors of Maga, according to economist Robert Shiller, both because they supported “ardent Americanism” and also because they were vilified by the establishment. After a pro-silver speech by his Democrat opponent, McKinley came into power promising “earnest” pursuit of bimetallism worldwide; it was an idea that promised both an end to perceived injustice and was also complex enough to be “cool”.

Read: Surging gold price is leaving bitcoin behind

The parallels with today suggest that Trump’s reserve, if it became reality, could create a narrative with big ramifications. The political blessing represented by purchases of crypto tokens — similar to the 1890 acquisition of silver by the US government — could give the market new legitimacy as a monetary alternative, sound or not.

While we’re obviously a long way from declaring crypto legal tender, a US taxpayer backstop in digital-asset markets will make a lot of tokens seem safe bets. That brings more risk, more volatility and potentially more inequality if the price swings of trumpcoin or Javier Milei-linked memecoin libra are anything to go by.

This kind of speculative bubble blessed by politicians would ultimately be a huge test for the US dollar, which McKinley ended up tying to the gold standard — until his distant successor Richard Nixon broke convertibility and remade the global system.

Trump’s implicit message that people should sell their US assets and buy crypto is a risky one at a time when the economy faces pressure from incoming tariffs and what Ray Dalio calls a looming heart attack driven by high debt. It would be a test of Gresham’s Law, which states that bad money tends to drive out the good. Let’s hope it never happens — it might look a lot more like the past of money than its future.  — (c) 2025 Bloomberg LP

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