Cryptocurrency markets suffered a sharp downturn on Monday following President Donald Trump’s executive order establishing a US strategic bitcoin reserve. While initially seen as a victory for crypto advocates, the market reaction was overwhelmingly negative as details of the plan disappointed investors.
Bitcoin and other digital assets saw significant losses within minutes of the announcement, with Bitcoin plunging over 5% to trade at $81,712, according to Coin Metrics. Ethereum and XRP also recorded losses of around 7.5% during early trading hours in Singapore. The sudden sell-off erased billions from the total market capitalisation, defying expectations of a bullish rally.
Investor Sentiment Turns Sour
Analysts attribute the market’s disappointment to the government’s decision to populate the reserve using seized crypto holdings rather than new acquisitions. Many traders had expected the US government to buy bitcoin in large quantities, which could have reduced circulating supply and boosted demand. Instead, the administration’s reliance on confiscated assets dampened enthusiasm.
“The executive order didn’t spark a rally because the market expected new government purchases,” said Rachel Lin, CEO of decentralised exchange Synfutures. “Instead, it’s using existing seized Bitcoin. Investors felt let down.”
Crypto market experts believe that short-term disappointment, coupled with broader macroeconomic concerns such as rising US import tariffs, could push Bitcoin below $82,000, increasing downside risks. The government’s approach to stockpiling assets, without committing to fresh purchases, remains a key source of frustration.
The Impact of Seized Funds
David Sacks, the Trump administration’s AI and crypto czar, confirmed that the reserve would rely solely on digital assets seized from criminal enterprises rather than new Treasury purchases. This deflated speculation that federal acquisitions would inject fresh capital into the market.
Since January, when Trump first hinted at the formation of a crypto reserve, industry leaders had anticipated a wave of institutional demand. The reserve, estimated to hold over 200,000 BTC worth roughly $17 billion, includes assets seized from cases such as the Silk Road investigation and Colonial Pipeline ransom recovery.
“Traders were positioned for a demand shock, but the policy as structured doesn’t change the supply-demand equation,” said Marcus Thielen, head of research at Cryptoquant. “The government isn’t soaking up coins; it’s reshuffling ones it already owns.”
Long-Term Market Perspective
Despite the initial sell-off, some investors maintain that the strategic reserve is a positive development for the crypto industry in the long run.
“I absolutely think the market has this wrong,” said Matt Hougan, chief investment officer at Bitwise Asset Management. “The market is short-term disappointed that the government didn’t say it was immediately going to start acquiring 100,000 or 200,000 bitcoin.”
Hougan pointed to comments from Sacks, who indicated that the administration would explore “budget-neutral strategies for acquiring additional bitcoin, provided that those strategies have no incremental costs on American taxpayers.”
Unanswered Questions and Market Uncertainty
While the reserve’s creation marks a step toward regulatory acceptance of crypto assets, the policy’s long-term impact remains unclear. Investors are left wondering whether the US government will actively trade its holdings or liquidate portions to stabilise the market during periods of volatility.
Last week’s market slump reflects a classic “buy the rumour, sell the news” scenario. Bitcoin and other cryptocurrencies had been rallying in anticipation of Trump’s executive order, only for the actual details to deflate expectations.
“The apparent capricious favouritism in the administration’s selection of assets for the strategic reserve is a strong deterrent to investors,” said Ari Paul, co-founder of BlockTower Capital. “It’s created the impression that the Trump administration is engaged in lobbying-based selection and promotion of ‘insider’ assets.”
As the market digests the implications of the US government’s crypto strategy, analysts suggest that broader economic factors, including interest rate policies and trade tensions, will play a bigger role in determining Bitcoin’s next move.
