Former NY Fed chief blasts Trump’s Bitcoin reserve

Former New York Fed chief Bill Dudley has warned against holding Bitcoin as a reserve and called for a focus on regulation.

Dudley criticized the proposed federal Bitcoin (BTC) reserve championed by Donald Trump during the presidential campaign. In his Bloomberg column, Dudley argued that the plan would not benefit most Americans and could destabilize the economy.

Dudley acknowledged Bitcoin’s appeal as a portable and decentralized asset that provides a variety of benefits to investors. But he emphasized that variability, slow processing speeds, and limited real-world utility are significant drawbacks. “Bitcoin is unlikely to qualify as money,” Dudley wrote, noting that its lack of widespread acceptance as payment and its proneness to losses make it an impractical choice for a national reserve.

Financial concerns were also expressed in the column. Dudley argued that creating a Bitcoin reserve would require significant government borrowing or the printing of more money by the Federal Reserve, which would potentially increase inflation and increase debt servicing costs.

He warned that the reserve could primarily inflate Bitcoin prices, providing benefits to existing holders while offering little value to the public.

Bitcoin’s unsustainable price increase

Dudley highlighted a current congressional proposal that would require the government to purchase one million Bitcoins within five years. He described the plan as an unsustainable price-gouging scheme with no clear exit strategy, leaving the government with volatile assets that generate no revenue.

Instead of pursuing such policies, Dudley urged the Trump administration to focus on developing comprehensive regulations for the crypto industry. He proposed measures such as ensuring stablecoins are fully backed by federal entities, defining the legal status of digital tokens, and establishing rules to protect consumers while curbing illegal activity.

“Cryptotechnology has the potential to improve the financial system,” Dudley said, but “without strong guardrails, fraud and abuse will continue.”