The consequences of a crypto reserve

Cryptocurrencies are again riding high, after President Trump announced that he would create a national crypto reserve with five tokens, including three lesser-known and highly volatile ones.

It’s the latest boost that Trump has given the crypto industry, which spent some $130 million backing him and other Republicans. But the news drew criticism from many, including conservatives and even ardent crypto backers, over many concerns: giveaways to an already wealthy community, delegitimizing the digital currency industry and more.

“I will make sure the U.S. is the Crypto Capital of the World,” Trump declared on his Truth Social network on Sunday in announcing the reserve, which would involve the federal government stockpiling five tokens: two well-established ones (Bitcoin and ether) and three newer and more thinly traded ones (XRP, solana and cardano).

Proponents say a reserve would help taxpayers benefit from crypto’s price growth. It’s still not clear how such a reserve would work or when it would be introduced, though a Republican-authored bill in the Senate would direct the government to buy one million Bitcoins — worth about $92.6 billion at today’s prices — over five years.

The plan is music to the ears of many in the crypto industry, who have already benefited significantly from Trump moves like picking regulators who will go easier on digital currencies. The price of Bitcoin alone has jumped 36 percent since the election in November.

Critics of all political stripes decried the move. Some Republicans raised questions about spending taxpayer money on risky assets instead of paying down the national debt. Joe Lonsdale, a friend of Elon Musk’s, wrote on X: “It’s wrong to steal my money for grift on the left; it’s also wrong to tax me for crypto bro schemes.”

Some protested the seeming latest conflict of interest involving Trump and crypto, noting that Trump profited from promoting the so-called memecoin $Trump before his inauguration. (The S.E.C. last week said memecoins wouldn’t be subject to regulatory oversight.) “This is getting egregious,” the software developer Nikita Bier replied to Lonsdale’s post. “Every 2 weeks there is a kickback to the family. Completely delegitimizes all the work DOGE is doing.”

Others questioned whether David Sacks, the investor who is Trump’s crypto czar, also stands to benefit from such a reserve. Sacks wrote on X that he had sold his cryptocurrency holdings, but didn’t address any holdings his investment firm has in crypto start-ups. Sacks will chair a first-of-its kind crypto White House summit on Friday intended to discuss ways to spur innovation and growth in the sector.

This poses a longer-term question. Judging by Sunday’s rally in crypto assets, this could vastly benefit crypto investors, who showed that they’re willing to inject huge sums into politics. Could such an explicitly beneficial policy for crypto give them even more ammunition to influence future elections, further reshaping government in their favor?

HERE’S WHAT’S HAPPENING

Consulting firms lobby Washington to save their contracts. Ernst & Young and Booz Allen are among those trying to persuade the Trump administration not to ditch their work agreements, The Wall Street Journal reports. Meanwhile, a new CBS News poll shows Americans are split on whether the so-called U.S. DOGE Service is good; The Times found more errors with DOGE’s contract-cutting math; and President Trump appears to be cautious about cutting Medicaid.

Andrew Cuomo officially enters the New York mayoral race. The former governor, who left Albany in 2021 amid sexual harassment charges, has already picked up two union endorsements and emerged as the new front-runner to unseat Mayor Eric Adams. Cuomo has vowed to crack the city’s homeless problem, and rebuild its police department, but steered clear of mentioning Adams or Trump.

“Anora” scores big at the Oscars. The film took home five Academy Awards, including best picture, director, actress and original screenplay. It has pulled in just $41 million globally, one of the lowest grossing films ever to win best picture, but it illustrated how smaller distributors like Neon, which released the movie, and A24, which was behind “The Brutalist,” outshined bigger studios in awards this year.

How will Europe pay to aid Ukraine?

European defense stocks are rallying on Monday, along with the euro, after the region’s leaders vowed to take on “the heavy lifting” of defending Ukraine from Russia. It’s the latest development in the three-year-old war after Friday’s Oval Office blowup put President Volodymyr Zelensky of Ukraine on the outs with President Trump.

But behind the investor enthusiasm lies the question: Can Europe, facing high debt loads, chronically low growth and looming tariffs imposed by Trump, afford more military spending?

Ending the Russia-Ukraine war carries a high cost. Prime Minister Keir Starmer of Britain rolled out a four-point plan this weekend at a gathering of European leaders and Zelensky.

It includes an Anglo-French “coalition of the willing” to defend any eventual deal for Ukraine, which could mean “boots on the ground and planes in the air.” Britain also lent £2.26 billion ($2.86 billion) to Ukraine to help bolster its military forces.

Even before the summit, credit agencies had warned about Europe’s finances. For example, increasing NATO members’ defense spending to 3 percent of G.D.P. — which is still short of the 5 percent that Trump wants — could force European governments to make unpopular spending cuts that weaken social safety nets, Fitch Ratings has warned.

Other political options include loosening fiscal rules to allow for greater defense, rerouting unspent NextGenerationEU funds to military buildup and or raising taxes.

Borrowing would carry a hefty cost, too. European bond yields ticked higher on Monday, a sign that investors were growing worried about potential growth in public spending. Analysts are divided on whether such commitments could muddle the European Central Bank’s plans to cut interest rates; the central bank meets later this week.

The stakes are huge. Failure to help Ukraine could eventually push European nations into accepting a deal that favors President Vladimir Putin of Russia. That could test E.U. cohesion, analysts say — but might be welcomed by those interested in seeing a divided Europe.

“Trump, Putin (and possibly Elon Musk?) all seem to dislike the European Union,” Holger Schmieding, an economist at the German bank Berenberg, wrote in a research note this on Monday. “They would prefer to deal one-by-one with a panoply of minnows and middling countries than with a union that represents the second biggest market in the world.”

A peek inside SoftBank’s Vision Funds

In recent years, SoftBank of Japan had sought to make its Vision Fund unit — home to three large financial vehicles that defined a once-heady era of tech investing — more conservative.

But the desire of Masa Son, SoftBank’s C.E.O., to become a lead investor in the artificial intelligence race is driving the company to spend heavily again, and raises questions about how the Vision Funds fit into that vision.

The funds’ C.E.O., Alex Clavel, gave DealBook’s Michael de la Merced his first interview since assuming sole leadership of the unit in January about that, and more.

The new vision: The funds, which gained notoriety for pouring hundreds of millions into companies like WeWork and the robot-aided-pizza-maker Zume, are now meant to make minority investments in start-ups where someone else is in control, Clavel said. (SoftBank’s $3.5 billion investment in OpenAI is part of Vision Fund 2.)

How the Vision Funds are doing: The division reported a nearly 310 billion yen ($2 billion) loss in the fourth quarter, as the paper value of holdings like the e-commerce company Coupang fell. But Clavel noted that the division over all grew last year, with its fair value rising by $5 billion and distributing about $66 billion via I.P.O.s and other cash-out events.

A survey of the Vision Funds’ hundreds of portfolio companies, whose results were shared first with DealBook, found that many of their C.E.O.s were:

• more optimistic about the economy and their businesses’ prospects compared with a year ago — though they’re also feeling more stressed;

• worried about inflation, high interest rates and ongoing market volatility;

• and focused on organic growth, but also on conserving cash and stabilizing their companies.

The A.I. factor: A majority of Vision Fund portfolio company C.E.O.s are using the technology in their core products, a reflection of the overall focus of SoftBank on becoming a leader in the field. “We do see A.I. as a secular trend, a revolution,” Clavel told DealBook.

That has meant investing in prominent A.I. companies like OpenAI and the data intelligence provider Databricks at increasingly soaring valuations. (The Databricks C.E.O., Ali Ghodsi, told DealBook that “we’re at peak bubble territory for A.I.”)

Clavel acknowledged that “valuing world-beating companies in revolutionary times is not an easy thing to pinpoint.” But, he added, paying up big was the cost of entry. “We’re really convinced that this is a revolution,” he added.

What’s next: The Vision Funds are betting that it will become easier to take companies public this year, allowing the SoftBank funds to start selling their holdings and locking in gains. “We’re looking forward to the I.P.O. market opening back up,” Clavel said.

One thing not to expect anytime soon, he added, was outside investors returning to the Vision Funds. (While the first Vision Fund counted Saudi Arabia and Abu Dhabi as investors, the second Vision Fund is all SoftBank money.) “We don’t have any plans to do that,” Clavel said, noting that SoftBank itself has added money to Vision Fund 2 when required.

The week ahead

A major presidential address, jobs, and tariffs — here’s what’s in focus this week.

Tomorrow: President Trump will address Congress, outlining his policy agenda. His administration’s tariffs against Canada, Mexico and China are scheduled to go into force hours earlier. Stocks in Europe and Asia on Monday are mostly higher after Howard Lutnick, the U.S. commerce secretary, suggested on Sunday that the levies could be lower than expected, reviving hopes that Trump’s trade war threats aren’t set in stone.

Wednesday: The Fed’s “beige book” survey of regional economic activity is scheduled to be published.

Friday: It’s jobs day. Despite the deep Elon Musk-led cuts within the federal government, economists forecast that employers added about 160,000 jobs in February. Inflation hawks will closely watch data on wages.

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