On February 4, 2025, U.S. President Donald Trump signed an executive order directing the Treasury and Commerce Departments to establish the nation's first sovereign wealth fund within the next 12 months. This move not only marks a significant shift in U.S. national wealth management strategy but could also have profound implications for global financial markets, particularly the digital currency market.

This article delves into the potential impact of this event on the digital currency market, analyzing the policy background, market reactions, long-term effects, and potential challenges.

A sovereign wealth fund (SWF) is a state-owned investment fund typically used to manage national foreign exchange reserves, natural resource revenues, or other fiscal surpluses. Globally, Norway's Government Pension Fund Global (over $1.7 trillion in assets) and China Investment Corporation (approximately $1.3 trillion in assets) are the largest sovereign wealth funds. These funds generate long-term wealth by investing in stocks, bonds, real estate, and infrastructure.

In recent years, SWFs have diversified their investment strategies, with some venturing into emerging asset classes like cryptocurrencies. For example, Singapore's GIC and Norway's NBIM have shown keen interest in blockchain technology and digital assets.

The establishment of a U.S. sovereign wealth fund is driven by several factors:

• Reducing Tax Pressure: Optimizing national wealth management to enhance fiscal sustainability and ease the tax burden on American families and small businesses.

• Investing in Infrastructure and Key Industries: Focusing on airports, highways, manufacturing, and defense to boost national competitiveness and supply chain security.

• Countering China's Influence: Accelerating the reshoring of industries through tax cuts, subsidies, and tariffs to reduce reliance on Chinese technology and manufacturing.

Additionally, the fund's creation may align with the U.S. strategic focus on digital currencies. In recent years, the U.S. government has increasingly recognized the importance of digital currencies in the financial system and aims to dominate this emerging field through policy measures.

The Trump administration has shown growing interest in cryptocurrencies. While Treasury Secretary Scott Bessent remains cautious, Commerce Secretary nominee Howard Lutnick is a staunch supporter of the crypto industry. Lutnick's firm, Cantor Fitzgerald, is the custodian of government bonds for stablecoin giant Tether, and he has publicly disclosed significant personal investments in Bitcoin.

Although Trump has not directly endorsed cryptocurrencies, his administration's policies suggest a strategic push to dominate the digital currency space. For instance, the 2024 U.S. Treasury Digital Currency Regulatory Framework emphasized stricter oversight of stablecoins and decentralized finance (DeFi) while encouraging innovation.

Following Trump's executive order, Bitcoin's price surged by 5%, briefly surpassing $102,000. This spike was driven by market expectations of potential crypto investments by the sovereign wealth fund. However, as the order did not explicitly mention Bitcoin, market sentiment stabilized.

According to CoinMarketCap, Bitcoin's trading volume surged by 30% within 24 hours, reaching approximately $50 billion. Other major cryptocurrencies like Ethereum and Solana also saw significant gains.

Market sentiment quickly turned bullish, with crypto enthusiasts viewing the move as a significant signal of U.S. government acceptance of digital currencies. Senator Cynthia Lummis fueled the enthusiasm by tweeting, "This is a big deal," accompanied by a Bitcoin symbol.

Institutional participation also increased. Grayscale Investments reported a 20% rise in inflows to its Bitcoin Trust (GBTC) in the week following the announcement.

Bybit CEO Ben Zhou revealed that crypto market liquidations surged to $8-10 billion within 24 hours of the announcement, far exceeding Coinglass's recorded $333 million. This indicates significant short-term market volatility.

Although the executive order did not explicitly mention Bitcoin, market speculation suggests the fund could invest in major cryptocurrencies like Bitcoin and Ethereum, as well as stablecoins and DeFi.

For example, Bitcoin's "digital gold" status makes it an attractive option for SWFs. A J.P. Morgan report suggests that a 1% allocation to Bitcoin by the U.S. SWF could drive Bitcoin prices up by approximately 20%.

The establishment of the U.S. SWF could reshape the global crypto market. Large-scale Bitcoin investments by the fund would solidify Bitcoin's status as "digital gold" and attract more institutional investors.

This move could also prompt other nations to follow suit. For instance, sovereign wealth funds in China, Russia, and the Middle East might accelerate their digital currency investments to counter U.S. competition.

The SWF's investment strategy could disrupt traditional financial markets. For example, shifting funds from Treasury bonds to cryptocurrencies could raise bond yields and impact global capital flows.

A Goldman Sachs report suggests that the U.S. SWF's establishment could trigger $100 billion in outflows from global bond markets, potentially driving up interest rates.

With the U.S. currently running a budget deficit, the SWF's funding sources remain unclear. Potential options include tariff revenues and federal land and infrastructure assets, but their feasibility is uncertain.

Moreover, the fund's management transparency could spark controversy. According to the IMF, SWF transparency correlates with investment performance. Lack of transparency could hinder long-term returns.

The crypto market's high volatility poses challenges for the SWF's investment returns. For instance, Bitcoin's 30% price drop in a single week in 2024 caused significant losses for institutional investors.

Additionally, unclear U.S. crypto regulations, such as the ongoing SEC lawsuit against Ripple (XRP), could negatively impact the fund's investment decisions.

The U.S. SWF's establishment could intensify economic competition with China. Sovereign investment platforms like China Investment Corporation may need to adjust strategies to counter the U.S. fund.

Geopolitical risks could also escalate. For example, large-scale Bitcoin investments by the U.S. SWF might prompt other nations to impose restrictions on crypto trading or strengthen capital controls.

Trump's executive order to establish a sovereign wealth fund marks a significant step in U.S. digital currency policy. While the market has reacted positively in the short term, the long-term impact will depend on the fund's investment strategies and regulatory environment.

Regardless, this development undoubtedly presents new opportunities and challenges for the global digital currency market.

On February 4, 2025, U.S. President Donald Trump signed an executive order directing the Treasury and Commerce Departments to establish the nation's first sovereign wealth fund within the next 12 months. This move not only marks a significant shift in U.S. national wealth management strategy but could also have profound implications for global financial markets, particularly the digital currency market.

This article delves into the potential impact of this event on the digital currency market, analyzing the policy background, market reactions, long-term effects, and potential challenges.

A sovereign wealth fund (SWF) is a state-owned investment fund typically used to manage national foreign exchange reserves, natural resource revenues, or other fiscal surpluses. Globally, Norway's Government Pension Fund Global (over $1.7 trillion in assets) and China Investment Corporation (approximately $1.3 trillion in assets) are the largest sovereign wealth funds. These funds generate long-term wealth by investing in stocks, bonds, real estate, and infrastructure.

In recent years, SWFs have diversified their investment strategies, with some venturing into emerging asset classes like cryptocurrencies. For example, Singapore's GIC and Norway's NBIM have shown keen interest in blockchain technology and digital assets.

The establishment of a U.S. sovereign wealth fund is driven by several factors:

• Reducing Tax Pressure: Optimizing national wealth management to enhance fiscal sustainability and ease the tax burden on American families and small businesses.

• Investing in Infrastructure and Key Industries: Focusing on airports, highways, manufacturing, and defense to boost national competitiveness and supply chain security.

• Countering China's Influence: Accelerating the reshoring of industries through tax cuts, subsidies, and tariffs to reduce reliance on Chinese technology and manufacturing.

Additionally, the fund's creation may align with the U.S. strategic focus on digital currencies. In recent years, the U.S. government has increasingly recognized the importance of digital currencies in the financial system and aims to dominate this emerging field through policy measures.

The Trump administration has shown growing interest in cryptocurrencies. While Treasury Secretary Scott Bessent remains cautious, Commerce Secretary nominee Howard Lutnick is a staunch supporter of the crypto industry. Lutnick's firm, Cantor Fitzgerald, is the custodian of government bonds for stablecoin giant Tether, and he has publicly disclosed significant personal investments in Bitcoin.

Although Trump has not directly endorsed cryptocurrencies, his administration's policies suggest a strategic push to dominate the digital currency space. For instance, the 2024 U.S. Treasury Digital Currency Regulatory Framework emphasized stricter oversight of stablecoins and decentralized finance (DeFi) while encouraging innovation.

Following Trump's executive order, Bitcoin's price surged by 5%, briefly surpassing $102,000. This spike was driven by market expectations of potential crypto investments by the sovereign wealth fund. However, as the order did not explicitly mention Bitcoin, market sentiment stabilized.

According to CoinMarketCap, Bitcoin's trading volume surged by 30% within 24 hours, reaching approximately $50 billion. Other major cryptocurrencies like Ethereum and Solana also saw significant gains.

Market sentiment quickly turned bullish, with crypto enthusiasts viewing the move as a significant signal of U.S. government acceptance of digital currencies. Senator Cynthia Lummis fueled the enthusiasm by tweeting, "This is a big deal," accompanied by a Bitcoin symbol.

Institutional participation also increased. Grayscale Investments reported a 20% rise in inflows to its Bitcoin Trust (GBTC) in the week following the announcement.

Bybit CEO Ben Zhou revealed that crypto market liquidations surged to $8-10 billion within 24 hours of the announcement, far exceeding Coinglass's recorded $333 million. This indicates significant short-term market volatility.

Although the executive order did not explicitly mention Bitcoin, market speculation suggests the fund could invest in major cryptocurrencies like Bitcoin and Ethereum, as well as stablecoins and DeFi.

For example, Bitcoin's "digital gold" status makes it an attractive option for SWFs. A J.P. Morgan report suggests that a 1% allocation to Bitcoin by the U.S. SWF could drive Bitcoin prices up by approximately 20%.

The establishment of the U.S. SWF could reshape the global crypto market. Large-scale Bitcoin investments by the fund would solidify Bitcoin's status as "digital gold" and attract more institutional investors.

This move could also prompt other nations to follow suit. For instance, sovereign wealth funds in China, Russia, and the Middle East might accelerate their digital currency investments to counter U.S. competition.

The SWF's investment strategy could disrupt traditional financial markets. For example, shifting funds from Treasury bonds to cryptocurrencies could raise bond yields and impact global capital flows.

A Goldman Sachs report suggests that the U.S. SWF's establishment could trigger $100 billion in outflows from global bond markets, potentially driving up interest rates.

With the U.S. currently running a budget deficit, the SWF's funding sources remain unclear. Potential options include tariff revenues and federal land and infrastructure assets, but their feasibility is uncertain.

Moreover, the fund's management transparency could spark controversy. According to the IMF, SWF transparency correlates with investment performance. Lack of transparency could hinder long-term returns.

The crypto market's high volatility poses challenges for the SWF's investment returns. For instance, Bitcoin's 30% price drop in a single week in 2024 caused significant losses for institutional investors.

Additionally, unclear U.S. crypto regulations, such as the ongoing SEC lawsuit against Ripple (XRP), could negatively impact the fund's investment decisions.

The U.S. SWF's establishment could intensify economic competition with China. Sovereign investment platforms like China Investment Corporation may need to adjust strategies to counter the U.S. fund.

Geopolitical risks could also escalate. For example, large-scale Bitcoin investments by the U.S. SWF might prompt other nations to impose restrictions on crypto trading or strengthen capital controls.

Trump's executive order to establish a sovereign wealth fund marks a significant step in U.S. digital currency policy. While the market has reacted positively in the short term, the long-term impact will depend on the fund's investment strategies and regulatory environment.

Regardless, this development undoubtedly presents new opportunities and challenges for the global digital currency market.