Bitcoin’s strategic reserve dreams hit reality check

Bitcoin’s record rally stumbled Friday, sliding nearly 2% after hotter inflation data and Treasury Secretary Scott Bessent’s comments dimmed hopes of major U.S. government Bitcoin buying.

Bitcoin’s record-breaking run just hit a wall. The cryptocurrency dropped nearly 2% Friday after Treasury Secretary Scott Bessent poured cold water on expectations that the US government would actively buy Bitcoin (BTC) for its strategic reserve. Combined with hotter-than-expected inflation data, the selloff shows how quickly sentiment can shift in crypto markets.

The decline comes after Bitcoin touched an all-time high above $123,500 on Wednesday. That rally was built on hopes that looser monetary policy and corporate buying would keep pushing prices higher. Those hopes took a hit when July’s Producer Price Index came in much hotter than economists expected, making aggressive Federal Reserve rate cuts less likely.

But the real curveball came from Bessent himself. During a Fox Business interview, he clarified the government’s approach to Bitcoin reserves. The US already holds around $15 to $20 billion worth of Bitcoin at current prices, mostly from seized assets. The plan isn’t to go on a buying spree. Instead, the government will build its strategic reserve using confiscated cryptocurrencies from criminal cases.

That’s a very different story from what Bitcoin bulls were hoping for. The idea of a strategic bitcoin reserve has been floating around since President Trump’s campaign. Supporters imagined the government buying hundreds of thousands of Bitcoins, similar to how it stockpiles gold or oil. The reality is more modest and practical.

This distinction matters because active government purchasing would create massive buying pressure. When MicroStrategy adds Bitcoin to its corporate treasury, the market notices. When other companies follow that playbook, prices tend to rise. Government buying on a similar scale would dwarf corporate purchases.

The timing of Friday’s decline isn’t coincidental. Crypto markets have become incredibly sensitive to macroeconomic data and Fed policy signals. When inflation runs hot, rate cut expectations cool down. When rate cuts look less likely, risk assets like Bitcoin often sell off. The connection between traditional monetary policy and crypto prices has never been stronger.

Bitcoin’s 25% year-to-date gain and 57% rally from April lows show just how much the cryptocurrency has benefited from this macro environment. Low interest rates make yield-free assets like Bitcoin more attractive. Corporate treasurers looking for alternatives to cash have been major buyers. Exchange-traded funds have funneled billions of dollars from traditional investors into crypto markets.

All of those factors remain in play despite Friday’s decline. The Trump administration’s pro-crypto stance hasn’t changed. The executive order directing the Labor Department to explore cryptocurrency options for 401(k) plans could still unlock massive retail demand. Corporate adoption continues growing as more companies add crypto coins with the most potential to their balance sheets.

But markets are forward-looking, and Friday’s moves suggest investors are recalibrating expectations. The path to higher Bitcoin prices might be slower and more volatile than the recent rally implied. Inflation data that refuses to cooperate with Fed dovishness creates headwinds for all risk assets.

Ethereum (ETH) faced similar pressure, dropping more than 2% as it pulled back from near-record levels. The world’s second-largest cryptocurrency has been riding its own wave of corporate adoption. Companies are adding ether to their treasuries to gain exposure to decentralized finance infrastructure and stablecoin ecosystems.

According to Yahoo Finance, Bitcoin now trades on the same macroeconomic factors that drive traditional assets. Inflation data, Fed policy, and Treasury Secretary comments move prices just like they do for stocks and bonds. That integration brings legitimacy but also new sources of volatility.