Peter Schiff: Crypto Reserve is Just Another Bailout

He also rails about Social Security being a ponzi scheme and updates his outlook on the market and economy.

By Peter Schiff, Schiffgold.com

In his most recent podcast, Peter covers the Trump administration’s latest crypto scheme, devoting much of the episode to his announcement of a US strategic crypto reserve. He explains why the justification for such a reserve falls apart under scrutiny and argues crypto is a distraction from more pressing matters, like tariffs and entitlement programs.

Peter sums up the havoc that preceded Trump’s announcement. All crypto was sinking last week, not just Bitcoin:

But when I did the podcast on Tuesday, Bitcoin had just slipped into a technical bear market. It was down 20% from its 109,000 post-election peak, which happened, I think, in November last year. We were trading around 87,000. We had been below 86 earlier. By Friday morning, Bitcoin almost broke below 78,000. So it was close to a 30% decline from top to bottom at that point. But other tokens– Ethereum almost got below 2,000. It got below 2,100. So it was down 50%. I mean, MicroStrategy was getting obliterated, down over 50%. And that was after blowing another 2 billion, buying more Bitcoin just before the market tank. … All the altcoins, everything was getting smoked in crypto.

Trump’s play would be obviously illegal in other contexts. Peter argues that while traditional stock manipulation would be met with harsh penalties, crypto manipulation remains in a legal gray area:

If Trump was manipulating stocks, it’d be illegal. He could be impeached if he was giving his family members inside information. ‘Hey, I’m going to put a post out about this particular stock, so you should buy it now or you should short it because it’s going to be a negative post.’ And then they position themselves to profit. He comes out and he posts something and the market tanks or goes up and his kids sell out. It’d be totally illegal. But since he’s doing it with crypto, I guess it’s completely legal. You can manipulate the crypto market. I guess it’s not a crime. You can pump and dump all you want, even if you’re the president of the United States.

Peter questions the rationale behind the selective backing of Bitcoin over others coins. He points out the inherent absurdity of a government reserve that picks winners while ignoring equally viable alternatives:

And what is the argument for a ripple reserve or a solana reserve or any of these other cryptos that they want to put in there? And if you can say, well, we should have a reserve with solana or cardano. Well, you know, why not dogecoin? Why not throw it in there? What about fartcoin? … I mean, think of all the valuable assets that are out there that we don’t have a reserve of. I mean, all we have, we have a gold reserve and an oil reserve. That’s it. I mean, we don’t have a wheat reserve– or corn or soybeans. We don’t have a copper reserve. We don’t have a reserve of stocks.

The crypto reserve is a big distraction from other disastrous policy, namely tariffs, that threaten the US economy:

I just think our position is rapidly deteriorating. The industrial base of the United States is disintegrating. We are wasting our resources on crypto and other things. And while we’re doing that, we don’t have the production. We can’t produce the things that we need. And we are more and more dependent on the rest of the world, which means those tariffs are going to bite even harder because we have no choice. Most of these goods that the president wants to tariff, there are no domestic substitutes. So we can’t buy U.S. We have to buy foreign and we have to pay those tariffs or we just don’t buy at all.

In his final salvo against unsustainable fiscal policy, Peter critiques the foundations of state retirement programs. He calls out Social Security as nothing more than a Ponzi scheme—a system that relies on new contributions to pay off old liabilities, rather than on genuine wealth creation:

The reason that Social Security is a Ponzi scheme, as opposed to a legitimate retirement plan, the people who get Social Security payments now, where’s the money come from? It comes from the workers who are being taxed, and where’s their money going to come from when they retire? From the younger workers who are still working. So the people who are working now are paying the benefits of the people who are retired and they hope that when they retire, a new group of workers is going to pay their benefits. That is a pure Ponzi scheme. That is exactly what a Ponzi scheme is. When you pay off the old investors with money from the new investors.

Bitcoin Enters a Bear Market

Last week Peter warned that investors may be missing a critical piece of the puzzle by ignoring inflation’s erosive power—even as bond buying continues unabated. Algorithmic traders can’t see that this is a replay of the 1970s:

But what bond investors are overlooking as they’re buying bonds is the strength in inflation, because inflation erodes away the value of the bonds they’re buying. So they’re just focusing on the weakness in the economy, and that’s kind of a reflexive move, probably a pre-programmed algorithm to buy bonds because look at all this weak economic data. But the weak economic data is actually inflationary in that it’s going to mean bigger budget deficits and a weaker dollar, which is going to push consumer prices higher. Again, this is stagflation. This is not the type of economic weakness that any of the people who are trading today or who are programming algorithms to trade have experienced.

Once riding high on promises of a “crypto cabinet” under Trump’s presidency, Bitcoin has now officially entered bear market territory—a timely reminder of the volatility inherent in digital assets:

I talked about this in the euphoria of the Trump victory as Bitcoin surged to 109,000 and all things crypto went up. I was saying at the time that maybe this is the euphoric top, that everybody is so optimistic: ‘There’s absolutely no reason for Bitcoin to go down. We’ve got a crypto president. We’ve got a crypto cabinet. We’re going to have a strategic reserve.’ Everybody was bullish. Nobody wanted to sell. And I said, that’s the exact environment where you probably should sell. If you can’t think of a reason to sell, you probably should because everybody else was buying and we had a blow off top. Bitcoin today officially entered what Wall Street would call a bear market. Earlier today, Bitcoin traded below 86,000. That was a 21% decline from the 109,000 peak from November. So that meets the definition of a bear market.

Peter questions the sustainability of strategies employed by major players in the crypto space, especially those of Michael Saylor and Microstrategy. He warns that when premium turns to discount, even the most aggressive maneuvers—like selling stock to buy Bitcoin—can backfire:

But what’s going to happen with MicroStrategy? The only reason that this guy, Saylor, could keep on selling stock is because he was selling the stock at a premium. And then taking the cash to buy Bitcoin. That’s where he gets this ridiculous Bitcoin yield that he’s been fabricating as if it’s an actual yield. Well, when the premium turns to a discount, that game is over. Because if he sold stock at a discount to buy Bitcoin, he’d have a negative Bitcoin yield. So he can’t do that.

Peter calls out the bad-faith actors in the Democratic party. They take every opportunity to blame Trump for the economy, but won’t admit their role in setting up stagflation:

And you know, I see all these Democrats now and it really bothers me. They’re on every day. They’re complaining about how terrible this is, and they’re going to be right about one thing. The economy is going to sink. We’re going to be in a protracted recession. Inflation is going to go up and they’re going to say it’s because of Trump. See, we told you so. Everything was great. And Trump wrecked the economy with these crazy tax cuts for the rich and his giveaways for the billionaires. So they’re wrong about how he wrecked the economy and not even that he wrecked it because when he got it, it was already wrecked. It was pre-wrecked when he took it over.

He wraps up the episode by commenting on Trump’s renewed interest in protectionist policy, noting that Trump only has half the story. New tariffs won’t solve our economic concerns:

Trump in many cases gets half the story, right. But he doesn’t get the whole thing right. … And he still has it backwards when he thinks the world is taking advantage of us. We’re taking advantage of them. But in the long run, it is a bad deal. Just like anytime you do this right, you can borrow a lot of money to live beyond your means. And in the short run, yeah, everything is great, right? Because you’re, you’re, you’re, you’re living a better life than what you could actually afford. But there is a consequence to that when you eventually run out of borrowed money and reality sets in.

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