Economic Daily: Will Bitcoin become a US reserve asset?

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Original author: Lian Jun

Recently, affected by multiple factors such as the Feds interest rate cut and the results of the US election, the price of Bitcoin has risen sharply, attracting the attention of the international market. There are even rumors that the United States will promote Bitcoin as a national strategic reserve asset, and related topics have quickly heated up. The attitude and actions of the new US government towards Bitcoin and other Kryptocurrencies after taking office, as well as its impact on the global financial landscape, deserve close attention.

In November, the price of Bitcoin rose rapidly, breaking through $80,000 per coin on the 10th, breaking through $90,000 per coin on the 13th, and reaching $93,000 per coin in the early morning of the 14th. Since then, the price has fluctuated above $90,000 per coin. Markt analysts believe that the Federal Reserves continued interest rate cuts in November and the Republican Partys promises of multiple measures to support cryptocurrencies during the campaign have become the driving force behind the rapid rise in Bitcoin prices. According to U.S. media reports, Republican Senator Cynthia Lummis of Wyoming plans to promote a bill when the new Congress takes office next year to sell part of the Federal Reserves gold to establish a strategic Bitcoin reserve. This has led some market traders to believe that cryptocurrency is about to enter a golden age.

However, since there are many complex factors affecting the price trend of Bitcoin, among which there is a great deal of uncertainty, and large fluctuations in the past are not uncommon, a more comprehensive observation should be made on its subsequent trend.

The price of Bitcoin is affected by the supply and demand pattern, macroeconomics, and market sentiment. On the supply side, the halving mechanism of Bitcoins mining rewards is one of the important factors in its price increase. This year, Bitcoin has experienced another halving event, which has provided support for subsequent price increases; on the demand side, the Republican Party promised during the campaign to include Bitcoin in national reserve assets, to make the United States the worlds cryptocurrency capital, and to appoint regulators interested in digital assets. The relevant policy expectations have driven the increase in Bitcoin demand. From a macro perspective, the global economic growth trend has stabilized, inflationary pressure has slowed, and the European and American central banks have started to cut interest rates, bringing more liquidity to the market. In addition, when the price of Bitcoin breaks through key points, the markets optimism becomes an important driving force for price increases.

Although the new US government that is about to take office has shown great interest in cryptocurrencies, Bitcoin still needs to pass multiple checkpoints for it to truly become a national reserve asset of the United States.

From a policy perspective, listing Bitcoin as a strategic reserve asset requires a complex legislative process, involving the coordination and balance of interests of multiple regulatory agencies. In addition, traditional U.S. financial institutions, conservative lawmakers, and interest groups that are skeptical of digital assets may collectively oppose it, making it difficult to implement. From a market and regulatory perspective, Bitcoin prices often fluctuate violently, which is quite different from the stringent requirements of national reserves for stability. At the same time, the U.S. cryptocurrency regulatory system is not sound, and a more complete legal framework needs to be established to include Bitcoin in the national reserve system. Some U.S. media also pointed out that Bitcoin has never been a good inflation hedging tool – Bitcoin is more closely related to speculative stocks, rather than traditional inflation hedging tools such as gold or inflation-linked bonds.

During the last term of the Republican government, the attitude towards Bitcoin was not friendly, and it was considered air without value foundation. However, during the recent election campaign, the attitude has changed 180 degrees. Some analysts pointed out that this change, on the one hand, reflects that the new US government hopes that the United States can take the lead in the field of digital currency and maintain its competitiveness in the global economy. On the other hand, it is also facing the pressure of huge national debt and trying to reduce the issuance of national debt through the appreciation of Bitcoin without increasing the government deficit.

Looking further, the consequences of the United States abuse of the dollars status, uncontrolled over-issuance of currency, and serious overdraft of the dollars credit have become apparent, and the pace of de-dollarization in many countries has accelerated. The change in attitude of some Americans towards Bitcoin is an attempt to maintain the dollars already loosened international status.

The surge in Bitcoin prices seems to have given some people hope to reproduce the process from the disintegration of the Bretton Woods system to the establishment of the petrodollar. However, Bitcoin itself is not stable. Once it becomes a strategic reserve asset, it may bring greater challenges to regulators and may also arouse the vigilance of other countries in the world, exacerbating friction in the international financial field. It is still unknown whether the US economy, which has been eroded by high inflation for many days, can withstand its impact.

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