Bitcoin and the US Election: Will Cryptocurrency Reshape US Financial Hegemony?

Source: Liberal Arts and Sciences Podcast

Long time no see, exciting topic is here: talk about Bitcoin.

When recording the podcast, Bitcoin was about $90,000. What's interesting is that now on Twitter and in the circle, almost no one shouts "bubble"; no one mentions Satoshi Nakamoto, anti-dollar, anti-government, and the concept of reaching the Federal Reserve; it seems that since the US government, especially Trump, expressed support for Bitcoin, everyone has forgotten their original intentions?

In the 2024 US election, cryptocurrency has become a key variable that influences the election and reshapes the political landscape. From Trump's active embrace of the cryptocurrency community to the differences in the Democratic Party's attitude towards cryptocurrency regulation, it is clear that cryptocurrency has become an important tool and policy focus for the two parties to win over voters, and has begun to affect the political landscape of the United States.

From the results of the election, it can be seen that an emerging group of cryptocurrency voters is influencing the direction of the election, and the regulatory dispute over cryptocurrency has also become an important battlefield for the two parties to wrestle. From Trump's public embrace of cryptocurrency and his vow to end "hostile regulation" to the Democratic Party's emphasis on this group and its move closer to cryptocurrency practitioners, it cannot be ruled out that the cryptocurrency field is redefining the financial ecology of the United States and may even reshape the future international monetary system.

Is cryptocurrency a new political favorite or a new tool for the United States' future financial hegemony? Can Trump use Bitcoin to make the dollar great again and reshape financial hegemony?

Editor of this issue: Xiaowan

Timestamp:

(00:01:35):Review the trend from before the election to now. By the way, I have a question: Is Bitcoin a bubble now?

(00:15:08): Polymarket

(00:20:10): Cryptocurrency

(00:26:15): Why does Trump support cryptocurrency?

(00:33:10): Does Bitcoin promote or destroy the dollar's hegemony?

(00:35:35): How does Bitcoin increase the dollar's hegemony?

(00:44:30): Can Bitcoin solve the dollar's problem?

(00:51:46): Will Bitcoin lose its uniqueness if it is incorporated by Wall Street?

Transcript:

(00:01:35) Let's review the trend from before the election to now.By the way, I would like to ask:Is Bitcoin a bubble now?

The recent surge in Bitcoin prices is closely related to the US election. At the beginning of the year, the price was fluctuating between $50,000 and $60,000 until the end of June, when Trump and Biden had their first debate. Biden's poor performance, coupled with the Republican Party's clear support for Bitcoin, changed the market trend and Bitcoin began to rise.

In July, the Republican Party released a policy declaration, many of which were related to cryptocurrency, and the attitude was very positive. The Republican National Committee also passed a draft, including support for the mining industry to be brought back to the United States. Another wave of gains was pushed up.

On July 13, Trump was shot in an unsuccessful attempt, and voter support soared. Bitcoin also rose to around $70,000. On November 6, Trump announced his victory, and Bitcoin jumped to $75,000. In the following week, the price rocketed from $70,000 to $93,000, and then fluctuated around $90,000. It is not impossible to reach $100,000 before Thanksgiving.

From the perspective of bubbles, the timeline of Bitcoin price fluctuations is very clear. Analysis can be divided into two angles: one is assets, or the secondary market, using traditional technical and fundamental analysis; the other is indicators unique to the currency circle.

Technical analysis in the currency circle has its own set of indicators, some of which are similar to stocks, such as rising trend lines, falling trend lines, overbought and oversold, etc. There are also some that are unique to the cryptocurrency industry, such as MV, RV, rainbow band, escape top index, etc. The specific content can be checked online. Looking at the indicators of the cryptocurrency industry now, Bitcoin's current round of gains may only be halfway up the mountain, and it is not yet time to be overly greedy or sell.

The fundamentals are more due to the Fed's interest rate cuts and the US dollar policy. Now the interest rate cut cycle has just begun (but after Trump took office, inflation expectations may rise again, and the interest rate cut cycle has entered an uncertain period), coupled with the approval of the Bitcoin ETF, it has become an on-site tradable asset, and many companies, pension funds, and mutual funds may include Bitcoin in their asset allocation. The asset allocation theory believes that if all financial asset holders in the United States allocate a certain proportion of Bitcoin, the price will soar. In addition, Bitcoin is increasingly entering the traditional financial field, and there are more and more holders. These factors have pushed up the price of Bitcoin together.

But to put it bluntly, it is more of a FOMO (fear of missing out) mentality at present. But the long-term asset allocation theory may have a deeper impact. In other words, if asset allocation does not happen, Bitcoin may not be as high as everyone thinks in the long run. This may be the key to determining the long-term trend of Bitcoin.

(00:15:08): Polymarket

Polymarket is one of the Internet celebrities in this election - it not only reflects market sentiment, but also has a real impact on the election. The changes in Polymarket's odds are like real-time polls, affecting people's psychological expectations. It is different from traditional polls and news. It can update data in real time, almost once a second, and can reflect market sentiment more promptly. Moreover, the changes in Polymarket's bets will also affect people's views on the election, forming a cycle.

Traditional voting is to draw circles on paper with a pen, while Polymarket votes with money, which requires more careful analysis than traditional voting. This not only affects the results of the election, but also has an influence similar to that of social media, or even greater. Polymarket analyzes speech tendencies through big data and artificial intelligence. It not only has an advantage in quantity, but also uses real money as an indicator, which has a greater influence. It can even become a new model for social governance.

(00:20:10): Crypto Voting

There is controversy over the support of the cryptocurrency community for Trump and its impact on the US election. Although the influence of the cryptocurrency community is not as great as that of Musk personally, Musk's support for Dogecoin, coupled with Trump's response to Dogecoin, has made the cryptocurrency community have a certain impact on Trump and the US election.

The rise of cryptocurrency has also spawned a new "crypto voting base". This group is mostly young, male, and from ethnic minorities, with high political participation and generally support Trump. Polls show that more than half of cryptocurrency holders support Trump, and only about 30% support Harris. Moreover, almost all voters who hold cryptocurrency plan to vote, making them a key group for the two parties to compete for.

The Republican Party has strong support for cryptocurrency. Trump has expressed support for Bitcoin mining in the United States and accepting cryptocurrency donations. Some Republican lawmakers have even proposed the establishment of a strategic reserve of Bitcoin. The Democratic Party is relatively cautious, but there are also voices in support of cryptocurrency. For example, California Governor Gavin Newsom, Illinois Governor J.B. Pritzker, and Pennsylvania Governor Josh Shapiro have actively promoted the development of cryptocurrencies and attracted crypto companies to settle in their states. The active voting of "crypto voting bases" has become a key factor in this election. (00:26:15): Why does Trump support cryptocurrencies? There are many reasons why Trump supports cryptocurrencies. From a political perspective, he may have seen the enthusiasm of cryptocurrency users and the desire for deregulation. In order to win over voters, he publicly expressed his support for cryptocurrencies. The deepening of awareness of Bitcoin, such as the emergence of Bitcoin ETFs, has also driven this trend.

At the Bitcoin Conference, although Trump's speech mainly criticized the Democratic Party, it also triggered people's thinking about whether Bitcoin is the enemy of the US dollar. He believes that only government actions will endanger the US dollar, not Bitcoin itself. If Bitcoin is regarded as digital gold, its relationship with the US dollar has not changed in essence. Trump's statement seems to indicate that the US government can control Bitcoin by accepting and utilizing it, rather than confronting it. This marks a change in the US attitude towards cryptocurrencies.

Since the emergence of Bitcoin ETFs, the attitudes of traditional financial institutions have also changed. Earlier, they tried to "tame" Bitcoin (as early as 2018, the chairman of CME said "we will tame bitcoin"). But with the support of the government, the status of Bitcoin has been improved, and traditional financial institutions have begun to re-evaluate their relationship with cryptocurrencies.

The support of the King of Understanding not only drives the short-term market rise, but is also likely to reshape the financial landscape of the United States and even the world in the long run: assuming that the price of Bitcoin soars to one million in the future and is anchored as part of the US dollar, will this strengthen the position of the US dollar and maintain its global hegemony? It is not ruled out that Bitcoin may play a more important role in the future financial system, and its relationship with the US dollar will become more complex and close.

(00:33:10): Does Bitcoin promote or undermine the dollar's hegemony?

There are differences: Some believe that Bitcoin is a decentralized currency, and its emergence may affect the dollar's position. Some believe that anchoring to the dollar may strengthen the dollar's position and maintain the dollar's hegemony. The emergence of any currency first requires the market to accept it. The United States began to observe cautiously, which is in line with the law of development of the capitalist market economy. When anything, including currency, appears, they will perform in the market. If they can be accepted by the market, the government will endorse it as legal tender. If the market does not accept it, it will be eliminated. The United States has never suppressed encrypted digital currencies, nor has it advocated natural development. The United States has taken many regulatory measures, which shows that the market has accepted encrypted digital currencies. The government has now reached this stage and is likely to convert it into legal digital currency.

At present, many large financial institutions in the United States have accepted cryptocurrencies as part of their asset allocation. If it is incorporated into the formal financial system, it may become another part of the US dollar payment system. If encrypted digital currencies have become a financial market parallel to the traditional financial market, the United States will inevitably regain its hegemony and it is impossible to give it up.

(00:35:35): How does Bitcoin increase the hegemony of the US dollar?

The essence of currency is consensus. The hegemony of the US dollar has been challenged, partly because the United States has excessively borrowed and issued currency, which has weakened the consensus on the US dollar. In the past, the Bretton Woods system transferred the consensus on gold to the US dollar. Now, if the United States makes Bitcoin freely convertible with the US dollar through Bitcoin ETFs and other means, it is equivalent to grafting the consensus on Bitcoin onto the US dollar, which may strengthen the position of the US dollar.

This is similar to viewing Bitcoin as "digital gold". The difference is that gold consolidates its position through a fixed exchange rate, while Bitcoin is integrated into the mainstream system through modern financial instruments. At present, countries are reducing their reliance on the US dollar and using their own currencies for settlement, further weakening the dominance of the US dollar. Trump's support for Bitcoin can not only find new assets to replace gold, but also enhance the influence of the United States in the global financial system through the legalization and popularization of Bitcoin.

Globally, countries are increasing their gold reserves, which also shows that the hegemony of the US dollar is facing challenges. If Bitcoin is included in the US dollar system, it will not only meet the demand for new assets, but also maintain the status of the US dollar. The impact of Bitcoin on the hegemony of the US dollar lies in its ability to integrate into the mainstream system through modern financial instruments, which will not only meet the demand for new assets, but also may consolidate the status of the US dollar. However, the risks and complexities involved need to be treated with caution, and future development remains uncertain.

(00:44:30): Can Bitcoin solve the problem of the US dollar?

Even if the US dollar is tied to Bitcoin to increase consensus, it is difficult to fully restore the strong position of the US dollar. The fundamental problem is that the US dollar is over-issued. The key to solving this problem is to reduce the over-issuance of the US dollar and repay foreign debts. Trump's policy focus is also in this regard, such as adjusting tax and economic policies, reducing foreign aid, etc., which are more important than linking to Bitcoin.

The over-issuance of US debt is because the cost of the United States to maintain its international status is too high. Even if the price of Bitcoin rises tenfold, the impact is still limited relative to the global scale of the US dollar. As Trump said, the enemy of the US dollar is the behavior of the US government itself, not Bitcoin. The key to restoring confidence in the US dollar lies in solving the United States' own economic and policy problems.

However, the United States' embrace of cryptocurrencies will bring new changes. In the context of global de-dollarization, countries have established local currency alliances for trade settlement. But these countries still need to choose a settlement method. The United States has openly established a direct exchange relationship between the US dollar and Bitcoin, and even supports Bitcoin ETFs.

Take USDT as an example. The United States is relatively tolerant of it because it actually promotes the flow of US dollars around the world. The scale of USDT has reached hundreds of billions, and it has even begun to create credit-this is why the United States will not develop central bank digital currency. If the United States holds 1 million Bitcoins, it is worth $90 billion at the current price. If Bitcoin rises to $1 million per coin in the future, it will be worth trillions of dollars, close to the size of the US gold reserves.

Despite this, even if Bitcoin can replace gold, according to the money multiplier theory, it is still difficult to fully support the existing US dollar system, but it can serve as an important buffer pool.

(00:51:46): Will Bitcoin lose its uniqueness if it is incorporated by Wall Street?

Will the United States use cryptocurrency to establish a new hegemony and launch a financial war? It is unlikely. The focus of the United States' embrace of Bitcoin is not Bitcoin itself, but its identity as a rule maker. Just like in the fields of the US dollar and the WTO, the United States aims to make rules in the crypto world. The passage of the Bitcoin ETF has a huge impact on the entire industry, and the United States is gradually becoming a rule maker in the crypto world.

One possible outcome is that:Bitcoin's rules will no longer be defined by the crypto community, but will return to Wall Street's financial logic. In the short term, Bitcoin prices may rise, but in the long run, Bitcoin may lose its uniqueness.

How can the United States achieve its goal of formulating rules? Bitcoin ETF is the first step——The approval of Bitcoin ETF marks the beginning of a historic shift in the crypto world. There are two important logics:

First, the trading logic of financial assets. The US Bitcoin ETF is cash-settled, which means that ETF shares can only be bought and sold in US dollars, but Bitcoin cannot be withdrawn. This has established a one-way influence on the US dollar and Bitcoin prices. As the scale of ETFs expands, on-site trading will dominate Bitcoin prices. Ultimately, Bitcoin prices will be determined by US stock ETFs, not the crypto world.

Second, Bitcoin's security. As Bitcoin is halved, miners' profits depend on rising Bitcoin prices and on-chain transaction fees. But as the scale of ETFs expands, more Bitcoins will be stored in the hands of Americans, on-chain transactions will decrease, miners' income and computing power may decline, and Bitcoin network security may decrease.

If the price and security of Bitcoin are controlled by the United States, is it a blessing or a curse for Bitcoin?

Perhaps a new blockchain will inherit the spirit of encryption. The rule of law and openness of the United States determine its pursuit of rule-making power. Through the Bitcoin ETF, the United States actually accepted Bitcoin's POW mechanism. But when the United States controls a large amount of Bitcoin and computing power, the pattern will change.

To see the essence of things, we should focus on actual actions rather than media reports: financial practitioners react to the market the fastest, followed by crypto media, then mainstream media, and finally scholars. Paying attention to the flow of funds and actual actions is a reliable basis for judgment. As long as the world is still made up of people, these laws will always exist.