Economic Daily: Will Bitcoin Become a US Reserve Asset?

Author: Lian Jun, Source: Economic Daily

Recently, affected by multiple factors such as the Fed's interest rate cuts 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 cryptocurrencies 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 in the early morning of the 14th, the price of Bitcoin once reached $93,000 per coin, and then fluctuated above $90,000 per coin. Market analysts believe that the Fed's continued interest rate cuts in November and the Republican Party's promises during the campaign to support multiple measures for cryptocurrencies have become the driving force behind the rapid rise in Bitcoin prices. According to US media reports, Republican Senator Cynthia Lummis of Wyoming plans to push a bill to sell some of the Fed's gold to build a strategic Bitcoin reserve when the new Congress takes office next year. This has led some market traders to believe that "cryptocurrency is about to enter a golden age."

However, due to the complexity of factors affecting the price trend of Bitcoin, there is a lot of uncertainty, and it is not uncommon for ups and downs in the past, so its subsequent trend should be observed more comprehensively.

The price of Bitcoin is affected by many factors, such as the supply and demand pattern, the macro economy, and market sentiment. On the supply side, the halving mechanism of Bitcoin's mining rewards is one of the important factors for 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 "world's 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 stabilization of global economic growth, the easing of inflationary pressures, and the start of interest rate cuts by European and American central banks have brought more liquidity to the market. In addition, when the price of Bitcoin breaks through key points, the market's optimism becomes an important driving force for the price increase.

Although the new US government that is about to take office has shown great interest in cryptocurrencies, it still needs to pass multiple "gates" to make Bitcoin a real 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 US financial institutions, conservative lawmakers, and interest groups that are skeptical of digital assets may collectively oppose it, and the implementation is not easy. From the 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 US 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 US 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 previous term of the Republican government, the attitude towards Bitcoin was not friendly, and it was considered "air without a value foundation." However, in the recent election campaign, attitudes have changed 180 degrees. Some analysts pointed out that this change, on the one hand, reflects the new US government's hope that the United States can take the lead in the field of digital currency and thus maintain its competitiveness in the global economy. On the other hand, it is also facing the pressure of huge national debts and trying to reduce the issuance of national debts through the appreciation of Bitcoin without increasing the government deficit.

Furthermore, the consequences of the United States' abuse of the status of the dollar, uncontrolled over-issuance of currency, and serious overdraft of the credit of the dollar for many years have become apparent, and the pace of "de-dollarization" in many countries has accelerated. The change in the attitude of some Americans towards Bitcoin is an attempt to maintain the loose international status of the dollar.

The surge in Bitcoin prices seems to have brought some people hope to reproduce the process of "from the disintegration of the Bretton Woods system to the establishment of the petrodollar." However, Bitcoin's own attributes are 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 and intensify frictions 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.