Bitcoin prices have soared on expectations that President-elect Trump's second term will lead to a more relaxed regulatory environment and even strategic Bitcoin reserves.
President Trump has promised to make America the “crypto capital of the planet,” and Bitcoin's value has soared more than 40 percent since his presidential election victory, on track to surpass $100,000 for the first time on Friday. It became.
Bitcoin, often referred to as “digital gold,” is the largest and oldest cryptocurrency and is a type of digital money that can be traded online without relying on traditional banks.
The president-elect plans to create a new virtual currency advisory committee to work with Congress on virtual currency legislation and establish a 'promised Bitcoin reserve,' says Reuters reported this week.
The idea of a strategic Bitcoin reserve is already gaining traction at the state level. In Pennsylvania, two Republican House members recently Law introduced This would allow the state treasurer to invest “up to 10 percent” of the state general fund, rainy day fund, and state investment fund in Bitcoin.
At the federal level, Sen. Cynthia Lummis (R-Wyo.) resubmit the bill It will form a strategic Bitcoin reserve, She told the Washington Examiner:. Lummis previously introduced the Bitcoin Act in July, but it made no progress.
Supporters of a strategic Bitcoin reserve argue that it could act as a hedge against inflation and allow the United States to remain at the forefront of financial innovation. Meanwhile, critics are concerned that the asset is too volatile. fear it Promoting this could undermine the dollar's status as a reserve currency.
What are the potential benefits of strategic Bitcoin reserves?
Strategic Bitcoin Preparation is exactly what it sounds like. The United States will purchase large amounts of cryptocurrencies and hold them in reserve.
National reserves are intended to act as a buffer against market fluctuations. The Strategic Petroleum Reserve, the world's largest emergency oil stockpile, is one well-known example, but the United States also has stockpiles of gold and emergency medical supplies.
If you pass, lumis plan It has launched a Bitcoin purchase program and plans to acquire approximately 5% of the total Bitcoin supply over the long term. If that happens, Bitcoin's value could soar to new heights, and Lummis believes his proposal could help reduce the national debt. That's questionable though.
Bitcoin Policy Institute (BPI), a Bitcoin research and advocacy organization, recently announced that claimed He supported Bitcoin's strategic readiness, arguing that it allays concerns of currency devaluation and strengthens the credibility of the U.S. financial system.
BPI said adopting Bitcoin would also give the United States an advantage over adversaries seeking to undermine America's dominance of the dollar.
“While China and Russia double down on analog gold, the US could compete with digital gold,” BPI said. report Said.
One of the main arguments in favor of Bitcoin is that its limited supply can protect it from the inflationary pressures faced by other currencies. Only 21 million Bitcoins have been mined so far, which is closer to 19.9 million. already exists. In theory, if market demand remains strong, the price of Bitcoin could rise in the long term.
What are the risks?
Bitcoin may be skyrocketing right now, but price volatility is a major concern.
After rising to nearly $69,000 in November 2021, Bitcoin's price fell to around $33,000 in January 2022, losing more than half of its value in just a few months. And after the collapse of Sam Bankman Fried's FTX, Bitcoin fell below $17,000 in late 2022.
This volatility poses a risk to the U.S. government, which could incur significant losses if Bitcoin's value does not rise. These fears are further amplified by the fact that Bitcoin is not a tangible asset like gold.
“If you lack the basics, [cryptocurrencies] It's driven entirely by supply and demand based on sentiment,” says James McIntosh of The Wall Street Journal. pointed out in a recent column.
Eswar Prasad, a senior fellow at the Brookings Institution, has similar concerns.
“Bitcoin, in particular, has become a purely speculative financial asset in nature, and its value appears to depend solely on its scarcity, rather than its useful purpose,” Prasad said in the paper. I wrote it. New York Times editorial.
There are also people like Ananya Kumar of the Atlantic Council. point it out Stockpiling Bitcoin makes little sense compared to oil reserves.
“Oil is one of the fundamental resources that power our economy and daily life, but cryptocurrencies are not,” she wrote.
Kumar added, “Holding Bitcoin reserves is the same as having a large number of iPhones for the government in case it needs to intervene to lower the price of iPhones in the future. “Coins are not an important commodity or input to our economy,” he added.
Will Bitcoin replace the dollar?
Although more businesses are starting to accept cryptocurrencies as a payment method, Bitcoin is unlikely to replace the dollar anytime soon.
Even if all consumers and businesses had access to Bitcoin (which they currently don't), Bitcoin's volatile value makes it difficult to imagine it as a widespread medium of exchange.
prasad put it like this: “It's like a $10 bill can buy you a bottle of beer on one day and a bottle of fine wine on another.”
Price fluctuations are not the only problem. Bitcoin is also “inefficient as a means of payment” due to high transaction fees and slow processing times. Prasad pointed out:.
The dollar was the world's main reserve currency After World War II ended It remains the most widely used currency in international trade.
That said, recent geopolitical changes have put the dollar's dominance at risk, prompting some countries to consider alternatives. Over time, digital assets like Bitcoin have the potential to “significantly change the monetary landscape.” According to a report from Morgan Stanley.
“While still in their early stages, these innovations have the opportunity to both erode and strengthen the dollar's hegemony in global finance,” said Andrew Peel, head of digital asset markets at Morgan Stanley.
recent JPMorgan analysis He also warned of “de-dollarization,” but said any “meaningful erosion of the dollar's dominance” would likely take decades.
