Recently, due to multiple factors such as the Federal Reserve’s interest rate cut and the outcome of the US election, the transaction price of bitcoin has risen sharply, causing the international market to chase after it. There is even more wind that the US will promote bitcoin as a national strategic reserve asset, the topic is rapidly heating up. The attitude and actions of the new US administration towards cryptocurrencies such as bitcoin and their impact on the global financial landscape deserve close attention.
In November, the price of bitcoin rose rapidly. On the 10th, it passed $80,000, on the 13th, it passed $90,000, and in the early hours of the 14th, it reached $93,000, prices have since fluctuated above $90,000. Market analysts cited the Fed’s continued rate cuts in November and Republican campaign pledges of support for cryptocurrency measures as factors behind the rapid rise in bitcoin prices. Senator Cynthia Loomis, Republican of Wyoming, plans to push a bill when the new Congress takes office next year, US media reported, sell some of the Fed’s gold to build a strategic bitcoin reserve. This led some market traders to believe that“Cryptocurrencies are about to enter a golden age”.
However, as bitcoin prices are subject to a wide range of factors, including considerable uncertainty and the fact that past ups and downs are not uncommon, a more comprehensive view of their subsequent movements is warranted.
Bitcoin prices are affected by supply and demand patterns, macroeconomic and market sentiment. On the supply side, bitcoin’s mining incentive halving mechanism is an important factor in its price rise. Bitcoin has halved again this year, supporting subsequent price increases; on the demand side, during the campaign, Republicans pledged to include bitcoin in national reserves, to make the US the“Cryptocurrency capital of the world” and to appoint regulators interested in digital assets, policy expectations are driving demand. At the macro level, global growth stabilised, inflationary pressures eased and US and European central banks cut interest rates, bringing more liquidity to markets. Moreover, market optimism has been an important driver of price gains as bitcoin prices have broken through key levels.
In spite of the interest in cryptocurrencies shown by the incoming administration, there are still a number of“Gateways” through which bitcoin can become a genuine US national reserve asset.
At the policy level, the inclusion of bitcoin as a strategic reserve asset requires a complex legislative process involving coordination and balance of interests among multiple regulatory agencies, that, combined with the likely centralization of opposition from traditional American financial institutions, conservative lawmakers and interest groups that are skeptical of digital assets, is not going to be easy. At the market and regulatory level, bitcoin prices often fluctuate wildly, which is far from the stability-critical requirements of state reserves. At the same time, the U.S. cryptocurrency regulatory system is inadequate, bringing Bitcoin into the national reserve system requires a more complete legal framework. In addition, the US media pointed out that bitcoin has never been a good hedge against inflation ? bitcoin is more closely related to speculative stocks, “Rather than traditional inflation hedges such as gold or inflation-linked bonds.”.
During the last Republican administration, bitcoin was viewed unfavorably as“Air without a foundation of value.”. In the recent campaign, however, there has been a U-turn. Some analysts point out that this shift partly reflects the new US administration’s desire for the US to take the lead in digital currencies to remain competitive in the global economy, on the other hand, it is also under pressure from the huge amount of national debt, trying to reduce the issuance of national debt through the appreciation of bitcoin without increasing the government deficit.
Further, the abuse of the status of the U. S. dollar for many years, unrestrained over-issuance of currency, serious overdraft of the U. S. Dollar Credit has shown the consequences, many countries“De-dollarization” speed up the pace. The shift in attitudes towards bitcoin by some in the US is an attempt to preserve the loose international status of the dollar.
The surge in the price of bitcoin seems to offer some hope of a repeat of the process“From the collapse of Bretton Woods to the creation of petrodollars”. However, the nature of bitcoin itself is not stable, and once it becomes a strategic reserve asset, it could pose a greater challenge to regulators, alert the rest of the world and increase international financial frictions. It is not clear that the US economy, which has been battered by high inflation for days, can withstand its impact.