First, I apologize for the delay in updates last week. After briefly studying Clanker and other AI Agents, I found them very interesting and spent some time developing some small frame tools. After assessing the development and potential cold start costs, quickly chasing market hotspots seems to be the norm for most small to medium-sized entrepreneurs in the Web3 industry, and I hope everyone understands and continues to support me. Back to the point, this week I want to discuss a viewpoint that I have been thinking about recently, and I think this can also explain the reasons for the recent market turbulence. That is, after BTC prices break new highs, how to continue capturing incremental value. My viewpoint is that we need to focus on whether BTC can take over from AI and become the core driving economic growth in the new political and economic cycle under Trump. The competition has already started with the wealth effect of MicroStrategy, but the entire process will inevitably still face numerous challenges.
With the wealth effect of MicroStrategy underway, the market has begun to speculate whether more listed companies will choose to allocate BTC to achieve growth.
We know that last week the crypto market experienced significant volatility, with BTC prices swinging between $94,000 and $101,000. There are two core reasons for this, and I will briefly outline them here.
First, we must trace back to December 10, when Microsoft officially rejected the Bitcoin financial proposal put forward by the National Center for Public Policy Research at its annual shareholder meeting. In the proposal, this think tank suggested that Microsoft diversify 1% of its total assets into Bitcoin as a potential hedge against inflation. Prior to this, MicroStrategy's founder Saylor publicly declared through X as a representative of NCPPR's FEP, giving a 3-minute online presentation, leading to some hope in the market regarding the proposal, even though the board had already clearly suggested rejecting it beforehand.
Here, I want to elaborate a bit on the so-called National Center for Public Policy Research. We know that think tanks are composed of industry experts, usually funded by governments, political parties, or commercial companies. Most think tanks are non-profit organizations and not official institutions. This operating model can exempt them from taxes in countries like the U.S. and Canada. Generally, the viewpoints expressed by think tanks need to serve the relevant interests of their sponsors. NCPPR was established in 1982 and is headquartered in Washington D.C. Its influence holds a certain position among conservative think tanks, especially in supporting free markets, opposing excessive government intervention, and promoting corporate responsibility issues. However, its overall influence is relatively limited compared to some larger think tanks (like the Heritage Foundation or Cato Institute).
This think tank has faced criticism for its positions on issues such as climate change and corporate social responsibility, particularly regarding its suspected funding sources linked to the fossil fuel industry, which has limited NCPPR's policy advocacy. Progressives often label it as a 'mouthpiece for interest groups,' which diminishes its influence across a broader political spectrum. In recent years, NCPPR has launched the FEP (Free Enterprise Project) initiative, frequently proposing at shareholders' meetings of large companies and questioning their policies on issues like racial diversity, gender equality, and social justice from a right-wing perspective. For instance, proposals were submitted against mandatory racial and gender quotas, arguing that such policies lead to 'reverse discrimination' and harm corporate performance. They also criticized companies like Disney and Amazon for being overly accommodating to progressive issues, asserting that businesses should focus on profitability rather than 'pleasing minority groups.' With Trump's administration and his supportive stance on cryptocurrency policies, this organization has promoted Bitcoin adoption to major listed companies through FEP, including giants like Microsoft and Amazon.
With the formal rejection of this proposal, BTC's price once fell to $94,000, then quickly rebounded. From the level of price fluctuations triggered by this event, it is not difficult to observe that the current market is indeed in a state of anxiety, and the anxiety point lies in what the new source of growth will be after BTC's market value breaks historical highs. From recent signs, we see that some key leaders in the crypto world are choosing to leverage MicroStrategy's wealth effect to promote the financial strategy of allocating BTC on balance sheets to other listed companies, aiming to combat inflation and achieve performance growth, thereby increasing BTC's adoption. Now, let's look ahead to see if this strategy can succeed.
BTC, as a substitute for gold, still has a long way to go to become a widely recognized store of value globally, and success in the short term is not easy.
First, let's analyze the first attraction of this strategy: whether allocating BTC can effectively combat inflation in the short term. In fact, when discussing inflation, gold is usually the first thing that comes to mind, and Powell mentioned in a Q&A session earlier this month that Bitcoin is a competitor to gold. So, can Bitcoin become a substitute for gold and become a store of value on a global scale?
This question has always been a key point in the discussion of Bitcoin's value. Many people have made numerous arguments based on the similarities in the intrinsic properties of assets, and I will not elaborate on that here. What I want to emphasize is how long it will take to realize this vision or whether this vision supports BTC's current valuation. My answer is that it is unlikely to be achievable in the foreseeable four years or in the short to medium term. Therefore, using this as a short-term promotional strategy may not be very attractive.
We refer to how gold has developed into its current status as a store of value. As a precious metal, gold has always been regarded as a valuable item by various civilizations, possessing universality. The core reasons are as follows:
Its obvious luster and excellent malleability give it significant value as an important decorative item.
The lower output brings scarcity to gold, thereby endowing it with financial attributes, making it easy to be chosen as a class symbol in a society where class divisions emerge.
The wide distribution of gold globally and its low mining difficulty allow various civilizations to be free from constraints such as culture and productivity development, thus spreading value culture more widely from the bottom up.
The universal value formed by these three attributes allows gold to play the role of currency in human civilization, and the entire development process has made gold's intrinsic value stable. Thus, we see that even when sovereign currencies abandon the gold standard and modern financial instruments give them more financial attributes, the price of gold has generally followed a long-term growth pattern, effectively reflecting the real purchasing power of money.
However, it is unrealistic for Bitcoin to replace gold's status in the short term. The core reason is that its value proposition, as a cultural perspective, will certainly contract rather than expand in the short to medium term, for two reasons:
The value proposition of Bitcoin is top-down: as a virtual electronic commodity, Bitcoin mining requires competition in computing power, which is determined by two factors: electricity and computational efficiency. Firstly, electricity costs reflect a country's level of industrialization, while the cleanliness of the energy behind electricity determines its future development potential. Computational efficiency relies on chip technology. In direct terms, acquiring BTC now cannot simply be achieved by personal PCs; with technological advances, its distribution will inevitably concentrate in a few regions, making it difficult for undeveloped countries that comprise a significant portion of the global population to obtain it. This adversely affects the efficiency of spreading this value proposition because when you cannot control a certain resource, you can only become its exploited object. This is why stablecoins compete with the sovereign currencies of some countries with unstable exchange rates, and from a national interest perspective, this cannot be recognized, making it hard to see undeveloped countries encouraging such value propositions.
The retreat of globalization and the challenge to dollar hegemony: We know that with Trump's return, his isolationism will deal a significant blow to globalization, and the most direct impact will be on the influence of the dollar as the global trade settlement currency. This has posed a certain challenge to its dollar hegemony, a trend that is referred to as 'de-dollarization.' The whole process will undermine the short-term global demand for the dollar, and as Bitcoin is primarily dollar-denominated, its acquisition costs will inevitably rise, making it more difficult to promote its value proposition.
Of course, the above two points only discuss the developmental challenges of this trend from a macro perspective in the short to medium term; they do not affect Bitcoin's narrative as a gold substitute in the long cycle. The most direct effects of these two points in the short to medium term are reflected in its price high volatility, as the rapid rise in its value in the short term is primarily based on speculation rather than an enhancement of its value proposition's influence. Therefore, its price volatility is likely to align more with speculative products, exhibiting high volatility characteristics. Moreover, due to its rarity, if the dollar continues to be severely overissued and the intrinsic purchasing power of the dollar declines, all dollar-denominated goods can be said to possess certain anti-inflationary properties, just like the luxury goods market in recent years. However, this anti-inflationary nature does not sufficiently provide Bitcoin with stronger competitive ability compared to gold in terms of store of value.
Therefore, I believe that positioning anti-inflation as the short-term promotional marketing focus is not sufficient to attract 'professional' clients to choose Bitcoin over gold, as their balance sheets will face extremely high volatility, and this volatility cannot be changed in the short term. Thus, it is highly probable that in the upcoming period, large listed companies with stable business development will not aggressively choose to allocate Bitcoin to combat inflation.
BTC takes over from AI, becoming the core driving economic growth in the new political and economic cycle under Trump.
Next, let's discuss the second point, which is whether some growth-challenged listed companies can achieve overall revenue growth through BTC allocation, thereby driving up their market capitalization. I believe this financial strategy could gain broader recognition, and I think it is easily achievable in the short term. In this process, BTC will take over from AI and become the core driving economic growth in the new political and economic cycle under Trump.
In previous analyses, we have clearly analyzed the successful strategy of MicroStrategy, which is to convert the appreciation of BTC into company revenue growth and, in turn, boost company market value. This indeed holds strong attraction for some growth-challenged companies, as embracing a trend is generally more comfortable than burning oneself to build a career. You can see many declining companies whose main business revenues are rapidly decreasing, ultimately choosing to use this strategy to allocate remaining value, retaining some opportunities for themselves.
With Trump's return, his internal government reduction policies will significantly impact the U.S. economic structure. Let's take a look at a piece of data: the Buffett indicator of the stock market. The so-called Buffett indicator, mentioned by the 'Oracle of Omaha' Warren Buffett in a Forbes article in December 2001, is the ratio of the total market value of the stock market to GDP, which can be used to judge whether the overall stock market is too high or too low, hence referred to as the Buffett indicator. This indicator can measure whether the current financial market reasonably reflects the fundamentals. Buffett’s theoretical index indicates a reasonable range of 75% to 90%, while exceeding 120% indicates stock market overvaluation.
We can see that the current Buffett indicator of the U.S. stock market has exceeded 200%, indicating that the U.S. stock market is in a state of extreme overvaluation. In the past two years, the core driving force behind the U.S. stock market avoiding a pullback due to monetary policy tightening has been the AI sector, represented by Nvidia. However, as Nvidia’s third-quarter earnings report shows a slowdown in revenue growth and its guidance indicates further revenue slowdown in the next quarter, this slowdown in growth is clearly insufficient to support such a high price-to-earnings ratio. Therefore, there is no doubt that the U.S. stock market will face significant pressure in the coming period.
For Trump, the specific impact of his economic policies in the current environment is undoubtedly fraught with uncertainty. For example, whether the tariff war will trigger internal inflation, whether cutting government spending will affect domestic corporate profits, and the issue of rising unemployment rates, as well as whether reducing corporate income tax will further exacerbate the already serious fiscal deficit problem. In addition, Trump seems more determined to reconstruct internal ethics and morals in the U.S., and the impacts caused by advancing sensitive cultural issues, such as strikes, protests, and labor shortages due to a decrease in illegal immigration, may cast a shadow over economic development.
If economic problems arise, particularly a stock market crash in the currently highly financialized U.S., it would severely affect his approval ratings and, in turn, the effectiveness of his internal reforms. Therefore, implanting a core of economic growth, which he already controls, into the U.S. stock market seems very cost-effective, and I believe Bitcoin is very suitable for this core.
We know that the recent 'Trump trade' in the crypto world has fully demonstrated its influence on the industry. Moreover, the companies that Trump supports are mostly traditional local industry firms rather than tech companies, so their businesses did not directly benefit from the AI wave in the previous cycle. However, if we describe the situation developing as we anticipate, it will be different. Imagine if local small and medium enterprises in the U.S. choose to allocate a certain amount of Bitcoin reserves on their balance sheets; even if their main business is affected by external factors, Trump could stabilize the stock market to a certain extent just by promoting some crypto-friendly policies to boost prices. Furthermore, this targeted stimulus is highly efficient and can even bypass the Federal Reserve's monetary policy, making it less susceptible to the constraints of the establishment. Thus, in the upcoming new U.S. political and economic cycle, this strategy is a good choice for Trump’s team and many American small and medium enterprises, and its development process is worth monitoring.
