Written by: Wang Yongli, Co-Chairman of Digital China Information Service Group, former Vice President of Bank of China.
Source: (China Foreign Exchange) Issue 1, 2025
Key points
Bitcoin can only be a new type of tradable wealth or digital asset, and it is difficult to become a true currency, fundamentally unable to replace sovereign currency. Whether it can replace gold as a national strategic reserve remains highly questionable.
With Trump's victory in the U.S. presidential election, his proposed new Bitcoin policy has received widespread attention and discussion. Undoubtedly, Trump's new Bitcoin policy has significant implications for both the U.S. and the world. I believe we need to calm down, view and grasp this rationally and objectively, and avoid making subversive mistakes.
Trump's radical new Bitcoin policy after being elected president.
During his last presidential term, Trump believed that cryptocurrencies were not currency, that their value was highly volatile, and viewed them as scams. He stated that unregulated crypto assets could be used for drug trafficking and other illegal activities, predicting it would be 'a huge disaster waiting to happen,' asserting that the only real currency in the U.S. is the dollar. However, starting in 2022, he changed his stance, believing that the crypto industry is 'like the steel industry a century ago, still in its infancy' and that 'the market value of Bitcoin may surpass gold,' actively investing in crypto assets and strengthening his ties with the cryptocurrency community.
After confirming his participation in the 2024 presidential election, Trump's attitude towards Bitcoin has become more positive, claiming he wants to be the president who supports innovation and Bitcoin. He proposed a very radical new Bitcoin policy, mainly including: the U.S. should become the undisputed powerhouse of Bitcoin mining in the world, ensuring that the U.S. becomes the capital of cryptocurrency and a Bitcoin superpower; guaranteeing the power supply for Bitcoin mining, relaxing cryptocurrency regulations, and firing the current chair of the U.S. Securities and Exchange Commission (SEC) on his first day in office, who holds a strong regulatory stance on cryptocurrencies; establishing a national strategic reserve of Bitcoin, in addition to the Bitcoin already seized by the government, purchase over one million more; during his presidency, he will never launch a digital dollar (CBDC) and will strengthen presidential control over the Federal Reserve.
These proposals have been warmly embraced by the cryptocurrency community and have received significant funding for Trump's presidential campaign. Many of the nominees in Trump's new government are also cryptocurrency-friendly or even enthusiastic individuals. Among them, his campaign supporter, Elon Musk, nominated to lead the newly established 'Government Efficiency Department,' is known as the 'Godfather of Crypto' and has a substantial amount of cryptocurrency. The elected Vice President, Vance, disclosed that he holds Bitcoin worth hundreds of thousands of dollars. On December 5, 2024, Trump nominated cryptocurrency supporter Paul Atkins to succeed the chair of the U.S. SEC; he also nominated David Sacks, former COO of electronic payment company PayPal, to lead the newly established 'White House AI and Cryptocurrency Affairs' position (leading the President's Technology Advisory Committee), aiming to establish a legal framework for the cryptocurrency industry to achieve the clarity it seeks and thrive in the U.S.
Trump's words and actions have sparked a new wave in the cryptocurrency industry. After Trump was elected president on November 6, 2024, the price of Bitcoin surged significantly from the previous day's closing price of less than $69,400. By December 5, 2024, the price broke $100,000 for the first time (with a daily high exceeding $104,000), and its market value surpassed $2 trillion for the first time.
Trump's new Bitcoin policy has also had a significant impact globally. Zhao Changpeng (CZ), the founder of the well-known cryptocurrency exchange Binance, which was heavily fined by the U.S., also commented that Bitcoin, with its scarcity and decentralized features, is increasingly welcomed by investors and has stronger preservation capabilities compared to traditional financial assets. It is inevitable for countries and large institutions to establish Bitcoin strategic reserves, leading to very intense competition. Some institutions predict that by the end of 2025, Bitcoin's price will reach $200,000. Others believe that by 2035, Bitcoin's price will exceed $1 million; with the future 21 million Bitcoin corresponding to the value of the world's tradable wealth, its price has significant room for appreciation.
Of course, Trump's new Bitcoin policy and the above views have also sparked considerable controversy globally, and there are many opposing voices within the U.S., although they seem weak in the current frenzy.
Accurately view Bitcoin
On October 31, 2008, the Bitcoin white paper (Bitcoin: A Peer-to-Peer Electronic Cash System) was published. On January 3, 2009, the first block of Bitcoin (the Genesis Block) was launched, with the first batch of 50 Bitcoin officially coming into existence. Since then, Bitcoin has been running securely until today.
On May 22, 2012, someone used 10,000 Bitcoin to purchase two pizzas worth $25, marking the first exchange of Bitcoin with sovereign currency at a rate of 1:0.0025. From this starting point, the price of Bitcoin has risen to $100,000, appreciating by 40 million times. This has indeed filled many people with faith and expectations for Bitcoin's greater appreciation, despite the frequent large fluctuations in Bitcoin prices during this process.
So, how should we view Bitcoin? This requires accurately answering at least the following two questions:
Question 1: Can Bitcoin become a new type of super-sovereign currency?
Currency has a history of several thousand years in human society, mainly experiencing four stages of development: natural physical currency (like China's shell money), regulated metal coins (gold coins, copper coins, silver coins, etc.), metallic standard paper currency (tokens based on metal standards), and purely credit currency detached from specific physical forms. This reflects a continuous trend of moving from physical to virtual. Among these, gold as currency or monetary standard has the longest history and widest scope globally, especially with the signing of the Bretton Woods Agreement in July 1944, which brought currency back to a gold standard at the international monetary system level, making gold the preferred material for currency or value reserves worldwide.
However, after August 1971, when the U.S. ceased to fulfill its international commitment of 1 ounce of gold for $35, gold completely exited the currency stage, returning to its original form as tradable wealth; currency then completely detached from specific physical forms, becoming purely a measure of value and medium of exchange, known as 'credit currency.' Why is this?
This is because currency serves the purpose of facilitating exchanges. Its essential property and core function are the measure of value and medium of exchange, which necessitates maintaining the basic stability of currency value (large fluctuations in value can severely impact exchanges). Using any specific physical asset or a few physical assets as currency or monetary standard will inevitably lead to a situation where the Earth's reserves of such physical assets, particularly their limited availability as currency supply, struggle to meet the infinite growth demands of tradable wealth value, resulting in an increasingly severe 'scarcity curse of physical currency' that severely constrains exchanges and economic and social development, ultimately leading to elimination. Currency must detach from specific physical forms, allowing the total currency supply to change in accordance with the changes in the total value of tradable wealth ('total to total' correspondence) while maintaining basic stability in currency value on a sufficient supply basis, and continuously advancing towards intangibility, digitalization, and intelligence in order to improve operational efficiency and reduce costs while tightly controlling risks, fully realizing the functions currency should have. Therefore, credit currency is the inevitable direction of currency development and not a passive result of enduring significant shocks. Any attempt to return to a metallic standard currency system or efforts to re-anchor currency are unlikely to succeed as they contradict the essence and development rules of currency.
To understand currency, one must grasp its essence beyond appearances. Shell money, minted coins, paper currency, etc., are all carriers or manifestations of currency, not currency itself. The complete description of currency is: the essential property of currency is the measure of value, the core function is as a medium of exchange, and the fundamental guarantee is the highest credit protection, becoming the most liquid value certificate.
After no longer being anchored to any specific physical asset, the issuance of credit currency requires entirely new channels or methods, whereby the currency issuing institution lends currency through credit (issuing loans, purchasing bonds, account overdrafts, bill discounting, etc.). The principle is that the borrower's existing or future wealth that can be liquidated supports this process, allowing the currency issuing institution to assess and reach an agreement with the borrower before issuing currency accordingly. Thus, as long as the borrower possesses real tradable wealth, the currency issuing institution can issue corresponding currency based on its liquidatable value, allowing the total currency supply to adjust with changes in the total value of wealth. In this way, credit currency completely breaks the 'scarcity curse of physical currency,' providing ample supply and significantly promoting exchanges, transactions, and economic and social development. It can be said that without credit issuance, there is no true credit currency; without credit currency, the economic and social development, including global economic and financial globalization, would be difficult to reach today's level!
To prevent excessive currency issuance, credit issuance must involve principal and interest repayment as agreed, and cannot be given without charge (this is a fiscal function). A central banking system must also be established, where the central bank no longer provides credit issuance to society but only provides relending services to credit issuance institutions, becoming the main body for monitoring the total currency supply and implementing monetary policy. Credit issuance institutions will then become the new entities for currency issuance but must be strictly regulated by the central bank; there cannot be just one credit issuance institution, and it is not allowed to issue credit for itself. Liquidity constraints must be formed through inter-institutional fund transfers to suppress excessive credit issuance. Losses from unrecoverable principal and interest by credit institutions must be recognized in a timely manner to mitigate the impact of excessive issuance. If credit institutions face liquidity crises or are insolvent, bankruptcy restructuring should also be implemented. An effective control mechanism for credit issuance must be established to curb excessive currency issuance from the source.
Credit issuance (including central bank relending) can be directly credited to the borrower's deposit account at the issuing institution, and deposits can be directly used for external payments (transfer payment accounting and clearing), which can greatly reduce the printing and collection of cash. Only when depositors need cash do they need to exchange deposits for cash. Therefore, cash is no longer the basic channel for currency issuance. In the long run, cash is destined to completely exit the currency stage like shell money and minted coins.
In the context of national sovereignty, the highest credit today is national sovereign credit. It requires bilateral protection of currency and the wealth used for exchange by national sovereignty to maintain the total correspondence between currency and wealth. Therefore, credit currency is represented by national sovereign currency or legal tender, with its credit being state credit rather than the credit or liabilities of the currency issuing institution (such as a central bank). Promoting the denationalization of currency (including a return to physical currency) or super-sovereignty (including creating a super-sovereign currency structurally tied to multiple sovereign currencies, like the International Monetary Fund's Special Drawing Rights SDR) is difficult to achieve. Stablecoins pegged to a single sovereign currency are essentially tokens of that pegged currency, and they can exist but must accept regulation from the monetary authorities and cannot replace the pegged currency.
Despite significant innovations achieved in technology, Bitcoin closely mimics gold at the 'currency' level: the Earth's gold reserves are finite, and it is clear that the easier it is to mine, the more will be mined in the early stages, while it becomes harder to mine as time goes on, leading to lower new production rates. Consequently, Bitcoin is also set to a total of 21 million, with a new block mined approximately every 10 minutes, and the amount of Bitcoin given per block is set to: 50 in the first four years, halved every four years (currently 3.125), effectively reducing to zero by 2140, marking the end of mining. This arrangement creates an illusion of Bitcoin's significant appreciation potential, attracting people to actively participate in mining or investing, but its total quantity and phased new production are entirely system-defined, more stringent than gold (the actual amount of gold reserves is unclear), and the number available for exchange is limited, fundamentally unable to grow with the increase in tradable wealth value, failing to meet the essential requirements of currency. Since gold has already exited the currency stage, Bitcoin is unlikely to become a true circulating currency.
Bitcoin is a purely digitally born asset, whose blockchain only serves the functions of mining, processing Bitcoin node transfers, distributed verification and accounting. It is highly closed and secure, but it cannot solve any real-world problems. If Bitcoin cannot be exchanged for sovereign currency, it is difficult to realize any value outside its game, and it is hard to have an impact on the real world. The Bitcoin blockchain needs to be continuously maintained and will grow longer, allowing for traceability, making it difficult to be breached or surpassed by other cryptocurrencies. However, the costs of mining and system operation are rising, while efficiency is declining, failing to meet the real-world needs for the total amount of currency and payment efficiency. All of this makes it hard for Bitcoin to become a true currency, difficult to replace sovereign currency.
Question 2: Can Bitcoin replace gold as a strategic reserve?
Bitcoin highly mimics gold at the 'currency' level, and is therefore referred to as 'digital gold.' However, Bitcoin is a purely digitally born asset, not a natural physical asset, and its value depends on the development space of its application scenarios and the amount of faith and investment from people. Bitcoin can be divided into very small units of one hundred millionths, making it more flexible for payments, but it does not have real gold backing, and does not fall into the strict sense of 'paper gold.' Once trust is lost, it can evaporate and become worthless; the risk is much greater than that of gold.
As a digital asset, Bitcoin, like gold, is not fundamentally problematic in terms of mining and trading (including spot trading, futures, derivative trading, ETFs, etc.), unless a country explicitly prohibits it due to high energy consumption, regulatory difficulties, and other factors. However, as a product and trading platform that can be traded globally 24/7 via the internet, it must be subjected to stricter international joint regulation to avoid manipulation and fraud. Completely relaxing regulation will undoubtedly lead to serious problems and is extremely irresponsible.
The current application scenarios of Bitcoin are mainly for initial coin offerings (ICO), trading, and as intermediaries for the transfer of sovereign currency used for money laundering, bribery, extortion, terrorist financing, and other gray or illegal areas. Sovereign currency originally had strict regulations and international cooperation against money laundering and terrorist financing, but now the transition through cryptocurrencies has lost effective regulation, which is a very serious regulatory loophole that urgently needs the international community's attention and timely closure. The focus of regulation should not be on cryptocurrencies but on sovereign currencies, and international joint regulation must be strengthened to prevent sovereign currency from being involved in illegal activities through cryptocurrency transactions and transfers.
Clearly, the regulatory risks of cryptocurrencies like Bitcoin are far greater than those of gold.
Bitcoin is essentially a speculative asset, and the returns investors gain mainly come from its price increase. However, its price volatility is extremely intense, greatly exceeding the price fluctuations of assets such as stocks, bonds, foreign exchange, and gold. The investment risk is very high. In Bitcoin trading or investment, apart from various service providers like exchanges, only an increasingly smaller number of participants can truly earn profits. Meanwhile, the correlation between Bitcoin and stocks, gold, and other assets is gradually strengthening, and its function as a risk hedge is correspondingly weakening.
From the above situation, although Bitcoin seems to have more appreciation potential than gold, its risks are also greater, and whether it can replace gold as a national strategic reserve remains highly questionable.
Trump's new Bitcoin policy is difficult to achieve.
First, it is difficult for the U.S. to obtain new Bitcoin. The total number of Bitcoin is 21 million, with over 19.8 million already mined, leaving less than 1.2 million remaining, and the energy consumption for mining is increasing while competition is becoming fiercer. Additionally, Bitcoin mining is decentralized, making it difficult for the U.S. to ensure that new Bitcoin can be generated in the U.S., let alone guarantee that they will belong to the U.S. government. At the same time, it is estimated that there are 4 million Bitcoin that are 'dead coins' and cannot be used, increasingly controlled by a small number of people, making it not easy to increase by purchasing another million. If the national government leads the rush to buy Bitcoin, it will inevitably push up Bitcoin prices significantly, but it will also greatly increase the price bubble and the risk of a crash. Furthermore, the development of quantum computing technology will pose significant challenges to the security of Bitcoin and other cryptocurrencies.
Secondly, the so-called national strategic reserve of Bitcoin, whether it is the government (Treasury) strategic reserve or the Federal Reserve (central bank) as the strategic reserve of the dollar, carries risks and uncertainties. If it refers to the government reserve, then based on the over 210,000 Bitcoin already seized (of which there are legal disputes about whether the part that was taken by hackers or robbers should be returned to the victims), if the government buys another million Bitcoin, it will push the price of Bitcoin to rise significantly. Currently, the U.S. Treasury's Exchange Stabilization Fund (ESF) is approximately $215 billion, and even if all of it is used, it may not be enough. If the government issues additional bonds to raise funds, the federal government's debt, which has already exceeded $36 trillion, will become even larger. Relying on significantly appreciating Bitcoin to stabilize foreign exchange (stabilize the dollar exchange rate) or repay government debt also carries uncertainties, as large-scale sales would depress its price. If it refers to the Federal Reserve's reserve, if the Federal Reserve buys a million Bitcoin with dollars, it will lead to a large-scale injection of base currency, which could put more pressure on inflation. If the Federal Reserve exchanges its gold reserves for Bitcoin, it could weaken the impact on the base currency, but it may significantly lower gold prices and raise Bitcoin prices, and whether it can truly benefit remains highly risky.
At the same time, it should be noted that under credit currency, the reputation of a country's currency is fundamentally built on the growth of that country's wealth and the level of monetary management, rather than primarily relying on the value of reserve assets. Therefore, replacing gold reserves with Bitcoin reserves is unlikely to have any practical benefit for the dollar, nor is it likely to be used to repay government debt.
Furthermore, Trump's new Bitcoin policy contradicts his stance on strengthening the dollar as a global key currency. Bitcoin is decentralized and super-sovereign; even if the U.S. significantly increases its Bitcoin reserves, it will not help strengthen the international status of the dollar. On the contrary, if Bitcoin regulations are extremely relaxed, allowing for massive cross-border flows of sovereign currency through Bitcoin while hindering the digitalization of the dollar, it could severely impact the dollar's international status.
The special status of the U.S. dollar as the international central currency is fundamentally determined by the comprehensive national strength and international influence of the United States. Unless there is a fundamental change in the global order where the U.S. remains the strongest country, it is difficult to overturn or replace the dollar's position as the number one international currency, unless the U.S. itself commits a subversive error, actively undermining the credit and status of the dollar. Once the international status of the dollar is replaced, it will bring a huge shock to the United States.
In summary, Bitcoin can only be a new type of tradable wealth or digital asset, and it is difficult to become a true currency, fundamentally unable to replace sovereign currency. Whether it can replace gold as a national strategic reserve remains highly questionable. The international community should treat Trump's new Bitcoin policy with calmness and objectivity, rather than blindly following trends.
