Author: Wang Yongli, Co-Chairman of Digital China Information Services Group and former Vice President of Bank of China
Source: (China Foreign Exchange) 2025 Issue 1
Key Points
Bitcoin can only be a new type of tradable wealth or digital asset. It is difficult to become a real currency and cannot replace sovereign currencies at all. There are still big questions about whether it can replace gold as a national strategic reserve.
With Trump winning the US presidential election, his proposed new Bitcoin policy has attracted widespread attention and heated discussions. There is no doubt that Trump's new Bitcoin policy has a significant impact on the United States and the world. The author believes that we need to calm down, look at it rationally and objectively, and avoid making subversive mistakes.
Trump's radical new Bitcoin policy as the elected president of the United States.
During his previous presidential term, Trump believed that cryptocurrencies were not currencies, that their value was highly volatile, that they were scams, and that unregulated crypto assets could be used for drug trafficking and other illegal activities, calling it 'a huge disaster waiting to happen.' He asserted that the only real currency in the US is the dollar. However, beginning in 2022, he changed his stance, stating that the crypto industry is 'like the steel industry 100 years ago, still in its infancy,' and that 'the market value of Bitcoin could surpass that of gold,' and he actively invested in crypto assets, strengthening his ties with the crypto community.
After confirming his participation in the 2024 presidential election, Trump's attitude towards Bitcoin became more positive, claiming he wants to be the president who supports innovation and Bitcoin. He proposed a very radical new Bitcoin policy, which mainly includes: the US must become the undisputed global powerhouse of Bitcoin mining, ensuring that the US becomes the world capital of cryptocurrency and a Bitcoin superpower; guaranteeing the electricity supply for Bitcoin mining, relaxing cryptocurrency regulations, and firing the current chair of the US Securities and Exchange Commission (SEC) who holds a strong regulatory stance on cryptocurrency on his first day in office; establishing a national strategic reserve of Bitcoin, purchasing more than 1 million additional Bitcoins on top of those already seized by the government; during his presidency, he will never launch a digital dollar (CBDC), and he will strengthen presidential control over the Federal Reserve, among other things.
These views have been enthusiastically embraced by the cryptocurrency community, which has also invested heavily in Trump's presidential campaign. Many of the nominees in Trump's new government are friendly toward or even enthusiastic about cryptocurrencies. Among them, his key supporter, Elon Musk, nominated to lead the newly established 'Department of Government Efficiency,' is known as the 'Godfather of Crypto,' possessing a substantial amount of cryptocurrency. The elected Vice President Vance revealed that he holds Bitcoin worth hundreds of thousands of dollars. On December 5, 2024, Trump nominated crypto supporter Paul Atkins to become the new chair of the SEC; he also nominated David Sacks, former COO of PayPal, to lead the newly established 'White House AI and Cryptocurrency Affairs' office (leading the Presidential Technology Advisory Committee), aiming to establish a legal framework for the cryptocurrency industry to gain the clarity it seeks to thrive in the US.
Trump's words and actions have sparked a new wave of enthusiasm in the cryptocurrency industry. After Trump was elected president on November 6, 2024, the price of Bitcoin surged significantly from the previous closing price of less than $69,400. By December 5, 2024, the price broke $100,000 for the first time (with a daily high of over $104,000), and its market capitalization exceeded $2 trillion for the first time.
Trump's Bitcoin policy has also generated significant tremors globally. Zhao Changpeng (CZ), the founder of the well-known cryptocurrency trading platform Binance, which was heavily fined by the US, also voiced that Bitcoin, due to its scarcity and decentralized characteristics, is increasingly favored by investors, possessing stronger value retention capabilities compared to traditional financial assets. The establishment of Bitcoin strategic reserves by countries and large institutions is inevitable, and competition will be very fierce. Some institutions predict that by the end of 2025, the price of Bitcoin will reach $200,000. There are even views that by 2035, the price of Bitcoin will exceed $1 million; in the future, the 21 million Bitcoins will correspond to the world's tradable wealth value, indicating immense potential for price increases.
Of course, Trump's Bitcoin policy and the views mentioned above have sparked considerable controversy worldwide, and there are many opposing voices within the US, although they seem quite weak in the current fervor.
Accurately assessing 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 Bitcoin block (the genesis block) was launched, and the first batch of 50 Bitcoins officially emerged, after which Bitcoin has been operating securely ever since.
On May 22, 2012, someone used 10,000 Bitcoins to buy two pizzas worth $25, marking the first exchange of Bitcoin for a sovereign currency, with an exchange rate of 1:0.0025. From this starting point, the price of Bitcoin has risen to $100,000, appreciating by 40 million times. This indeed fills many with faith and expectations for even greater appreciation of Bitcoin, despite frequent significant fluctuations in its price 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 thousands of years in human society, primarily experiencing four developmental stages: natural physical currency (such as China's cowrie shells), regulated metallic coins (gold coins, copper coins, silver coins, etc.), metallic standard paper currency (tokens based on metallic standards), and purely fiat currency detached from specific physical commodities. This evolution reflects a trend of moving from the physical to the abstract. Among these, gold has the longest history and the widest range as a currency or currency standard, particularly after the signing of the Bretton Woods Agreement in July 1944, which effectively returned currencies to the gold standard in the international monetary system, thus establishing gold as the preferred currency material or value reserve worldwide.
However, after the US stopped fulfilling its international commitment of exchanging 1 ounce of gold for $35 in August 1971, gold completely exited the currency stage, reverting to its original role as tradable wealth; currency completely detached from specific physical commodities, becoming purely a measure of value and medium of exchange, now referred to as 'fiat currency.' Why is this the case?
This is because currency serves the purpose of facilitating exchanges and transactions, and its essential attribute and core function are value measurement and medium of exchange. Therefore, it is essential to maintain the basic stability of the currency's value (rapid fluctuations in value can severely affect exchanges and transactions). Using any specific physical commodity as currency or as the basis for currency inevitably leads to a situation of increasing severity known as the 'physical currency shortage curse,' due to the finite nature of such commodities on Earth and their limited supply as currency. This can severely restrict exchanges and economic development, ultimately leading to their elimination. Currency must detach from specific physical commodities, allowing the total amount of currency to change in accordance with the total value of tradable wealth (corresponding 'total to total'), maintaining basic stability in currency value while ensuring adequate supply, and continually advancing towards intangibility, digitization, and intelligence, thereby improving the efficiency of currency operations, reducing operational costs, and tightening risk control, fully realizing the functions that currency should serve. Thus, fiat currency is the inevitable direction of currency development, not a passive result accepted under great pressure. Any attempts to revert to a metallic standard currency system or to re-anchor currency are bound to fail as they contradict the essence and development laws of currency.
To understand currency, one must grasp its essence beyond appearances. Cowrie shells, coins, paper money, etc., are merely carriers or expressions of currency, not currency itself. The complete description of currency is: its essential attribute is value measurement, its core function is as a medium of exchange, and its fundamental safeguard is the highest credit protection, becoming the most liquid value certificate (a transferable and circulating value warrant).
Once detached from any specific physical anchor, the issuance of fiat currency requires entirely new channels or methods, which is that currency issuing institutions lend out currency in the form of credit (such as issuing loans, purchasing bonds, overdrawing accounts, or discounting bills). The principle is that the currency issuing institutions evaluate and agree with the borrower based on the realizable value of the wealth that the borrower already possesses or will possess at an agreed time. Thus, as long as the borrower has real tradable wealth, the currency issuing institution can issue corresponding currency according to its realizable value, allowing the total currency supply to adjust in line with the total wealth value. Consequently, fiat currency completely breaks the 'physical currency shortage curse,' enabling full supply and significantly promoting exchanges and economic and social development. It can be said that without credit issuance, there is no true fiat currency; without fiat currency, economic and social development, including globalization of finance, would be difficult to achieve at today's level!
To prevent currency over-issuance, credit-issued currency must adhere to agreed repayment terms and interest payments and cannot be provided free of charge (which falls under fiscal functions). A central bank system must be established, where the central bank no longer provides credit issuance to society but only offers re-lending services to credit-issuing institutions, becoming the main body for monitoring total currency supply and implementing monetary policy. Credit-issuing institutions will then become the new main body for currency issuance but must be under strict supervision from the central bank; there cannot be just one credit-issuing institution, and it cannot issue credit for itself. Liquidity constraints must be formed through the transfer of funds among institutions to suppress excessive credit issuance. Any unrecoverable principal and interest losses incurred by credit institutions will constitute actual currency over-issuance, requiring timely and sufficient loss provisions or direct write-offs to eliminate the impact of over-issuance as much as possible. If a credit institution encounters a liquidity crisis or becomes insolvent, bankruptcy reorganization should be implemented accordingly. Effective control mechanisms for credit issuance must be established to curb currency over-issuance from its source.
Credit issuance (including central bank re-lending) can be directly credited to the borrower's deposit account at the issuing institution, and these deposits can be used directly for external payments (transfer payment accounting and settlement), thus significantly reducing the printing and circulation of cash. Only when depositors need cash do they need to convert their deposits into cash. Therefore, cash is no longer the fundamental channel for currency issuance. In the long run, cash is destined to exit the currency stage entirely, much like cowrie shells and coins.
In the context of national sovereignty and independence, the highest credit in today's world is national sovereign credit. Bilateral protection of currency and the wealth it is used to exchange is needed to maintain the correspondence between currency and overall wealth. Thus, fiat currency manifests as national sovereign currency or legal tender, whose credit is the credit of the state, no longer the credit or liabilities of the currency issuing institution (such as the central bank). Attempts to implement the denationalization of currency (including a return to physical currency) or super-sovereignization (including the creation of a super-sovereign currency structurally linked to multiple sovereign currencies, like the International Monetary Fund's Special Drawing Rights, SDR) are bound to encounter difficulties. Stablecoins pegged to a single sovereign currency are essentially tokens of that pegged currency, which can exist but must be subject to regulation by monetary authorities and cannot replace their pegged currency.
Although Bitcoin has achieved significant technical innovation, at the level of 'currency,' it highly mimics gold: the Earth's reserves of gold are finite, and intuitively, those that are easier to mine will be extracted first, and the further along the timeline, the harder it becomes to mine, so new production will decline. Hence, Bitcoin is also capped at a total of 21 million, with a block produced approximately every 10 minutes, and the number of Bitcoins granted per block is set to: 50 for the first four years, halving every four years (currently set at 3.125), and it will effectively decrease to zero by 2140 when mining will end. This arrangement creates an illusion that Bitcoin will significantly appreciate, attracting people to actively participate in mining or investing, but its total supply and phased increments are entirely system-defined, stricter than gold (the actual reserves of gold are not clearly known), and the quantity available for exchanges is even more limited, fundamentally unable to grow in line with the growth in tradable wealth, failing to meet the essential requirements of currency. Gold has already exited the currency stage, making it difficult for Bitcoin to become a genuine circulating currency.
Bitcoin is a purely digital asset born from the blockchain, with its blockchain functioning solely for mining, transferring Bitcoin between nodes, and distributed validation and accounting. It is highly closed and secure, but it struggles to solve any real-world issues. If Bitcoin cannot be exchanged for sovereign currencies, it cannot realize any value beyond its speculative nature and cannot impact the real world. The Bitcoin blockchain needs to be maintained, and it grows longer over time, allowing for traceability, making it difficult to breach or surpass with other cryptocurrencies. However, the costs associated with mining and system operation are rising, while efficiency is declining, failing to meet the real-world needs for total currency supply and payment efficiency. This makes it challenging for Bitcoin to become a true currency, unable to replace sovereign currencies.
Question 2: Can Bitcoin replace gold as a strategic reserve?
Bitcoin highly mimics gold at the 'currency' level, which is why it is often referred to as 'digital gold.' However, Bitcoin is a purely digital asset, not a natural physical asset, and its value depends on the development potential of its application scenarios and the faith and investment of people. Bitcoin can be divided into tiny units down to one hundred millionth, offering greater payment flexibility, but it does not have real gold backing it, and it cannot be considered 'paper gold' in a strict sense. Once trust is lost, it can become worthless, with risks far exceeding those of gold.
Bitcoin, as a digital asset, like gold, generally does not pose problems for mining and trading (including spot trading, futures and derivatives trading, ETFs, etc.), unless prohibited by the state due to high energy consumption and regulatory challenges. However, as a product and trading platform available to the public for 24/7 global trading via the internet, it must be subject to tighter international joint regulation to avoid manipulation and fraud. Completely relaxing regulations will undoubtedly lead to serious issues and is highly irresponsible.
Currently, Bitcoin's application scenarios mainly involve initial coin offerings (ICOs), trading, and serving as a medium for transferring sovereign currencies for money laundering, bribery, extortion, and terrorism financing in gray or illegal areas. Sovereign currencies originally had strict regulations and international cooperation regarding anti-money laundering and counter-terrorism activities; however, transitioning through cryptocurrencies has resulted in a loss of effective regulation, presenting a serious regulatory gap that urgently requires the international community's attention and timely closure. The focus of regulation should not be on cryptocurrencies; it must remain on sovereign currencies, and international joint regulation must be strengthened to prevent sovereign currencies from engaging in illegal activities through cryptocurrency transactions and transfers.
Evidently, the regulatory risks of cryptocurrencies like Bitcoin far exceed those of gold.
Bitcoin is essentially a speculative asset, with investors' returns primarily coming from price increases. However, its price volatility is extremely high, far exceeding that of stocks, bonds, foreign exchange, and gold, resulting in very high investment risks. Apart from exchanges and various service providers, only a dwindling number of participants can truly profit from Bitcoin trading or investment. Additionally, the correlation between Bitcoin and the price movements of stocks and gold is gradually increasing, corresponding to a weakening of its function as a risk hedge.
From the above situation, although Bitcoin seems to have more appreciation potential than gold, its risk is also greater, and whether it can replace gold as a national strategic reserve remains a significant question.
Trump's Bitcoin policy is unlikely to be realized.
First, it is quite challenging for the US to acquire new Bitcoins. With a total of 21 million Bitcoins, over 19.8 million have already been mined, leaving less than 1.2 million remaining. Mining consumes increasingly high energy, competition is intensifying, and since mining is decentralized, the US cannot guarantee that new Bitcoins will all be produced in the country, let alone ensuring they all belong to the US government. Additionally, it is estimated that around 4 million Bitcoins are 'dead coins' that cannot be used, increasingly controlled by a limited number of individuals, making it difficult to acquire an additional million through purchases. The US leading the charge to buy Bitcoins will undoubtedly significantly raise Bitcoin prices, but it will also elevate the risks of price bubbles and crashes. Furthermore, advancements in 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's (financial) strategic reserve or the Federal Reserve's (central bank) strategic reserve for the dollar, carries risks and uncertainties. If it refers to government reserves, then based on the over 210,000 Bitcoins already seized by the government (including the legal disputes regarding whether parts belonging to victims of hacks or theft should be returned), if the government purchases more than a million additional Bitcoins, it will lead to a significant increase in Bitcoin prices. Currently, the US Treasury's Exchange Stabilization Fund (ESF) is approximately $215 billion, and even using the entire ESF may not be sufficient. If the government issues additional debt for funding, the US federal government's already over $36 trillion debt will become even larger. Relying on a substantial appreciation of Bitcoin to stabilize exchanges (stabilize the dollar's exchange rate) or repay government debt also carries uncertainties, as large-scale disposals could depress its price. If it refers to the Federal Reserve's reserves, should the Federal Reserve buy over a million Bitcoins with dollars, it would massively inject base money, potentially placing greater pressure on inflation. If the Federal Reserve were to replace Bitcoin with gold reserves, it could weaken the impact on base money, but it might significantly lower gold prices while raising Bitcoin prices, with substantial risks regarding whether real benefits can be realized.
At the same time, it should be noted that under a fiat currency system, the reputation of a country's currency fundamentally relies on the country's wealth growth and monetary management level, rather than primarily on the value of reserve assets. Therefore, replacing gold reserves with Bitcoin reserves is unlikely to have a tangible positive impact on the US dollar, nor is it likely to be used for repaying government debt.
Furthermore, Trump's Bitcoin policy contradicts his stance of strengthening the dollar as a global key currency. Bitcoin is decentralized and super-sovereign; even if the US significantly increases its Bitcoin reserves, it will not help strengthen the dollar's international standing. Conversely, if Bitcoin regulations are extremely relaxed, allowing sovereign currencies to flow across borders via Bitcoin while preventing the digitalization of the dollar, it could severely impact the dollar's international status.
The unique position of the US dollar as the world's central currency is fundamentally determined by the comprehensive national power and international influence of the United States. Unless there is a fundamental change in the global landscape where the US remains the world's strongest country, it will be difficult to overturn or replace the US dollar's position as the number one international currency, unless the US itself commits a disruptive error that actively undermines the dollar's credibility and status. Once the international status of the dollar is replaced, it will have a huge impact on the US.
In summary, Bitcoin can only be a new type of tradable wealth or digital asset; it is difficult to become a true currency and fundamentally cannot replace sovereign currencies. There remains significant doubt about whether it can replace gold as a national strategic reserve. The international community should approach Trump's Bitcoin policy with calm and objectivity, avoiding blind following.
