Author: @Web3_Mario
Abstract: First, I apologize for the delay last week. After briefly researching AI agents like Clanker, I found them fascinating, so I spent some time developing some frame tools. After evaluating the development and potential startup costs, quickly chasing market trends seems to be the norm for most small and medium-sized entrepreneurs in the Web3 industry. I hope everyone understands and continues to support me. Back to the point, this week I hope to discuss a viewpoint that I have been contemplating recently, which I believe can also explain the recent market volatility. After BTC broke new highs, how to continue capturing incremental value is my point of observation: whether BTC can take over from AI and become the core driving force for economic growth in the new economic cycle under Trump's administration. This game has already started with MicroStrategy's wealth effect, but the entire process will inevitably face many challenges.
With the unfolding wealth effect of MicroStrategy, the market has begun to speculate whether more publicly traded companies will choose to allocate BTC to achieve growth.
We know that last week the crypto market experienced severe volatility, with BTC prices fluctuating between $94,000 and $101,000. There are two core reasons for this, and I will briefly outline them.
We must trace back to December 10, when Microsoft officially rejected the (Bitcoin financial proposal) presented by the National Center for Public Policy Research at its annual shareholder meeting. In the proposal, the think tank suggested that Microsoft diversify 1% of its total assets into Bitcoin as a potential means of hedging against inflation. Prior to this, MicroStrategy's founder Saylor publicly declared through X as a representative of NCPPR's FEP and delivered a three-minute online presentation, leading the market to hold a certain level of hope for the proposal, even though the board had previously clearly recommended rejecting it.
Let me elaborate a bit on the so-called National Center for Public Policy Research in the US. We know that think tanks are composed of industry experts and are generally funded by governments, political parties, or commercial companies. Most think tanks are non-profit organizations and are not official institutions. This operational model in countries like the US and Canada allows them to be tax-exempt. Typically, the viewpoints that think tanks output need to serve the interests of their backers. NCPPR, established in 1982 and headquartered in Washington, D.C., holds a certain status 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 the Cato Institute).
This think tank has been criticized for its stance on issues such as climate change and corporate social responsibility, especially due to its suspected financial ties to the fossil fuel industry, which has limited NCPPR's advocacy efforts. Progressives often accuse it of being a 'mouthpiece for interest groups,' which undermines its influence across a broader political spectrum. In recent years, NCPPR has initiated the FEP (Free Enterprise Project) to frequently propose resolutions at the shareholder meetings of various publicly traded companies, questioning the policies of large corporations on right-wing issues such as racial diversity, gender equality, and social justice. For instance, proposals were submitted against mandatory racial and gender quotas for companies like JPMorgan, arguing that these policies lead to 'reverse discrimination' and harm corporate performance. Regarding companies like Disney and Amazon, they questioned whether businesses are overly catering to progressive issues, asserting that companies should focus on profitability rather than 'pleasing minority groups.' With Trump's administration and his supportive stance on cryptocurrency policies, the organization promptly promoted Bitcoin adoption to major publicly traded companies through FEP, which includes giants like Amazon alongside Microsoft.
With the formal rejection of this proposal, the price of BTC once dropped to $94,000, and then quickly rebounded. From the extent of the price volatility triggered by this event, we can observe that the current market is indeed in a state of anxiety. The point of anxiety lies in what the new sources of growth are for BTC's market value after it has surpassed its historical high. Recently, we have seen 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 the balance sheets of more publicly traded companies to combat inflation and achieve performance growth, thereby enabling BTC to gain greater adoption. Next, let's look at whether this strategy can succeed.
BTC, as a substitute for gold, still has a long way to go to become a broadly defined global store of value; it is not easy to succeed in the short term.
First, let's analyze the first attraction of this strategy: whether the allocation of BTC to counter inflation is valid in the short term. In fact, when it comes to countering inflation, gold is usually the first thought, and even at the beginning of the month, Powell mentioned Bitcoin as a competitor to gold during a press conference. So, can Bitcoin become a substitute for gold, becoming a broadly defined global store of value?
This issue has always been a focal point in the discussion of Bitcoin's value. Many have made various arguments based on the similarities of the inherent properties of assets, and I won't elaborate on that here. What I want to point out is how long it will take to realize this vision, or whether this vision supports the current valuation of BTC. My answer is that it is not easy to achieve in the foreseeable four years, or in the short to medium term; therefore, using this as a short-term promotion strategy is not very attractive.
We refer to how gold has developed to its current status as a store of value. As a precious metal, gold has always been regarded by various civilizations as a valuable item, possessing universality. The core reasons for this are as follows:
Its obvious luster and excellent extensibility give it value as an important decorative item.
The limited output of gold brings scarcity, endowing it with financial attributes, making it easy to be chosen as a class symbol in a society with class divisions.
Gold's widespread distribution and relatively low extraction difficulty globally mean that civilizations are not restricted by cultural or productivity development factors, allowing for a bottom-up spread of value culture and a broader dissemination range.
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. Therefore, we see that even when sovereign currencies abandon the gold standard and modern financial instruments give them more financial attributes, the price of gold generally follows a long-term growth trend, reflecting real purchasing power well.
However, it is unrealistic for Bitcoin to replace gold's status in the short term. The core reason lies in its value proposition as a cultural perspective, which is likely to 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 based on computing power. There are two determining factors here: electricity and computing efficiency. Firstly, electricity costs reflect a country's level of industrialization, and the cleanliness of the energy behind electricity determines future development potential. Computing efficiency, on the other hand, relies on chip technology. Simply put, obtaining BTC is no longer something that can be achieved solely through personal PCs. With technological advancements, its distribution will inevitably concentrate in a few regions, while undeveloped countries that lack competitive advantages and account for a significant portion of the global population will find it difficult to obtain. This adversely affects the efficiency of spreading such a value proposition, as 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 the perspective of national and ethnic interests, this cannot naturally gain recognition. Therefore, it is hard to see undeveloped countries encouraging such value propositions.
The regression of globalization and the challenge to dollar hegemony: We know that with Trump's return, his isolationist policies will significantly impact globalization, with the most direct effect being on the dollar's influence as the global trade settlement currency. This has posed a certain challenge to its dollar hegemony, a trend known as 'de-dollarization.' The entire process will hit the dollar's demand globally in the short term, and as a currency primarily priced in dollars, Bitcoin will also inevitably increase its acquisition cost, thereby raising the difficulty of promoting its value proposition.
Of course, the above two points only discuss the challenges of this trend from a macro perspective in the short to medium term; they do not affect the narrative of Bitcoin as a substitute for gold over a longer cycle. The most direct impact of these two points in the short to medium term is reflected in the high volatility of its price. The rapid increase in its value in the short term is primarily based on the enhancement of speculative value, rather than an increase in the influence of its value proposition. Therefore, its price volatility will undoubtedly align more with speculative products, exhibiting high volatility attributes. However, due to its characteristics of scarcity, if the excessive issuance of the dollar continues to be severe, and as the purchasing power of the dollar declines, all dollar-denominated goods are likely to exhibit a certain degree of anti-inflation properties, much like the luxury goods market in previous years. However, this anti-inflation property is not sufficient to give Bitcoin a stronger competitive ability than gold in terms of value preservation.
Therefore, I believe that using anti-inflation as a short-term promotional marketing focus is insufficient to attract 'professional' clients to choose to allocate Bitcoin instead of gold, as their balance sheets will face extremely high volatility that cannot be changed in the short term. Thus, it is likely that we will see large publicly traded companies with stable business development not aggressively choose to allocate Bitcoin to combat inflation in the coming period.
BTC takes over from AI, becoming the core driving force for economic growth in the new economic cycle under Trump's administration.
Next, let's discuss the second viewpoint, which is that some publicly traded companies with weak growth can achieve overall revenue growth through the allocation of BTC, thereby driving up market capitalization. Whether this financial strategy can gain broader recognition is, in my opinion, the core of future judgments on whether BTC can obtain new value growth in the short to medium term. Moreover, I believe this is easily achievable in the short term. In this process, BTC will take over from AI and become the core driving force for economic growth in the new economic cycle ushered in under Trump's administration.
In previous analyses, we have clearly analyzed the successful strategy of MicroStrategy, which is to convert BTC appreciation into company revenue growth, thereby boosting company market value. This is indeed very attractive for some companies with weak growth. After all, embracing a trend comfortably is more appealing than burning oneself out to achieve success. We can see many declining companies whose main business revenue is rapidly decreasing, ultimately choosing to allocate their remaining value using this strategy to preserve some opportunities for themselves.
With Trump's return, his internal government policy cuts will have a significant impact on the structure of the US economy. Let's look at some data: the Buffett indicator for the US stock market. The so-called Buffett indicator, mentioned by the stock god Buffett in a December 2001 article in Forbes magazine, refers to the ratio of total market capitalization to GDP, which can be used to judge whether the overall stock market is overvalued or undervalued. Thus, it is commonly referred to as the Buffett indicator. This indicator can measure whether the current financial market reasonably reflects the fundamentals. Buffett's theoretical index suggests that a range of 75% to 90% is reasonable, while over 120% indicates overvaluation.
We can see that the current Buffett indicator for the US stock market has exceeded 200%, indicating that the US stock market is in a state of extreme overvaluation. Over the past two years, the core driving force that has helped the US stock market avoid a pullback due to monetary policy tightening has been the AI sector, represented by Nvidia. However, with Nvidia's third-quarter earnings report showing a slowdown in revenue growth and its guidance indicating that revenue will further slow in the next quarter, this slowdown is clearly insufficient to support such a high price-to-earnings ratio. Therefore, there is no doubt that the US stock market will face significant pressure in the coming period.
For Trump, the specific impact of his economic policies is undoubtedly filled with uncertainty in the current environment, such as whether the tariff war will trigger domestic inflation, whether cuts to government spending will affect domestic corporate profits, and the issue of rising unemployment rates. Additionally, lowering corporate income taxes may further exacerbate the already serious fiscal deficit problem. Besides, Trump seems more determined to reconstruct American internal ethics, and the effects of promoting sensitive cultural issues, such as strikes, protests, and reduced labor due to illegal immigration, will cast a shadow over economic development.
If economic problems arise, specifically a stock market crash in the current highly financialized America, it will severely impact support rates and, in turn, affect the effectiveness of internal reforms. Therefore, implanting a core that drives economic growth, which is already mastered, into the US stock market appears to be very cost-effective, and I believe Bitcoin is very suitable for this.
We know that the recent 'Trump trade' in the crypto world has fully demonstrated his influence on the industry. Moreover, Trump's support for corporations is largely directed at traditional local industries rather than tech companies, meaning their businesses did not directly benefit from the AI wave in the previous cycle. However, if what we described unfolds, the situation will change. Imagine if many local small and medium-sized enterprises in the US choose to allocate a certain Bitcoin reserve on their balance sheets; even if their core business is affected by some external factors, Trump can potentially stabilize the stock market by promoting some crypto-friendly policies to spur prices. This targeted stimulus is highly efficient and can even bypass the Federal Reserve's monetary policy, making it less susceptible to establishment constraints. Therefore, in the upcoming new US economic cycle, this strategy is a good choice for Trump's team and many small and medium-sized enterprises in the US, and its development process is worth watching.
