Wang Yongli believes that Bitcoin can only be a new type of tradable wealth or digital asset, and it is hard to become a true currency.
Author: Wang Yongli, Co-chairman of Digital China Information Service Group, 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, and it is hard to become a true currency, fundamentally unable to replace sovereign currencies, and it remains highly questionable whether it can replace gold as a national strategic reserve.
Following Trump's victory in the U.S. presidential election, his proposed Bitcoin policy has garnered widespread attention and discussion. Undoubtedly, Trump's Bitcoin policy will have significant impacts on both the U.S. and the world. I believe it is necessary to calm down, view and grasp this rationally and objectively, and avoid making disruptive mistakes.
The radical Bitcoin policy of the newly elected U.S. President Trump
During his previous presidential term, Trump believed that cryptocurrencies were not currencies, that their value fluctuated wildly, and that unregulated crypto assets could be used for drug trafficking and other illegal activities, calling it 'a huge disaster waiting to happen'; he stated that the only real currency in the U.S. was the dollar. However, starting in 2022, he changed his stance, believing 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 gold', actively investing in crypto assets and increasingly strengthening ties with the crypto community.
After confirming his participation in the 2024 presidential election, Trump has adopted a more positive attitude towards Bitcoin, claiming he wants to become a president who supports innovation and Bitcoin. He proposed a very radical Bitcoin policy, which mainly includes: the U.S. should become the undisputed powerhouse of Bitcoin mining worldwide, ensuring that America becomes the crypto capital of the world and a superpower in Bitcoin; ensuring the power supply for Bitcoin mining, relaxing cryptocurrency regulations, and firing the current chair of the U.S. Securities and Exchange Commission (SEC) who holds a strong regulatory attitude towards cryptocurrencies on his first day in office; establishing a national strategic reserve of Bitcoin, with plans to purchase over a million more Bitcoins in addition to those already seized by the government; during his presidency, he will never launch a digital dollar (CBDC) and will strengthen presidential control over the Federal Reserve.
These proposals have received enthusiastic support from the crypto community and have led to substantial donations for Trump's presidential campaign. Among the nominees of Trump's new government, many are cryptocurrency-friendly or even fervent supporters. Among them, Elon Musk, a key supporter of his campaign, has been nominated to lead the newly established 'Department of Government Efficiency'; he is known as the 'Godfather of Crypto' and possesses a significant amount of cryptocurrencies. Vice President nominee Vance has disclosed that he holds Bitcoin valued in the hundreds of thousands of dollars. On December 5, 2024, Trump nominated cryptocurrency supporter Paul Atkins as the new chairman of the SEC; he also nominated David Sacks, the former COO of electronic payment company PayPal, to head the newly established 'White House AI and Cryptocurrency Affairs' office (leading the President's Technology Advisory Committee), dedicated to establishing a legal framework so that the cryptocurrency industry can obtain the clarity it requires and thrive in the U.S.
Trump's words and actions have sparked a new wave of enthusiasm in the crypto industry. After Trump was elected president on November 6, 2024, the price of Bitcoin surged significantly from the previous closing price of just under $69,400. By December 5, 2024, the price broke $100,000 for the first time (with that day's high exceeding $104,000), and its market capitalization surpassed $2 trillion for the first time.
Trump's new Bitcoin policy has also caused significant tremors globally. Zhao Changpeng (CZ), the founder of the well-known cryptocurrency exchange Binance, which was heavily fined by the U.S., also stated that Bitcoin, due to its scarcity and decentralized characteristics, is increasingly favored by investors and offers stronger value preservation compared to traditional financial assets. It is inevitable for countries and large institutions to establish strategic reserves of Bitcoin, 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 suggesting that by 2035, the price of Bitcoin will exceed $1 million; the future value of the 21 million Bitcoins corresponds to the world's tradable wealth, indicating immense potential for price increases.
Of course, Trump's Bitcoin policy and the views mentioned above have also sparked considerable controversy globally, and there are many opposing voices within the U.S., although they seem quite weak in the current fervent tide.
Accurately perceiving 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 came into existence, with Bitcoin operating securely ever since.
On May 22, 2012, someone used 10,000 Bitcoins to buy two pizzas valued at $25, marking the first exchange of Bitcoin for sovereign currency, with an exchange rate of 1:0.0025. Starting from this point, the price of Bitcoin reached $100,000, appreciating 40 million times. This has indeed led many people to have faith and expectations for greater appreciation of Bitcoin, even though Bitcoin prices often experience significant fluctuations 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 evolving through four development stages: natural physical currency (such as China's shell money), regulated metal coins (gold coins, copper coins, silver coins, etc.), metallic standard paper currency (tokens based on a metallic standard), and purely credit currency detached from specific physical objects. Among these, gold has the longest history and the broadest scope as currency or a monetary standard, especially after 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 world's preferred material for currency or value reserves.
However, after the U.S. ceased to fulfill its international commitment of exchanging 1 ounce of gold for $35 in August 1971, gold completely exited the currency stage, returning to its essence as tradable wealth; currency completely withdrew from specific physical objects, becoming a pure measure of value and medium of exchange, referred to as 'credit currency'. Why is this?
This is because currency is meant to serve exchange transactions; its essential properties and core functions are measures of value and mediums of exchange. Therefore, the basic stability of currency value must be maintained (large fluctuations in value will severely affect exchange transactions). Using any specific physical object or objects as currency or monetary standards will inevitably lead to a shortage due to the finite nature of those materials on Earth, especially as their supply as currency is limited, making it challenging to meet the infinite growth of tradable wealth value, and thus falling into the increasingly severe 'physical currency shortage curse', which severely restricts exchange transactions and economic social development, ultimately leading to elimination. Currency must be detached from specific physical objects so that the total currency supply can change in accordance with the total value of tradable wealth ('total to total' correspondence), while maintaining basic stability of currency value based on sufficient supply of currency, and continuously advancing towards intangibility, digitization, and intelligence, thereby improving the operational efficiency of currency, reducing operational costs, and enhancing risk control to fully exert the functions of currency. Thus, credit currency is the inevitable direction of currency development, not a passive acceptance resulting from significant shocks. Any attempt to revert to a metallic standard currency system or to re-anchor currency is unlikely to succeed as it contradicts the essence and development laws of currency.
One must grasp the essence through the appearance of currency. Shell money, coins, paper money, etc. are all carriers or manifestations of currency, not currency itself. The complete description of currency is: the essential attribute of currency is a measure of value, its core function is as a medium of exchange, and its fundamental guarantee is the highest credit protection, making it the most liquid value token (transferable and circulating value warrant).
Once detached from any specific physical anchor, the issuance of credit currency requires entirely new channels or methods, which means that currency issuance entities lend currency through credit means (granting loans, purchasing bonds, overdrafts, bill discounting, etc.). The principle is: using the realizable value of the wealth that the borrower already possesses or will possess within an agreed time as support, based on assessments by the currency issuance entity and agreements with the borrower. Thus, as long as the borrower holds actual tradable wealth, the currency issuance entity can issue corresponding currency according to its realizable value, allowing the total currency supply to adapt to changes in the total wealth value. Consequently, credit currency completely breaks the 'physical currency shortage curse', can be fully supplied, and greatly promotes exchange transactions and economic and social development. It can be said that without credit issuance, there is no true credit currency; without credit currency, economic and social development, including economic finance globalization, would struggle to reach its current level!
To prevent excessive currency issuance, credit-based currency must be repaid with principal and interest as agreed, and cannot be distributed for free (this falls under fiscal functions). A central banking system must also be established, with the central bank no longer providing credit to society but only offering refinancing services to credit institutions, thus becoming the main body for monitoring the total currency supply and implementing monetary policy. Credit institutions then become the new entities for currency issuance but must be strictly regulated by the central bank; there should not be just one credit institution, and it is not allowed to issue credit to itself. Instead, liquidity constraints should be formed through fund transfers between institutions to suppress excessive credit issuance. Any unrecoverable principal and interest losses by credit institutions would indicate actual excessive currency issuance, necessitating timely and sufficient loss provisions or direct write-offs to mitigate the impact of overissuance. If credit institutions face liquidity crises or insolvency, a bankruptcy restructuring should also be implemented. It is necessary to establish an effective control mechanism for credit issuance to curb excessive currency issuance from the source.
Credit issuance (including central bank refinancing) can be directly credited to the borrower's deposit account at the issuing institution, where deposits can be used directly for external payments (transfer payments bookkeeping and clearing), significantly reducing the printing and payment of cash. Cash is only needed when depositors require currency, hence cash is no longer the primary channel for currency issuance. In the long run, cash is destined to exit the currency stage like shell money and coins.
In the context of national sovereignty and independence, the highest credit in today's world is national sovereign credit, which requires bilateral protection of currency and the wealth it is used to exchange to maintain the correspondence between currency and total wealth. Therefore, credit currency manifests as national sovereign currency or legal tender, with its credit being national credit, no longer relying on the credit or liabilities of the currency issuance entity (such as the central bank) itself (only metallic standard paper currency is like this). Promoting the denationalization of currency (including reverting to physical currencies) or super-sovereignty (including creating super-sovereign currencies structurally linked to multiple sovereign currencies, such as the International Monetary Fund's Special Drawing Rights SDR) is also unlikely to succeed. Stablecoins pegged to a single sovereign currency are essentially tokens of that pegged currency and can exist, but they must be subject to regulation by monetary authorities and cannot replace the pegged currency.
Although Bitcoin has achieved significant innovations technically, at the 'currency' level, it highly mimics gold: the Earth's reserves of gold are finite, and intuitively, the easier it is to mine, the more will be extracted in the early stages, making it increasingly difficult to mine as time goes on, so new production will decrease. Consequently, Bitcoin is set to a total supply of 21 million, with a block generated approximately every 10 minutes, and the number of Bitcoins awarded per block is set to: 50 for the first four years, halving every four years (currently at 3.125), and by 2140 it will essentially decrease to zero, marking the end of mining. This arrangement gives rise to the imagination that Bitcoin will appreciate significantly, attracting people to actively participate in mining or investment, but its total amount and periodic new supply are entirely determined by the system, which is more stringent than gold (the actual reserves of gold are not precisely known), and the number available for exchange is even more limited, fundamentally unable to keep pace with the growth in the value of tradable wealth, which does not meet the essential requirements of currency. As gold has already exited the currency stage, it is difficult for Bitcoin to become a true circulating currency.
Bitcoin belongs to purely digitally generated assets, whose blockchain only has the functions of mining Bitcoin and transferring and verifying transactions between Bitcoin nodes in a highly closed, secure manner, but it cannot solve any problems in the real world. If Bitcoin cannot be exchanged for sovereign currency, it struggles to realize its value outside of its game and to have any impact on the real world. The Bitcoin blockchain needs to be maintained consistently and must grow longer, allowing for traceability, which makes it difficult to breach or surpass by other cryptocurrencies. However, the costs of mining and system operation are increasing, and efficiency is decreasing, failing to meet the real-world demand for total currency supply and payment efficiency. All of this makes it difficult for Bitcoin to become real currency and to replace sovereign currency.
Question 2: Can Bitcoin replace gold as a strategic reserve?
Bitcoin, at the 'currency' level, highly mimics gold, which is why it is often referred to as 'digital gold'. However, Bitcoin is purely a digitally generated asset, not a physical asset, and its value depends on the development space of its application scenarios and the faith and investment of people. Bitcoin can be divided into tiny units of one hundred millionth, offering greater payment flexibility, but it is not backed by real gold and does not strictly constitute 'paper gold'; once trust is lost, it can become worthless, with risks far exceeding those of gold.
Bitcoin, as a digital asset, like gold, has no principles against its mining and trading (including spot trading, futures and derivatives trading, ETFs, etc.), unless the state explicitly prohibits it due to high energy consumption and regulatory difficulties. However, as a product and trading platform that can be traded globally 24/7 via the internet, it must receive stricter international joint regulation to avoid manipulation, fraud, and other illegal activities. Completely relaxing regulation will inevitably lead to serious problems and is highly irresponsible.
Currently, Bitcoin's application scenarios are mainly for initial coin offerings (ICO), trading, and serving as intermediaries in the transfer of sovereign currencies for money laundering, bribery, extortion, and terrorism financing in gray or illegal fields. Sovereign currencies originally had strict regulations and international cooperation against money laundering and terrorism financing, but now, through cryptocurrencies, effective regulation has been lost, which is a very serious regulatory loophole that urgently requires high attention from the international community and timely closure. The focus of regulation should not be on cryptocurrencies, but still on sovereign currencies, and international joint regulation must be strengthened to prevent illegal activities through the trading and transfer of sovereign currencies via cryptocurrencies.
Clearly, the regulatory risks of cryptocurrencies like Bitcoin far exceed those of gold.
Bitcoin is essentially a speculative asset, and the returns investors receive mainly come from price increases. However, its price fluctuations are extremely volatile, far exceeding the price volatility of assets such as stocks, bonds, foreign exchange, and gold, making the investment risk very high. Involved in Bitcoin trading or investment, apart from exchanges and various service providers, only an increasingly smaller number of participants can truly profit. At the same time, the correlation between Bitcoin and the price trends of stocks and gold is gradually strengthening, which diminishes its function as a risk hedge.
From the above situation, although Bitcoin seems to have greater appreciation potential than gold, its risk is also much larger, and it remains highly questionable whether it can replace gold as a national strategic reserve.
Trump's new Bitcoin policy is difficult to implement.
First, the U.S. faces significant difficulties in acquiring new Bitcoins. With a total of 21 million Bitcoins, over 19.8 million have been mined, leaving less than 1.2 million remaining. Mining energy consumption is increasing, competition is becoming fiercer, and since mining is decentralized, it is difficult for the U.S. to ensure that new Bitcoins are produced within the country, even harder to guarantee that they belong to the U.S. government. At the same time, it is estimated that 4 million Bitcoins are 'dead coins' that cannot be used, increasingly controlled by a small number of people, making it quite challenging to acquire an additional million through purchase. If the U.S. government leads a rush to buy Bitcoins, it will inevitably drive up Bitcoin prices significantly, but it will also greatly increase the risk of price bubbles and crashes. Furthermore, the development of quantum computing technology will pose major challenges to the security of Bitcoin and other cryptocurrencies.
Secondly, the so-called national strategic reserve of Bitcoin, whether it refers to the government's (fiscal) 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 if the government were to acquire more than a million Bitcoins on top of the over 210,000 Bitcoins already seized (whether part of those seized from hackers or robbers should be returned to victims is still a legal dispute), it would significantly drive up Bitcoin prices. Currently, the U.S. Treasury's Exchange Stabilization Fund (ESF) is approximately $215 billion, and even if the entire ESF were utilized, it might not be sufficient. If the government issues additional debt to raise funds, the U.S. federal government's debt, already exceeding $36 trillion, would become even larger. Relying on the appreciation of Bitcoin to stabilize foreign exchange (to stabilize the dollar's exchange rate) or repay government debt also carries uncertainty, as large-scale disposals would depress prices. If it refers to the Federal Reserve's reserves, using dollars to purchase a million Bitcoins would result in a massive injection of base currency, potentially exerting greater pressure on inflation. If the Federal Reserve replaces Bitcoin with gold reserves, it could mitigate the impact on base currency but may significantly lower gold prices while raising Bitcoin prices, leading to substantial risks regarding whether actual benefits can be realized.
At the same time, it should be noted that under credit currency, the reputation of a country's currency fundamentally rests on the growth of that country’s wealth and level of currency management, rather than primarily depending on the value of reserve assets. Therefore, replacing gold reserves with Bitcoin reserves is unlikely to have any real positive impact on the dollar and is also unlikely to be used to repay government debt.
Moreover, 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 U.S. increases its Bitcoin reserves significantly, it will not help to enhance the international status of the dollar. On the contrary, if extreme relaxation of Bitcoin regulation allows a significant cross-border flow of sovereign currencies through Bitcoin and hinders the digitization of the dollar, it may seriously impact the dollar's international status.
The special status of the U.S. dollar as the world's primary reserve currency is fundamentally determined by the comprehensive national strength and international influence of the United States. In the absence of fundamental changes in the global landscape with the U.S. as the strongest nation, it is difficult to overturn or replace the dollar's position as the number one international currency, unless the U.S. commits a disruptive error that actively undermines the dollar's credit and status. Once the international standing of the dollar is replaced, it would 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 hard to become a true currency, fundamentally unable to replace sovereign currencies, and it remains highly questionable whether it can replace gold as a national strategic reserve. The international community should approach Trump’s Bitcoin policy calmly and objectively, avoiding blind following.
