The essence of currency is credit, the essence of credit is order, the essence of order is technological competition, and the essence of technological competition is energy efficiency.
Article author: Song Xuetao
Source: Tianfeng Macro
Trump fulfilled his campaign promise regarding Bitcoin by nominating cryptocurrency supporter Paul Atkins as SEC chair, replacing the current chair Gary Gensler, who is known for his tough regulatory stance on cryptocurrencies. After Trump's election, Bitcoin's price quickly surpassed $76,000, setting a new historical high, and then continued to surge past the $100,000 mark.
Trump was once a skeptic of cryptocurrencies during the 1.0 era, but transitioned to an active advocate of 'making America the cryptocurrency capital of the world' in the 2.0 era, a major reason being that MAGA needed an alternative to maintain the dollar's hegemony, and Bitcoin was endowed with a special mission beyond technological development.
In order to escape the political fate of being ousted due to stagflation, Trump's 2.0 era hopes to improve fiscal efficiency and total factor productivity through AI. However, if AI fails to achieve the expected results, the monetization of deficits will accelerate the process of 'de-dollarization.' In the past two years, gold has become a beneficiary of de-dollarization, becoming a favorite among investors.
However, MAGA cannot tolerate the dollar's monetary hegemony being shaken. Therefore, Trump needs an alternative to maintain the dollar's status. This alternative must be something that the US can control and influence; gold is probably already out of the options, while cryptocurrencies represented by Bitcoin may still have a chance. However, the essence of currency is credit, and if there is no credit, then inject credit.
Trump's unbreakable bond with Bitcoin.
After announcing his candidacy for president again, Trump’s relationship with the cryptocurrency world has become increasingly close. Firstly, Trump's belief in 'deregulation' coincides with the demands of the crypto space. Secondly, Silicon Valley elites, including Musk and Peter Thiel, are increasingly intolerant of the California government and the Democratic Party's increasingly leftist policy tendencies, such as antitrust threats that challenge the growth of efficiency-first tech giants, which indirectly promotes cooperation between Trump and Silicon Valley, and to some extent, catalyzes the development of Bitcoin.
Since Trump announced his presidential candidacy, Bitcoin's price has experienced two significant growth spurts, each exceeding 40%—from about $40,000 to about $70,000 after the Iowa caucus victory, and from about $70,000 to about $100,000 after winning the presidential election.
The rise in Bitcoin's price is related to Trump's linking of the MAGA concept during his campaign. Trump stated, 'Bitcoin is a miracle of technology and human achievement that will surpass gold in the future,' and proposed granting Bitcoin the same reserve currency status as the dollar, maintaining a national strategic Bitcoin reserve, never selling government-seized Bitcoin, and making America the capital of cryptocurrency.
Bitcoin is not a substitute for gold.
After Trump's election, the decline of gold contrasts sharply with the rise of Bitcoin. The discussion about whether cryptocurrencies, especially Bitcoin, known as digital gold, can replace gold has resurfaced.
(1) Bitcoin and gold have three similarities:
First of all, both have supply scarcity. Specifically, as of the end of 2023, the surface stock of gold is 212,582 tons, and the underground storage is about 59,000 tons. The Bitcoin protocol sets a total supply cap of 21 million coins, and the mining reward for Bitcoin, known as the 'block reward', undergoes halving every four years, which is one of the key mechanisms maintaining Bitcoin's scarcity, meaning that the difficulty of mining will gradually increase.
Secondly, both are decentralized and non-sovereign assets. Gold and Bitcoin are not issued by central authorities. This means that central banks cannot decide to mint more gold coins. Similarly, the Secretary of the Treasury cannot order to slow down or speed up Bitcoin's mining rate. In the past, investors chose to invest in gold to hedge against currency and fiscal policy risks for asset diversification, while now, Bitcoin has become a new option.
Moreover, both have certain speculative and hedging attributes. However, there are significant differences in degree; Bitcoin is often a risk asset with strong speculative attributes, only occasionally displaying hedging characteristics. Gold, in this regard, is like a mirror image of Bitcoin, with more pronounced hedging attributes, only occasionally exhibiting speculative characteristics. Gold's speculative attributes may appear as a momentum effect during rapid price increases, but this reaction is usually short-lived, as gold has characteristics distinct from Bitcoin.
(2) Gold and Bitcoin also have three differences:
First, gold has physical uses, involving industrial production, personal consumption, etc., while Bitcoin is a digital asset composed of code, belonging to a virtual existence. Physical objects have their physical uses, and virtual objects also have their virtual uses, such as Bitcoin possibly being used for money laundering, tax evasion, and funding illegal activities in gray areas, which also poses challenges for global anti-money laundering regulations, especially in cross-border fund tracking.
Secondly, gold has a unique position in the commodity market; other precious metals, whether silver or platinum, are hard to compare with gold. Bitcoin currently still dominates the cryptocurrency market, accounting for about 56.72% of the total market value of all cryptocurrencies, but more and more Bitcoin alternatives are rising, such as Ethereum and Binance Coin.
Finally, gold and Bitcoin also differ in terms of security. Gold, as a physical asset, is less susceptible to cyberattacks or digital fraud, but requires secure storage, especially during cross-border transportation. Bitcoin holders may face hacking attacks or loss of private keys, resulting in loss of control and lack of additional security measures. Bitcoin wallets are divided into hot wallets, which store private keys online, and cold wallets, which store them offline. In Bitcoin transactions, users must use private keys to digitally sign and verify their control and ownership of the wallet. However, incidents of hot wallets being hacked are common. As for cold wallets, investors often lose large amounts of Bitcoin due to device damage or loss.
Bitcoin is Plan B in the event of AI failure.
Returning to the White House, Trump has realized that if he does not solve the efficiency issues of American finance and manufacturing, the US economy will increasingly depend on deficit monetization. Once a certain critical point is crossed, a debt spiral will occur, and the dollar's hegemonic status will be accelerated in its decline. Therefore, the governance philosophy of Trump's second term is very clear: to improve production efficiency and government fiscal efficiency through AI, allowing the US to break free from the track of stagflation and maintain the globally recognized reserve currency status of the dollar. In this process, Musk will play an important role, so Trump promotes Musk's political status, making him the most important figure beside him, and Musk has already had a direct impact on the US government's budget bill.
If it fails, the dollar will not only depreciate against gold but may even further undermine its position as a global reserve currency and sovereign credit currency. Although the probability is low in the short term, such undermining often accelerates suddenly at a certain moment. Historically, the transition of major powers often goes through lengthy parallel and competitive periods, and the ultimate transfer of power is accomplished in a short time. Therefore, Trump needs to formulate a Plan B to preserve the dollar's status in response to AI technology failing to improve production efficiency, reduce fiscal deficits, lower inflation, and narrow the wealth gap, and this alternative is Bitcoin.
Although there is no currency that can replace the dollar in the short term, linking Bitcoin to the dollar can be seen as a hedging strategy against the dollar's status. Once the global reserve currency status of the dollar is severely threatened, the US can at least weaken gold's position by controlling Bitcoin and continue to maintain the dollar's monetary status.
Energy is the key to technological revolution.
Trump, after meeting with executives from multiple cryptocurrency mining companies, proposed on June 24 to fully realize 'Made in America' for Bitcoin. Energy, as a key limiting factor for Bitcoin mining and transactions, is undoubtedly essential. The energy demand of Bitcoin completely relies on electricity supply. According to estimates from the University of Cambridge in the UK, Bitcoin's annual electricity consumption is about 172.1 terawatt-hours, exceeding the annual electricity consumption of countries like Egypt, Malaysia, and Poland. In Texas, where many crypto mining companies are clustered, 10 mining companies consume more than 1,800 megawatts of electricity annually.
Bitcoin miners tend to seek low-cost electricity supplies to ensure profitability. In 2023, 81% of new renewable energy projects (about 382 gigawatts) had costs lower than fossil fuel projects. For example, the cost of photovoltaic power generation fell to around 4 cents per kilowatt-hour within a year in 2023, which is 56% lower than fossil fuel and nuclear power generation. Therefore, the use of renewable energy in the Bitcoin mining sector is continuously increasing. According to Woocharts data, as of October 2024, the share of mining using sustainable energy is 56.8%.
Historically, a country's strength is often closely linked to its energy productivity. For example, the technological revolution allowed the UK to make breakthroughs in coal mining and usage technology, laying the foundation for the long-term position of the pound. The US has consolidated the global leadership position of the dollar and America by controlling the extraction, transportation, and consumption of oil, as well as its influence on global geopolitics. Countries that master the energy upon which advanced productivity relies can emerge in a century of competition, establishing their dominant position from trade to manufacturing, consumption, and finance.
Now, the constraints of traditional energy are gradually weakening, and new energy represented by sustainable energy is rising. For a country, developing and mastering new energy becomes crucial because low cost, stable and secure supply, decentralized layout, and movable energy supply systems are important foundations for triggering a new round of technological revolution and productivity improvement.
Thus, AI represents Plan A for maintaining the dollar's status, while cryptocurrencies represent Plan B for hedging against the dollar's status being undermined. However, whether it is Bitcoin or AI, energy is an unavoidable core element. The essence of currency is credit, the essence of credit is order, the essence of order is technological competition, and the essence of technological competition is energy efficiency. Countries that master new energy can lead the application of new technologies, improve production efficiency, expand the range of efficient and low-cost applications, thereby enhancing total factor productivity. Whichever country wins in this competition, once a new order is established, the historical mission represented by gold in the unprecedented changes of a century will also be declared complete.
