Author: Wang Yongli, Co-Chairman of Digital China Information Service Group, Former Vice President of Bank of China
Source: (China Forex) Issue 1, 2025
Key points
Bitcoin can only be a new type of tradable wealth or digital asset; it is difficult to become a true currency, and it fundamentally cannot replace sovereign currency. Whether it can replace gold as a national strategic reserve remains in great doubt.
With Trump's victory in the U.S. presidential election, his proposed Bitcoin policy has attracted widespread attention and discussion. There is no doubt that Trump's Bitcoin policy will have a significant impact on both the U.S. and the world. I believe it is necessary to calm down, look at it rationally and objectively, and avoid making subversive mistakes.
Trump's radical new Bitcoin policy after being elected president of the United States
During his previous presidential term, Trump believed cryptocurrencies were not currencies, that their values were highly volatile, and that they were scams. He argued that unregulated crypto assets could be used for drug trafficking and other illegal activities, labeling it 'a huge disaster about to happen.' He maintained that the only true currency in the U.S. was the dollar. However, starting in 2022, he changed his stance, considering the crypto industry to be 'the steel industry of 100 years ago, still in its infancy,' and believed 'the market value of Bitcoin could surpass that of gold,' actively investing in crypto assets and strengthening his relationship with the crypto community.
After confirming participation in the 2024 presidential campaign, Trump adopted a more positive attitude towards Bitcoin, claiming he wants to be the president who supports innovation and Bitcoin. He proposed a very radical Bitcoin policy, which mainly includes: the U.S. should become the world's undisputed Bitcoin mining powerhouse, ensuring that the U.S. becomes the global cryptocurrency capital and a Bitcoin superpower; guaranteeing the power supply for Bitcoin mining, relaxing cryptocurrency regulation, and on the first day in office, firing the current chairman of the U.S. Securities and Exchange Commission (SEC) who holds a strong regulatory attitude towards cryptocurrencies; establishing a national strategic Bitcoin reserve, and on top of the Bitcoin already seized by the government, purchasing more than 1 million additional Bitcoins; throughout his presidency, he would never launch a digital dollar (CBDC), and he would strengthen presidential control over the Federal Reserve, among other things.
These propositions have received enthusiastic support from the crypto community and have provided significant donations to Trump's presidential campaign. Among the nominees for Trump's new government, many are also friendly or even enthusiastic about cryptocurrencies. For instance, Elon Musk, a staunch supporter of Trump, was nominated as the head of the newly established 'Department of Government Efficiency'; he is known as the 'Godfather of Crypto,' owning a large amount of cryptocurrency. Vice President candidate Vance has disclosed that he holds Bitcoin worth hundreds of thousands of dollars. On December 5, 2024, Trump nominated Paul Atkins, a supporter of cryptocurrency, to succeed the chair of the SEC; he also nominated David Sacks, former COO of electronic payment company PayPal, as the head of the newly established 'White House AI and Cryptocurrency Affairs,' dedicated to formulating a legal framework for the crypto industry to achieve the clarity it requires to thrive in the U.S.
Trump's words and deeds have sparked a new wave of enthusiasm in the crypto industry. After Trump was elected president on November 6, 2024, the price of Bitcoin saw a significant rise from the previous closing price of less than $69,400. By December 5, 2024, the price of Bitcoin first broke through $100,000 (with a daily high of more than $104,000), and its market value first surpassed $2 trillion.
Trump's Bitcoin new policy has also caused significant tremors globally. Zhao Changpeng (CZ), founder of the famous cryptocurrency exchange Binance, which had been heavily fined by the U.S., also spoke out, stating that Bitcoin, with its scarcity and decentralized characteristics, is increasingly favored by investors and has stronger value preservation capabilities compared to traditional financial assets. Countries around the world and large institutions establishing Bitcoin strategic reserves 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. More views suggest that by 2035, the price of Bitcoin will surpass $1 million; in the future, the 21 million Bitcoins will correspond to the total tradable wealth value of the world, indicating a significant room for price increase.
Of course, Trump's Bitcoin new policy and the above views have also sparked significant controversy globally, and there are many opposing voices within the United States, although they seem very weak in the current fervor.
Accurately viewing 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, officially introducing the first batch of 50 Bitcoins, which have been operating securely ever since.
On May 22, 2012, someone exchanged 10,000 Bitcoins for two pizzas worth $25, marking the first exchange of Bitcoin for sovereign currency, with an exchange rate of 1:0.0025. From this starting point, the price of Bitcoin rose to $100,000, appreciating by 40 million times. This indeed has filled many people with faith and expectations for greater appreciation of Bitcoin, even though Bitcoin's price frequently experiences significant fluctuations during this process.
So, how should we view Bitcoin? This at least requires accurately answering 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, mainly undergoing four developmental stages: natural tangible currency (such as China's shell money), regulated metallic coins (gold coins, copper coins, silver coins, etc.), metallic standard paper currency (tokens based on metal), and purely fiat currency that has detached from specific tangible assets. This shows a continuous trend of moving from tangibility to intangibility. Among them, gold has the longest history and widest range as a currency or monetary standard. In particular, the signing of the Bretton Woods Agreement in July 1944 brought currency back to the gold standard at the international monetary system level, making gold the world's first choice for currency material or value reserve.
However, after the United States 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 original role as tradable wealth; currency then completely detached from specific tangible assets, becoming purely a measure of value and medium of exchange, referred to as 'fiat currency.' Why did this happen?
This is because currency serves the purpose of facilitating exchanges; its essential attributes and core functions are the measure of value and medium of exchange. Therefore, it is necessary to maintain the basic stability of currency value (large fluctuations in value will seriously affect exchanges). Using any specific tangible assets as currency or monetary standards will inevitably lead to a serious situation of 'tangible currency shortage' due to the limited Earth reserves of such assets, especially their finite supply as currency, which cannot meet the infinite growth of tradable wealth value, and will eventually be eliminated. Currency must detach from specific tangible assets so that the total amount of currency can change in accordance with the total amount of tradable wealth value (corresponding 'total to total'), maintaining basic stability in value while ensuring sufficient supply of currency, and continuously advancing towards intangibility, digitalization, and intelligence, thereby improving the efficiency of currency operation, reducing operating costs, and tightening risk control, fully realizing its intended functions. Thus, fiat currency is the inevitable direction of currency development, rather than a passive result accepted under great impact. Any attempt to return to a metallic-based currency system, or efforts to re-anchor currency, are bound to fail as they go against the essence and development laws of currency.
To understand currency, one must grasp its essence through its appearance. Shell money, coins, paper money, etc., are all carriers or expressions of currency, not currency itself. The complete description of currency is that its essential attributes are the measure of value, its core function is as a medium of exchange, and its fundamental guarantee is the highest level of credit protection, becoming the most liquid value token (transferable and tradable value rights).
Once no longer anchored to any specific tangible asset, the issuance of fiat currency requires entirely new channels or methods, which means that the monetary issuing institution lends out currency through credit (e.g., granting loans, purchasing bonds, account overdrafts, bill discounts, etc.). The principle is that the borrower's existing or expected wealth can be monetized as support, assessed by the monetary issuing institution and agreed upon with the borrower before issuing the currency. Thus, as long as the borrower possesses real tradable wealth, the issuing institution can issue corresponding currency according to its monetizable value, allowing the total amount of currency to adapt to changes in total wealth value. Consequently, fiat currency completely breaks the 'tangible currency shortage spell', can be fully supplied, and greatly promotes exchange and economic and social development. It can be said that without credit issuance, there is no true fiat currency; without fiat currency, the development of economic society, including economic and financial globalization, would be difficult to reach today's level!
To prevent excessive currency issuance, credit-issued currency must be repaid according to the agreed terms, including principal and interest, and cannot be issued free of charge (this is a fiscal function). A central bank 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 monetary control and policy implementation. Credit issuance institutions will become new subjects of currency issuance, but must be strictly regulated by the central bank; there cannot be only one credit institution, and self-issuance of credit is not allowed. Liquidity constraints should form through fund transfers among institutions to suppress excessive credit issuance. Losses from unrecoverable principal and interest from credit institutions should be treated as actual excessive currency issuance, and timely and adequate provisions for losses should be made or directly written off to eliminate the impact of excessive issuance as much as possible. If credit institutions face liquidity crises or insolvency, bankruptcy restructuring should be implemented accordingly. An effective control mechanism for credit issuance should be established to curb excessive currency issuance at the source.
Credit issuance (including central bank relending) can be directly credited to the borrower's deposit account in the issuing institution, allowing deposits to be used directly for external payments (transfer payment accounting and clearing), thereby greatly reducing the printing and receiving of cash. Only when depositors need cash do they need to exchange deposits for cash. Thus, cash is no longer the primary channel for currency issuance. In the long run, cash is destined to exit the currency stage entirely, just as shell money and coins have.
In the context of national sovereignty and independence, the highest credit in today's world is national sovereign credit. It requires bilateral protection of the currency and the wealth used for exchange by national sovereignty to maintain the corresponding relationship between currency and total wealth. Therefore, fiat currency is manifested as national sovereign currency or legal tender, with its credit being national credit, no longer dependent on the credit or liabilities of the issuing institution (like the central bank). Promoting the denationalization of currency (including returning to tangible currency) or super-sovereignty (including creating super-sovereign currency linked to multiple sovereign currencies, such as the International Monetary Fund's Special Drawing Rights (SDR)) is difficult to achieve. Stablecoins pegged to a single sovereign currency essentially serve as a token of the pegged currency, which can exist, but must accept the supervision of monetary authorities and cannot replace the pegged currency.
Although Bitcoin has achieved significant technological innovations, at the 'currency' level, it is highly imitative of gold: the Earth's reserves of gold are finite, and intuitively, the easier it is to mine, the more it will be extracted in the early stages, making it more difficult to mine later, so the new output will decrease. Accordingly, Bitcoin is set to a total of 21 million, with a block generated approximately every 10 minutes, and the number of Bitcoins assigned to each block is set as follows: the first 4 years are 50, and then halved every 4 years (currently 3.125), and by 2140 it will be reduced to nearly zero, marking the end of mining. This arrangement creates an imagination space for a significant appreciation of Bitcoin, which is conducive to attracting people to actively participate in mining or investing, but its total amount and phase-increment are entirely system-defined, which is more stringent than gold (the actual reserves of gold are unclear), and the quantity available for exchange transactions is even more limited, fundamentally failing to keep pace with the growth of tradable wealth value, which does not meet the essential requirements of currency. Since gold has already exited the currency stage, Bitcoin finds it difficult to become a true circulating currency.
Bitcoin is a purely chain-based digital asset; its blockchain only has the functions of mining and processing the transfer and distributed verification and accounting of Bitcoin nodes, highly closed and secure, but it is difficult to solve any real-world problems. If Bitcoin cannot be exchanged for sovereign currency, it is difficult to realize its value beyond the game, nor can it have any impact on the real world. The Bitcoin blockchain needs to be maintained continuously and increasingly lengthened, allowing for traceability, and thus it is difficult to be breached or surpassed by other cryptocurrencies. However, the cost of mining and system maintenance is increasingly high, and efficiency is decreasing, unable to meet the real world needs for the total amount of currency and payment efficiency. All these factors make it difficult for Bitcoin to become a true currency and to replace sovereign currency.
Question 2: Can Bitcoin replace gold as a strategic reserve?
Bitcoin highly imitates gold at the 'currency' level, and thus is referred to as 'digital gold.' However, Bitcoin is purely a digitally native asset, not a natural tangible asset. Its value depends on the development space of its application scenarios and the faith and investment placed in it by people. Bitcoin can be divided into tiny units of one hundred millionth, providing greater payment flexibility, but it does not have the backing of real gold, and does not belong to the strict definition of 'paper gold.' Once trust is lost, it will become worthless, and the risk is far greater than that of gold.
As a digital asset, Bitcoin, like gold, poses no problem in terms of mining, trading (including spot trading, futures and derivatives, ETFs, etc.), unless the country 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 through the internet, it must receive tighter international joint regulation to prevent manipulation, fraud, and other illegal activities. Completely relaxing regulation will inevitably 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 transferring sovereign currency used for money laundering, bribery, extortion, and terrorist financing in gray or illegal fields. Sovereign currency originally has strict regulations and international cooperation regarding anti-money laundering and anti-terrorism financing, but now, through cryptocurrencies, we have 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 still on sovereign currencies, and international joint regulation must be strengthened to prevent sovereign currencies from engaging in illegal activities through cryptocurrency transactions and transfers.
Clearly, the regulatory risks of Bitcoin and other cryptocurrencies far exceed those of gold.
Bitcoin is essentially a speculative asset; investors' returns mainly come from price increases, but its price volatility is extremely high, far exceeding that of stocks, bonds, foreign exchange, gold, and other assets, making the investment risk very high. Engaging in Bitcoin trading or investment, apart from exchanges and various service providers, only a dwindling number of participants can truly gain profits. At the same time, Bitcoin's correlation with the price trends of stocks, gold, and other assets is gradually increasing, thereby weakening 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. Whether it can replace gold as a national strategic reserve remains in great doubt.
Trump's Bitcoin new policy is difficult to implement.
First of all, it is relatively challenging for the U.S. to acquire new Bitcoins. The total number of Bitcoins is 21 million, with over 19.8 million already mined, leaving less than 1.2 million remaining. The energy consumption for mining is increasing, competition is intensifying, and its mining is decentralized, making it difficult for the U.S. to ensure that new Bitcoins are produced in the U.S., let alone guarantee that they will all belong to the U.S. government. At the same time, it is estimated that there are 4 million 'dead coins' that cannot be used, increasingly controlled by a small number of individuals, making it challenging to purchase an additional million. The U.S. leading the way in acquiring Bitcoin will inevitably drive the price of Bitcoin up significantly, but it will also greatly increase the risk of a price bubble and crash. Additionally, 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's (fiscal) strategic reserve or the Federal Reserve (central bank) as the strategic reserve of the dollar, carries risks and uncertainties. If it refers to government reserves, then if the government purchases more than a million Bitcoins on the basis of the over 210,000 Bitcoins already seized (among which, whether the portion belonging to victims taken by hackers or robbers should be returned is still legally disputed), it will drive the price of Bitcoin significantly higher. Currently, the U.S. Treasury's Exchange Stabilization Fund (ESF) is approximately $215 billion, and even if the entire ESF is used, it may not be enough. If the government issues additional debt for funding, the federal government's debt scale exceeding $36 trillion will become even larger. Relying on the substantial appreciation of Bitcoin to stabilize foreign exchange (stabilize the dollar exchange rate) or repay government debt also carries uncertainties, as large-scale liquidation will lower its price. If it refers to the Federal Reserve's reserves, if the Federal Reserve uses dollars to purchase more than a million Bitcoins, it will significantly increase the base currency supply and could bring greater pressure on inflation. If the Federal Reserve replaces Bitcoin with its gold reserves, it may weaken the impact on the base currency, but could significantly lower gold prices and push up Bitcoin prices, with significant risks regarding whether it can truly benefit.
At the same time, it should be noted that under fiat currency, the reputation of a country's currency is fundamentally based on the country's wealth growth and currency management level, rather than primarily relying on the value of reserve assets. Therefore, replacing gold reserves with Bitcoin reserves is unlikely to have a practical positive impact on the dollar and is also difficult to use for repaying government debt.
Furthermore, Trump's new 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. significantly increases its Bitcoin reserves, it will not help strengthen the international status of the dollar. On the contrary, if Bitcoin regulation is drastically relaxed, allowing massive cross-border flows of sovereign currency through Bitcoin while hindering the digitalization of the dollar, it may pose serious challenges to the international status of the dollar.
The special status of the dollar as the international 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 where the U.S. is the strongest country, it is difficult to overturn or replace the dollar's status as the number one international currency unless the U.S. commits a subversive error and actively weakens the dollar's credit and status. Once the international status of the dollar is replaced, it will bring a huge impact on the United States.
In summary, Bitcoin can only be a new type of tradable wealth or digital asset; it is difficult to become a true currency, and it fundamentally cannot replace sovereign currency. Whether it can replace gold as a national strategic reserve remains in great doubt. The international community should treat Trump's Bitcoin new policy with calm and objectivity and not blindly follow the trend.
