Written by: Liu Honglin, Mankiw LLP
The United States plans to buy 1 million bitcoins (Forbes) According to reports, the US government is preparing to use the existing funds of the Federal Reserve and the Treasury to buy 1 million bitcoins to build a national bitcoin reserve. This news has attracted widespread attention around the world, which means that the United States will become the world's largest bitcoin holder, accounting for 5% of the entire Bitcoin network, almost the same as its share in global gold reserves.
This operation is not only a strong endorsement of Bitcoin, but also a strategic layout of the United States in the global financial field. The United States' move is not only an emphasis on future digital finance, but also a prediction of the global economic landscape. Senator Cynthia Loomis compared this plan to the Louisiana Purchase, suggesting that the United States is making a historic investment that may bring a very rewarding future. This indicates that the United States' leadership in the field of digital currency is being consolidated, aiming to gain greater initiative in the future digital currency economy.
As a decentralized digital asset, Bitcoin has been gradually accepted by major financial institutions and countries since its birth. The United States holds large amounts of Bitcoin not only for the appreciation of financial assets, but also to establish a new international competitiveness. In the past few decades, the global financial system has been mainly centered on the US dollar, and the United States has dominated the world by dominating global currency and economic rules. In the future era of digital currency, the United States obviously hopes to continue to maintain or even enhance this dominance through Bitcoin.
Why does the United States do this?
The establishment of the US Bitcoin reserve is a financial decision on the surface, but there are far-reaching strategic considerations behind it. This move is not only about economic interests, but also about the country's positioning and competition in the future global financial landscape.
Bitcoin’s digital sovereignty
Over the past decade, Bitcoin has gradually moved from a niche asset to the mainstream and is widely regarded as an important part of the future financial infrastructure. Bitcoin's decentralized nature, limited total supply, and global liquidity make it a kind of "digital gold." Although Bitcoin prices fluctuate violently, the long-term appreciation trend has begun to show its potential as a safe-haven asset.
By controlling 5% of the world's Bitcoin reserves, the United States not only hopes to consolidate its dominant position in the future financial system, but also prepares for possible changes in the global financial system. The global financial market is rapidly digitizing, and the traditional financial system faces challenges and opportunities brought about by technological changes. By holding large-scale Bitcoin, the United States can ensure that it has sufficient influence in the era of digital currency. Although the monetary policies of most countries are still based on the traditional legal currency system, the emergence and development of Bitcoin is opening up new space for financial innovation.
The United States has long dominated the global financial market through the U.S. dollar, and Bitcoin, as a decentralized form of currency, provides a new financial order option. At this turning point, the United States obviously hopes to ensure that it still has a decisive influence in the future digital currency era by controlling a portion of Bitcoin.
Chips in the global financial game
Competition in the global digital currency market has entered a white-hot stage, and many countries and regions are actively deploying digital currencies. China has launched the digital RMB, becoming the world's first large-scale central bank digital currency project. The European Central Bank is also actively developing the digital euro in an attempt to maintain its competitiveness in the future global financial system. By purchasing Bitcoin, the United States is, on the one hand, seizing the initiative in the future global digital currency game, and on the other hand, avoiding being overtaken by economies such as China in this emerging field.
As a decentralized global asset, Bitcoin does not rely on the monetary system of any country, which gives it a unique advantage in global financial competition. By storing large amounts of Bitcoin, the United States has set a new standard in the global digital currency field and is expected to lead the wave of innovation in global digital finance. At the same time, this move by the United States can also serve as a model for other economies, which may lead to further recognition and use of Bitcoin worldwide.
The global financial game has gradually shifted from traditional monetary policy and interest rate regulation to the control of emerging digital assets. Bitcoin has become a new bargaining chip in this financial game because of its global nature and its non-direct control by the state. Through the Bitcoin Reserve Plan, the United States is actually laying a new foundation for future international financial rules and economic order. In this process, whoever controls Bitcoin will have a greater voice in the future global economic order.
A potential tool to consolidate the dollar's hegemony
The prices of virtual currencies such as Bitcoin are mostly denominated in US dollar stablecoins (such as USDT) in the global market. This means that although Bitcoin is decentralized and has nothing to do with any country's legal currency, its transactions and market operations are still affected by the US dollar. The widespread use of US dollar stablecoins has allowed the US dollar to maintain a strong dominant position in the virtual currency market.
By purchasing Bitcoin on a large scale, the United States is in fact further consolidating the hegemony of the U.S. dollar in the global financial system. Although the virtual currency market is decentralized, the U.S. dollar stablecoin is a key link in supporting these markets. By controlling Bitcoin, an important asset, the United States can ensure that in the future digital currency era, the U.S. dollar will remain the main unit of account and the core currency of the global financial system.
Especially in the decentralized virtual currency trading environment, the role of stablecoins cannot be ignored. Stablecoins backed by the US dollar, such as USDT and USDC, have become the main pricing tools in the global crypto market. A large number of transactions and circulations in the virtual currency market actually rely on these US dollar stablecoins, ensuring the dominance of the US dollar in the global financial system. By buying and holding Bitcoin, the United States can not only control the Bitcoin market, but also continue to maintain the influence of the US dollar in the virtual currency field through the use of stablecoins.
As of July this year, Japan's holdings of U.S. Treasuries were $1,115.7 billion; China's holdings of U.S. Treasuries were $776.5 billion; South Korea's holdings of U.S. Treasuries were $122.7 billion; and Germany's holdings of U.S. Treasuries were $101.6 billion. In other words, if we consider Tether, the issuer of USDT, as a country, its holdings of U.S. Treasuries would be comparable to Germany's and close to South Korea's.
Tether CEO Paolo Ardoino has previously said: U.S. Treasury bonds provide support for USDT, and if USDT holders want to cash out, they can easily exchange them for U.S. dollars. We have increased the flexibility of U.S. dollar ownership, so now no country or decision maker can sell hundreds of billions of U.S. Treasury bonds at once. USDT and Tether are the best friends of the U.S. dollar. "
Because of the close relationship between virtual currencies and US dollar stablecoins, buying Bitcoin will undoubtedly enhance the US's dominance in the digital currency market. This will not only ensure that the US dollar continues to occupy a central position in international trade and financial markets, but also prevent other economies from weakening the global dominance of the US dollar through decentralized digital currencies.
Political dividends for cryptocurrency supporters
In the United States, the discussion of digital currency is not limited to the financial field, but has gradually penetrated into the political level. With the rapid expansion of the cryptocurrency community, especially among young voters, support or opposition to cryptocurrency has become an important factor affecting elections. Both former Republican President Donald Trump and Democratic Congressman Ro Khanna have actively expressed their support for Bitcoin. Both parties realize that cryptocurrency supporters have become a force that cannot be ignored, and winning the support of this group may play a vital role in future elections.
By reserving Bitcoin, the United States not only occupies a favorable position economically, but also provides politicians with an important bargaining chip to win over young voters and those who support financial innovation. This also means that Bitcoin will no longer be just a technical issue, but a key part of future U.S. political and economic policies.
As Bitcoin's influence in the financial system gradually deepens, it has become more of a symbolic innovative technology than just an investment tool. American politicians have keenly captured this trend and realized that by showing support for Bitcoin, they can attract voters who support innovation and financial freedom. The influence of this group is particularly evident among young people and technology practitioners, who are the dominant force in future politics.
Global shocks and China's response
The establishment of a national Bitcoin reserve by the United States will undoubtedly have a profound impact on the world. As a decentralized digital asset, the value and status of Bitcoin will be further enhanced under the impetus of the large-scale reserve of the US government. This will trigger other countries to re-evaluate Bitcoin and virtual currencies, and even prompt some countries to modify or adjust their existing virtual monetary policies.
Russia's virtual monetary policy adjustment
Russia is a special case in the global economic system. For a long time, Russia has been conservative about virtual currencies, mainly worried that virtual currencies may be used for money laundering, tax evasion and other illegal activities. However, as global economic sanctions hit Russia, the country began to re-evaluate the strategic value of virtual currencies.
Since the Ukrainian conflict, Russia has suffered large-scale economic sanctions from Western countries, especially sanctions in the financial field, which have put tremendous pressure on the Russian economy. Under such circumstances, Russia has gradually relaxed restrictions on virtual currencies and allowed them to circulate legally in international trade. Russia uses virtual currencies as a tool to circumvent sanctions and maintain international trade. In particular, Bitcoin, because of its decentralized characteristics, can provide an alternative settlement method under the constraints of the global financial system. Through virtual currencies, Russia can not only bypass the economic blockade of Western countries, but also establish financial ties with other countries. Behind this policy adjustment is Russia's response strategy to global financial changes.
Recently, Russia's policy adjustments also include allowing companies and individuals to use virtual currencies for settlement in international trade. Although Russia has not fully opened up the domestic virtual currency trading market, this relaxation in international trade has shown that Russia regards virtual currencies as a strategic tool when dealing with sanctions. With the increase in US Bitcoin reserves, Russia may further adjust its virtual currency policy and may even include Bitcoin in its national reserve assets to counter the pressure from Western economic sanctions. This is also Russia's defensive strategy in global financial competition.
Will China change its virtual currency regulatory policy?
Compared with Russia, China has always maintained a high level of vigilance towards virtual currencies such as Bitcoin. China has been cracking down on virtual currency exchanges and ICO activities since 2017, and further cracked down on the domestic Bitcoin mining industry in 2021, showing a comprehensive high-pressure situation against virtual currencies.
China's current regulatory strategy is mainly based on three considerations: first, to prevent financial systemic risks, second, to prevent capital outflows, and third, to maintain monetary sovereignty and financial security. Bitcoin's decentralization and high volatility are exactly contrary to China's goals of financial stability and control. Therefore, it is unlikely that China will relax its regulatory policies on virtual currencies such as Bitcoin in the short term.
However, the legalization trend of the global Bitcoin market and the gradual relaxation of Bitcoin policies by major economies including the United States and Russia may bring certain indirect pressure to China. In the future, China may make fine adjustments to virtual monetary policy in specific areas, such as allowing Bitcoin to be legally held as an asset in the investment field, or taking a more open attitude towards the application of blockchain technology.
The rapid development of the global virtual currency market is putting pressure on the financial regulatory system of every country. Although China has always maintained a cautious and strict attitude towards virtual currencies such as Bitcoin, international changes may force China to fine-tune its virtual currency policies in the future. Especially in the fields of cross-border trade and international settlement, China may use virtual currencies more flexibly in the future to cope with changes in the global financial system.
Although Bitcoin is regarded as "digital gold", its decentralized and borderless nature makes it difficult for Chinese regulators to accept it. Rather than allowing virtual currencies such as Bitcoin to dominate the domestic market, China prefers to ensure financial market stability and sovereign control through digital RMB.
The digital RMB is a legal digital currency issued by the People's Bank of China and is completely under the control and supervision of the state. The launch of the digital RMB is not only to improve domestic payment efficiency and financial inclusion, but also to establish a state-led digital currency system internationally. Through the digital RMB, China can not only improve the efficiency of the domestic financial system, but also set rules for the future digital currency order internationally. This strategy is obviously completely different from decentralized Bitcoin and represents the competition between national sovereign currencies and decentralized digital currencies.
Conclusion
The United States' purchase of 1 million bitcoins is aimed at consolidating its dominance in the global digital currency market, marking a new stage in global financial competition. In the next few years, we may see more countries incorporating bitcoin into their national reserve systems, which will accelerate the global legalization of bitcoin. At the same time, the widespread application of blockchain technology will also promote further innovation in the global financial market. Both the reserve value of bitcoin and the potential of blockchain technology will play an increasingly important role in the global financial landscape.
For China, although there will be no major adjustments to its regulatory policies on Bitcoin in the short term, the legalization trend of the global digital currency market cannot be ignored. In the global digital currency competition, maintaining financial stability and promoting the globalization of the digital RMB remain the core of its long-term strategy. In the next few years, the global financial market will compete fiercely around Bitcoin, blockchain technology and digital currencies, and the US Bitcoin reserve plan may just be the beginning of this competition.
