Author: Liu Honglin, Mankun Law Firm

The United States Plans to Purchase 1 Million Bitcoins According to Forbes, the U.S. government is preparing to use existing funds from the Federal Reserve and the Treasury to purchase 1 million bitcoins, establishing a national-level bitcoin reserve. This news has sparked widespread attention globally, indicating that the U.S. would become the largest holder of bitcoins in the world, accounting for 5% of the entire bitcoin network, almost equivalent to its share in global gold reserves.

This action is not only a strong recognition of bitcoin but also a strategic layout for the U.S. in the global financial arena. The U.S. move reflects its emphasis on future digital finance and its anticipation of changes in the global economic landscape. Senator Cynthia Lummis likened this plan to the Louisiana Purchase, suggesting that the U.S. is making a historic investment that could yield significant returns. This marks a consolidation of the U.S.'s leadership position in the digital currency field, aiming to secure greater initiative in the future digital currency economy.

As a decentralized digital asset, bitcoin has gradually been accepted by major financial institutions and countries since its inception. The U.S. holding a large amount of bitcoin is not only for the appreciation of financial assets but also aims to establish a new form of international competitiveness. For decades, the global financial system has been primarily dollar-centric, with the U.S. dominating the world through its control of global currency and economic rules. In the future digital currency era, the U.S. clearly hopes to maintain or even enhance this dominance through bitcoin.

Why is the U.S. Doing This?

The establishment of a bitcoin reserve by the U.S. appears to be a financial decision, but it hides profound strategic considerations. This move is not just about economic interests; it also involves the country's positioning and competition in the future global financial landscape.

The Digital Sovereignty Status of Bitcoin

Over the past decade, bitcoin has transitioned from a niche asset to a mainstream one, widely regarded as an important component of future financial infrastructure. Its decentralized nature, limited total supply, and global liquidity make it a form of "digital gold." Although bitcoin's price is highly volatile, its long-term appreciation trend has begun to show its potential as a safe-haven asset.

By controlling 5% of the global bitcoin reserves, the U.S. not only hopes to solidify its dominant position in the future financial system but also prepares for possible changes in the global financial landscape. The global financial market is rapidly digitizing, and the traditional financial system faces challenges and opportunities brought by technological transformation. By holding a large amount of bitcoin, the U.S. can ensure it has sufficient influence in the digital currency era. While most countries' monetary policies are still based on traditional fiat currency systems, the emergence and development of bitcoin are opening new spaces for financial innovation.

For a long time, the U.S. has dominated the global financial market through the dollar, and bitcoin, as a form of decentralized currency, offers a new choice for financial order. At this turning point, the U.S. clearly hopes to ensure its decisive influence in the future digital currency era by controlling a portion of bitcoin.

Chips in the Global Financial Game

The competition in the global digital currency market has entered a heated stage, with multiple countries and regions actively laying out their digital currencies. China has launched the digital yuan, becoming the world's first large-scale central bank digital currency project. The European Central Bank is also actively developing the digital euro, trying to maintain its competitiveness in the future global financial system. By purchasing bitcoin, the U.S. is not only seizing the initiative in the future global digital currency game but also avoiding being surpassed by economies like China in this emerging field.

As a decentralized global asset, bitcoin does not rely on any country's currency system, giving it a unique advantage in global financial competition. By holding a large reserve of bitcoin, the U.S. is effectively setting a new standard in the global digital currency field and is expected to lead the wave of global digital financial innovation. At the same time, this move can also serve as a demonstration for other economies, potentially triggering further recognition and use of bitcoin worldwide.

The global financial game has gradually shifted from traditional monetary policy and interest rate adjustments to the control of emerging digital assets. Bitcoin, due to its global nature and lack of direct state control, has become a new chip in this financial game. Through the bitcoin reserve plan, the U.S. is essentially laying a new foundation for future international financial rules and economic order. In this process, whoever controls bitcoin will have greater say in the future global economic order.

A Potential Tool to Consolidate Dollar Hegemony

The prices of virtual currencies like bitcoin are mostly quoted in dollar stablecoins (such as USDT) in the global market. This means that although bitcoin is decentralized and unrelated to any country's fiat currency, its trading and market operations are still influenced by the dollar. The widespread use of dollar stablecoins has allowed the dollar to maintain a strong dominant position in the virtual currency market.

By purchasing bitcoin on a large scale, the U.S. is further consolidating the dollar's hegemonic position in the global financial system. Although the virtual currency market is decentralized, dollar stablecoins are a key component supporting these markets. By controlling bitcoin, a significant asset, the U.S. can ensure that the dollar remains the primary unit of account and the core currency of the global financial system in the future digital currency era.

Especially in the decentralized virtual currency trading environment, the role of stablecoins cannot be ignored. Stablecoins backed by the dollar, such as USDT and USDC, have become the main pricing tools in the global crypto market. A large volume of transactions and circulation in the virtual currency market actually relies on these dollar stablecoins, ensuring the dollar's dominance in the global financial system. By purchasing and holding bitcoin, the U.S. can not only control the bitcoin market but also maintain the dollar's influence in the virtual currency field through the use of stablecoins.

As of July this year, Japan's holdings of U.S. Treasury bonds amounted to $1.1157 trillion; China's holdings were $776.5 billion; South Korea's holdings were $122.7 billion; and Germany's holdings were $101.6 billion. In other words, if we consider Tether, the issuer of USDT, as a country, its holdings of U.S. Treasury bonds would be comparable to Germany and close to South Korea.

Tether CEO Paolo Ardoino previously stated: "U.S. Treasury bonds support USDT. If USDT holders want to cash out, they can easily convert it to dollars. We (effectively) increase the elasticity of dollar ownership, so 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 dollar."

It is precisely because of the close relationship between virtual currencies and dollar stablecoins that purchasing bitcoin undoubtedly enhances the U.S.'s dominance in the digital currency market. This not only ensures that the dollar continues to occupy a central position in international trade and financial markets but also prevents other economies from undermining the dollar's global dominance through decentralized digital currencies.

Political Dividends from Gaining Cryptocurrency Supporters

In the U.S., discussions about digital currencies are not limited to the financial sector; they have gradually permeated the political arena. With the rapid expansion of the cryptocurrency community, especially among young voters, support for or opposition to cryptocurrencies has become an important factor influencing elections. Both former Republican President Donald Trump and Democratic Congressman Ro Khanna have actively expressed support for bitcoin. Both parties recognize that cryptocurrency supporters have become a force that cannot be ignored, and gaining the support of this group could play a crucial role in future elections.

By reserving bitcoin, the U.S. not only occupies a favorable economic position but also provides politicians with an important chip to attract 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 deepens, it has become more than just an investment tool; it increasingly symbolizes innovative technology. U.S. politicians have keenly captured this trend and realized that by showing support for bitcoin, they can attract voters who advocate for innovation and financial freedom. The influence of this group is particularly evident among young people and technology professionals, who are the dominant force in future politics.

Global Impact and China's Response

The U.S. establishing a national bitcoin reserve will undoubtedly have far-reaching effects globally. As a decentralized digital asset, bitcoin's value and status will be further enhanced under the impetus of the U.S. government's large-scale reserves. This will trigger a reassessment of bitcoin and virtual currencies by other countries and may even prompt some nations to modify or adjust their existing virtual currency policies.

Russia's Adjustment of Virtual Currency Policy

Russia is a unique case in the global economic system. For a long time, Russia has maintained a conservative attitude towards virtual currencies, mainly concerned that they could be used for money laundering, tax evasion, and other illegal activities. However, with the impact of global economic sanctions on Russia, the country has begun to reassess the strategic value of virtual currencies.

Since the conflict in Ukraine, Russia has faced massive economic sanctions from Western countries, particularly in the financial sector, which have put tremendous pressure on the Russian economy. In this context, Russia has gradually relaxed its restrictions on virtual currencies, allowing them to circulate legally in international trade. Russia views virtual currencies as tools to evade sanctions and maintain international trade relations. Particularly, bitcoin, due to its decentralized nature, 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 imposed by Western countries but also establish financial connections with other nations. This policy adjustment reflects Russia's strategy in response to global financial changes.

Recently, Russia's policy adjustments have also included allowing businesses and individuals to use virtual currencies for settlements in international trade. Although Russia has not fully opened its domestic virtual currency trading market, this relaxation in international trade indicates that Russia views virtual currencies as a strategic tool in responding to sanctions. With the increase in U.S. bitcoin reserves, Russia may further adjust its virtual currency policy and may even include bitcoin in its national reserve assets to counter the pressures from Western economic sanctions. This is also part of Russia's defensive strategy in global financial competition.

Will China Change Its Virtual Currency Regulatory Policy?

In contrast to Russia, China has maintained a high level of vigilance towards virtual currencies like bitcoin. Since 2017, China has begun to crack down on virtual currency exchanges and ICO activities, and in 2021, it further targeted the domestic bitcoin mining industry, demonstrating a comprehensive high-pressure stance against virtual currencies.

China's current regulatory strategy is primarily based on three considerations: first, to prevent systemic financial risks; second, to prevent capital outflows; and third, to maintain monetary sovereignty and financial security. The decentralized and highly volatile nature of bitcoin is contrary to China's goals of financial stability and control. Therefore, it is unlikely that China will relax its regulatory policies on bitcoin and other virtual currencies in the short term.

However, the trend of legalizing the global bitcoin market, including the gradual relaxation of bitcoin policies by major economies such as the United States and Russia, may exert some indirect pressure on China. In the future, China may make slight adjustments to its virtual currency policies in specific areas, such as allowing bitcoin to be legally held as an asset in the investment sector or adopting 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 systems of every country. Although China has maintained a cautious and strict stance towards virtual currencies like bitcoin, changes in the international landscape may force China to make policy adjustments regarding virtual currencies in the future. Particularly in areas such as cross-border trade and international settlements, China may adopt a more flexible approach to using virtual currencies to respond to changes in the global financial system.

While bitcoin is regarded as "digital gold," its decentralized and borderless nature makes it difficult for Chinese regulators to accept. Rather than allowing bitcoin and other virtual currencies to dominate the domestic market, China prefers to ensure the stability and sovereign control of its financial market through the digital yuan.

The digital yuan is a legal digital currency issued by the People's Bank of China, fully under the control and regulation of the state. The launch of the digital yuan is not only aimed at improving domestic payment efficiency and financial inclusion but also at establishing a state-led digital currency system internationally. Through the digital yuan, China can enhance the efficiency of its domestic financial system and set rules for the future digital currency order on the international stage. This strategy is clearly different from decentralized bitcoin, representing a competition between sovereign state currencies and decentralized digital currencies.

Conclusion

The U.S. purchase of 1 million bitcoins aims to consolidate its dominant position in the global digital currency market, marking a new phase in global financial competition. In the coming years, we may see more countries incorporating bitcoin into their national reserve systems, accelerating the global legalization process of bitcoin. At the same time, the widespread application of blockchain technology will further drive innovation in the global financial market. Whether in terms of the reserve value of bitcoin or the potential of blockchain technology, both will play increasingly important roles in the global financial landscape.

For China, although there will not be significant adjustments to its regulatory policies on bitcoin in the short term, the trend of legalizing the global digital currency market cannot be ignored. In the competition of global digital currencies, maintaining financial stability and promoting the globalization of the digital yuan remain the core of its long-term strategy. In the coming years, the global financial market will engage in fierce competition around bitcoin, blockchain technology, and digital currencies, and the U.S. bitcoin reserve plan may just be the beginning of this competition.

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