Original Author: Lian Jun
Original Source: Economic Daily
Recently, influenced by multiple factors such as the Federal Reserve's interest rate cuts and the results of the U.S. elections, the trading price of Bitcoin has surged significantly, attracting international market attention. There are even rumors that the U.S. will promote Bitcoin as a national strategic reserve asset, causing related topics to heat up rapidly. The attitude and actions of the new U.S. government towards Bitcoin and other cryptocurrencies, as well as their impact on the global financial landscape, are worth close attention.
Entering November, the trading price of Bitcoin experienced a rapid rise, breaking through $80,000 per coin on the 10th, surpassing $90,000 per coin on the 13th, and reaching as high as $93,000 per coin in the early hours of the 14th, after which the price fluctuated above $90,000 per coin. Market analysis suggests that the Federal Reserve's continued interest rate cuts in November, along with the Republican Party's promises of multiple supportive measures for cryptocurrencies during the campaign, have become driving forces for the rapid increase in Bitcoin's price. U.S. media reported that Republican Senator Cynthia Lummis from Wyoming plans to promote a bill when the new Congress convenes next year, proposing to sell part of the Federal Reserve's gold to establish a strategic Bitcoin reserve. This has led some market traders to believe that "cryptocurrency is about to enter a golden age."
However, due to the complex and uncertain factors influencing Bitcoin's price trends, and the past occurrences of significant fluctuations, a more comprehensive observation of its subsequent trends is necessary.
Bitcoin's price is affected by various factors including supply and demand patterns, macroeconomic conditions, and market sentiment. On the supply side, the Bitcoin halving mechanism is one of the important factors for its price increase. This year, Bitcoin experienced another halving event, which provided support for subsequent price increases. On the demand side, the Republican Party's commitment during the campaign to include Bitcoin as a national reserve asset, to make the U.S. the "world's cryptocurrency capital," and to appoint regulators interested in digital assets have driven an increase in Bitcoin demand. From a macro perspective, the stabilization of global economic growth, easing inflation pressures, and the initiation of interest rate cuts by central banks in Europe and the U.S. have brought more liquidity to the market. Additionally, when Bitcoin's price breaks through key levels, market optimism becomes an important driving force for price increases.
Although the incoming U.S. government has shown strong interest in cryptocurrencies, making Bitcoin a true national reserve asset still requires passing through multiple "gates."
From a policy perspective, designating Bitcoin as a strategic reserve asset requires a complex legislative process, involving coordination among multiple regulatory agencies and balancing interests. Moreover, traditional financial institutions in the U.S., conservative lawmakers, and interest groups skeptical of digital assets may strongly oppose this, making implementation quite challenging. From market and regulatory perspectives, Bitcoin's price often experiences severe fluctuations, which is significantly at odds with the stringent stability requirements for national reserves. Additionally, the U.S. cryptocurrency regulatory framework is not well-established, and incorporating Bitcoin into the national reserve system would require a more comprehensive legal framework. Furthermore, U.S. media have pointed out that Bitcoin has never been a good inflation hedge—its relationship with speculative stocks is much closer than with traditional inflation hedges like gold or inflation-linked bonds.
During the previous term of the Republican government, the attitude towards Bitcoin was not friendly, viewing it as "air without a value foundation." However, during the recent campaign, this attitude underwent a 180-degree turn. Some analysts suggest that this shift reflects the new U.S. government's desire for the U.S. to take a leading position in the digital currency field to maintain competitiveness in the global economy, while also attempting to reduce national debt issuance through the appreciation of Bitcoin without increasing government deficits, in light of the massive national debt.
Looking further, the long-term abuse of the dollar's status, unchecked currency overproduction, and the severe overextension of dollar credit have begun to show their negative effects, prompting many countries to accelerate their "de-dollarization" efforts. The change in attitude towards Bitcoin among some in the U.S. is an attempt to maintain the already weakened international status of the dollar.
The explosive rise in Bitcoin's price seems to give some people hope of witnessing a process similar to "the collapse of the Bretton Woods system and the establishment of the petrodollar." However, Bitcoin's inherent instability poses greater challenges for regulatory agencies once it becomes a strategic reserve asset, and it may also raise alarms in other countries, exacerbating friction in the international financial sector. Whether the U.S. economy, which has been eroded by high inflation for days, can withstand this impact remains uncertain.
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