Wang Yongli believes that Bitcoin can only be a new type of tradable wealth or digital asset, and it is difficult to become a true currency. It fundamentally cannot replace sovereign currencies, and there is still great doubt about whether it can replace gold as a national strategic reserve.
Written by: Wang Yongli, Co-Chairman of Digital China Information Service Group, former Vice President of Bank of China
Source: "China Foreign Exchange," Issue 1, 2025
Key Points
Bitcoin can only be a new type of tradable wealth or digital asset, and it is difficult to become a true currency. It fundamentally cannot replace sovereign currencies, and there is still great doubt about whether it can replace gold as a national strategic reserve.
With Trump's victory in the U.S. presidential election, his proposed new Bitcoin policy has received widespread attention and discussion. There is no doubt that Trump's new Bitcoin policy will have a significant impact on the United States and the world. The author believes that we need to calm down and view and grasp this rationally and objectively to avoid making disruptive mistakes.
Trump's Radical New Bitcoin Policy
During his previous presidential term, Trump believed that cryptocurrencies were not currencies, that their value fluctuated wildly, and that they were scams. He stated that unregulated crypto assets could be used for drug trafficking and other illegal activities, calling it "a huge disaster waiting to happen," asserting that the only true currency in the U.S. is the dollar. However, starting in 2022, he changed his attitude, believing that the crypto industry is "like the steel industry 100 years ago, still in its infancy," and that "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 his participation in the 2024 presidential campaign, Trump's attitude towards Bitcoin became more positive, claiming he would become a president who supports innovation and Bitcoin. He proposed a very radical new Bitcoin policy, which mainly includes: the U.S. should become the undisputed global powerhouse in Bitcoin mining, ensuring that America becomes the world capital of cryptocurrency and a Bitcoin superpower; guaranteeing the power supply for Bitcoin mining, relaxing cryptocurrency regulations, and firing the current chairman of the U.S. Securities and Exchange Commission (SEC), who holds a strong regulatory stance on cryptocurrencies, on his first day in office; establishing a national strategic reserve of Bitcoin, purchasing over one million additional Bitcoins on top of those already seized by the government; during his presidency, he would never launch a digital dollar (CBDC) and would strengthen presidential control over the Federal Reserve.
These proposals have been enthusiastically embraced by the crypto community and have garnered significant donations for Trump's presidential campaign. Many of Trump's new government nominees are also crypto-friendly or even enthusiastic individuals. Among them, Elon Musk, a strong supporter of his campaign, has been nominated to lead the newly established "Department of Government Efficiency" and is known as the "Godfather of Crypto," holding a large amount of cryptocurrency. Vice President nominee Vance has revealed that he holds Bitcoin worth hundreds of thousands of dollars. On December 5, 2024, Trump nominated crypto supporter Paul Atkins to succeed as chairman of the U.S. SEC; he also nominated former PayPal COO David Sacks to head the newly established "White House AI and Cryptocurrency Affairs" (leading the President's Technology Advisory Committee), dedicated to formulating a legal framework so that the cryptocurrency industry can obtain the clarity it requires to thrive in the U.S.
Trump's words and actions have sparked a new wave of enthusiasm in the crypto industry. After Trump was elected president on November 6, 2024, the price of Bitcoin surged significantly from a closing price of less than $69,400 the previous day. By December 5, 2024, the price broke $100,000 for the first time (with a daily high exceeding $104,000), and its market value surpassed $2 trillion for the first time.
Trump's new Bitcoin policy has also caused significant tremors globally. Zhao Changpeng (CZ), the founder of the well-known cryptocurrency exchange "Binance," which was heavily fined by the U.S., also expressed that Bitcoin, with its scarcity and decentralized characteristics, is increasingly favored by investors and has a stronger value retention capability compared to traditional financial assets. The establishment of Bitcoin strategic reserves by countries and large institutions 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. There are even views that by 2035, the price of Bitcoin will exceed $1 million; in the future, the 21 million Bitcoins will correspond to the value of all tradable wealth in the world, indicating significant potential for price increases.
Of course, Trump's Bitcoin policy and the aforementioned views have also sparked considerable controversy globally, with many opposing voices within the U.S., although they seem quite weak in the current fervent tide.
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, and the first 50 Bitcoins officially came into existence, after which Bitcoin has been operating securely to this day.
On May 22, 2012, someone exchanged 10,000 Bitcoins for two pizzas worth $25, marking the first exchange of Bitcoin with 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 filled many people with faith and expectations for further appreciation of Bitcoin, despite the frequent significant fluctuations in its price during this process.
So, how should we view Bitcoin? This requires accurately answering at least 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 experiencing four developmental stages: natural physical currencies (such as China's shell money), regulated metal coins (gold coins, copper coins, silver coins, etc.), metallic standard paper money (tokens based on metal standards), and purely credit money that is detached from specific physical objects. This shows a continuous trend of moving from tangible to intangible. Among them, gold has the longest history and the widest range as a currency or currency standard. Particularly, 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 preferred currency material or value reserve worldwide.
However, after the U.S. ceased to fulfill its international commitment of $35 per ounce of gold in August 1971, gold completely exited the currency stage and returned to its original role as tradable wealth; currency then completely detached from specific physical objects, becoming a pure measure of value and medium of exchange, known as "credit money." Why is this the case?
This is because currency serves the purpose of facilitating exchange transactions, and its essential attributes and core functions are the measure of value and medium of exchange. To achieve this, it must maintain basic stability in currency value (significant fluctuations in value would severely impact exchange transactions). Using any specific physical object or objects as currency or currency standards will inevitably lead to difficulties in meeting the infinite growth requirements of tradable wealth value due to the limited earthly reserves of these physical objects, resulting in an increasingly severe "shortage curse of physical currency," which severely constrains exchange transactions and economic social development, ultimately leading to elimination. Currency must detach from specific physical objects so that the total amount of currency can change in accordance with the total value of tradable wealth (corresponding "total to total"), maintaining basic stability in currency value while ensuring sufficient supply of currency, and continuously advancing towards intangibility, digitization, and intelligence, thereby improving the efficiency of currency operation, reducing operational costs, and tightly controlling risks, fully realizing the functions of currency. Therefore, credit money is the inevitable direction of currency development, not a passive result of being subjected to significant shocks. Any attempt to return to a metallic standard currency system or efforts to re-anchor currency are bound to fail as they contradict the essence and development laws of currency.
To understand currency, one must grasp its essence beyond appearances. Shell money, minted coins, paper money, etc., are all carriers or manifestations of currency, not currency itself. The complete description of currency is: the essential attribute of currency is the measure of value, the core function is the medium of exchange, and the fundamental guarantee is the highest credit protection, becoming the most liquid value certificate (transferable and circulating value rights).
Once detached from any specific physical object, the issuance of credit money requires entirely new channels or methods, which is the way currency issuance institutions lend money through credit (issuing loans, purchasing bonds, account overdrafts, bill discounting, etc.). The principle is: using the realizable value of wealth that the borrower already possesses or will possess within an agreed timeframe as support, the currency issuance institution evaluates and reaches an agreement with the borrower to issue currency based on this. Thus, as long as the borrower possesses real tradable wealth, the currency issuance institution can issue corresponding currency according to its realizable value, allowing the total amount of currency to adapt to changes in the total value of wealth. Consequently, credit money completely breaks the "shortage curse of physical currency," enabling sufficient supply and greatly promoting exchange transactions and economic social development. It can be said that without credit issuance, there is no true credit money; without credit money, the development of economic society, including the globalization of finance, would be difficult to reach today's level!
To prevent excessive currency issuance, credit-issued money must be repaid with principal and interest as agreed and cannot be issued gratuitously (this falls under fiscal functions). A central bank system must also be established, where the central bank no longer provides credit issuance to society but only offers re-lending services to credit issuance institutions, becoming the main body for monitoring the total amount of currency and implementing monetary policy. Credit issuance institutions then become the new entities for currency issuance but must be strictly regulated by the central bank; there cannot be just one credit issuance institution, and self-issuance of credit is not allowed. Liquidity constraints must be formed through fund transfers between institutions to suppress excessive credit issuance. Losses from unrecoverable principal and interest by credit institutions become actual excessive currency issuance, and timely and sufficient provisions for losses must 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 also be implemented. An effective control mechanism for credit issuance must be established to curb excessive currency issuance from the source of currency issuance.
Credit issuance (including central bank re-lending) can be directly credited to the borrower's deposit account at the issuing institution, and deposits can be directly used for external payments (transfer payment accounting and clearing), which can greatly reduce the printing and handling of cash. Only when depositors need cash do they need to exchange deposits for cash. Therefore, cash is no longer the primary channel for currency issuance. In the long run, cash is destined to exit the currency stage completely, just like shell money and minted coins.
In the context of national sovereignty, the highest credit in today's world is national sovereign credit, which requires bilateral protection of currency and the wealth used for exchange by national sovereignty to maintain the corresponding relationship between currency and total wealth. Therefore, credit money also manifests as national sovereign currency or legal tender, with its credit being national credit, no longer the credit or liabilities of the currency issuance institution (such as the central bank) itself (only metallic standard paper money is like this). Promoting the denationalization of currency (including a return to physical currency) or super-sovereignization (including creating super-sovereign currency linked structurally to multiple sovereign currencies, such as the International Monetary Fund's Special Drawing Rights SDR) is difficult to succeed. Stablecoins pegged to a single sovereign currency are essentially tokens of the pegged currency, which can exist but must accept regulation from monetary authorities and cannot replace the pegged currency.
Despite significant technological innovations, Bitcoin highly mimics gold at the "currency" level: the Earth's supply of gold is finite, and intuitively, the easier it is to mine, the more will be extracted in the early stages, making it increasingly difficult to mine as time goes on, resulting in diminishing new production. Consequently, Bitcoin is capped at a total of 21 million coins, with a new block created approximately every 10 minutes, and the number of Bitcoins awarded per block is set to: 50 for the first four years, halving every four years (currently at 3.125), and by 2140, it will essentially decrease to zero, marking the end of mining. This arrangement creates an illusion of significant appreciation for Bitcoin, encouraging people to actively participate in mining or investment. However, its total supply and periodic new increments are entirely system-defined, which is more stringent than gold (the actual reserves of gold are not clearly known), and the quantity available for exchange transactions is even more limited, fundamentally unable to grow in line with the increase in tradable wealth value, which does not meet the essential requirements of currency. Since gold has already exited the currency stage, it is difficult for Bitcoin to become a true circulating currency.
Bitcoin is a purely blockchain-based digital asset, with its blockchain serving only the functions of mining, transferring coins, and distributed verification and accounting between Bitcoin nodes. It is highly closed and secure but fails to address any real-world problems. If Bitcoin cannot be exchanged for sovereign currency, it is challenging to realize its value outside of its ecosystem and difficult to impact the real world. The Bitcoin blockchain needs to be maintained and continues to grow longer, allowing for traceability, which makes it difficult to breach or be surpassed by other cryptocurrencies. However, the costs of mining and system maintenance are rising, and efficiency is declining, failing to meet the real-world demands for total currency supply and payment efficiency. All these factors make it hard for Bitcoin to become a true currency and to replace sovereign currency.
Question 2: Can Bitcoin replace gold as a strategic reserve?
Bitcoin highly mimics gold at the "currency" level, which is why it is referred to as "digital gold." However, Bitcoin is a purely blockchain-based digital asset, not a natural physical asset, and its value depends on the development space of its application scenarios and the faith and investment of people. Bitcoin can be divided into tiny units of one hundred millionth, providing greater payment flexibility, but it lacks the backing of real gold and does not strictly qualify as "paper gold." Once trust is lost, it can become worthless, with risks far exceeding those of gold.
As a digital asset, Bitcoin, like gold, has no fundamental issues with mining or trading (including spot trading, futures, derivatives trading, ETFs, etc.), unless the government 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 via the internet, it must be subject to 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.
Currently, Bitcoin's application scenarios mainly involve initial coin offerings (ICOs), trading, and serving as a medium for transferring sovereign currency in gray or illegal areas such as money laundering, bribery, extortion, and terrorist financing. Sovereign currencies originally had strict regulations and international cooperation against money laundering and terrorist financing, but now, through cryptocurrencies, effective regulation has been lost, creating a significant regulatory loophole that urgently needs the international community's attention and timely closure. The focus of regulation should not be on cryptocurrencies but rather on sovereign currencies, and international joint regulation must be strengthened to prevent illegal activities through the trading and transfer of sovereign currencies via cryptocurrencies.
Clearly, the regulatory risks of cryptocurrencies like Bitcoin far exceed those of gold.
Bitcoin is essentially a speculative asset, with investors' returns primarily coming from price increases. However, its price volatility is extremely high, far exceeding the price fluctuations of stocks, bonds, foreign exchange, and gold, making investment risks very high. In Bitcoin trading or investment, aside from exchanges and various service providers, only an increasingly smaller number of participants can truly profit. At the same time, the correlation between Bitcoin and the price trends of stocks and gold is gradually increasing, which weakens its function as a risk hedge.
From the above situation, although Bitcoin seems to have greater appreciation potential than gold, its risk is also greater, and whether it can replace gold as a national strategic reserve remains highly questionable.
Trump's New Bitcoin Policy is Difficult to Achieve
First, it is quite challenging for the U.S. to acquire new Bitcoins. With a total of 21 million Bitcoins, over 19.8 million have already been mined, leaving less than 1.2 million remaining. Mining consumes increasing amounts of energy, competition is intensifying, and since mining is decentralized, the U.S. cannot guarantee that new Bitcoins will all be produced in the country, nor can it ensure that they will all belong to the U.S. government. Additionally, it is estimated that there are 4 million "dead coins" that cannot be used, increasingly controlled by a small number of people, making it not easy to acquire an additional million through purchases. If the U.S. government leads the charge to buy Bitcoin, it will significantly drive up Bitcoin prices, but it will also greatly increase the risk of price bubbles and crashes. Furthermore, the development of quantum computing technology poses a significant challenge to the security of Bitcoin and other cryptocurrencies.
Secondly, the so-called national strategic reserve of Bitcoin, whether it refers to the government's (fiscal) strategic reserve or the Federal Reserve's (central bank) strategic reserve for the dollar, carries risks and uncertainties. If it refers to government reserves, then based on the 210,000 Bitcoins already seized (there is still legal controversy over whether the portion belonging to victims of hacking or robbery should be returned), purchasing an additional million Bitcoins would drive prices significantly higher. Currently, the U.S. Treasury's Exchange Stabilization Fund (ESF) is approximately $215 billion, and even if all of it were used, it might not be enough. If the government issues additional bonds to raise funds, the U.S. federal government's debt, already exceeding $36 trillion, would become even larger. Relying on Bitcoin's significant appreciation to stabilize foreign exchange (stabilize the dollar exchange rate) or repay government debt also carries uncertainty, as large-scale selling could depress its price. If it refers to the Federal Reserve's reserves, purchasing a million Bitcoins with dollars would lead to a massive injection of base money, potentially putting greater pressure on inflation. If the Federal Reserve were to exchange its gold reserves for Bitcoin, it could mitigate the impact on base money, but it might significantly lower gold prices while pushing up Bitcoin prices, creating substantial risks regarding whether it could truly benefit.
It is also important to note that under a credit money system, the reputation of a country's currency fundamentally relies on the growth of that country's wealth and the level of currency management, rather than primarily depending 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 unlikely to be used to repay government debt.
Finally, Trump's new Bitcoin policy contradicts his stance of strengthening the dollar as the 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 extremely relaxed, allowing for massive cross-border flows of sovereign currency through Bitcoin while hindering the digitalization of the dollar, it could severely impact 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 U.S. In the absence of fundamental changes in the global landscape where the U.S. remains the strongest country, it is difficult to overturn or replace the dollar's position as the number one international currency, unless the U.S. itself commits a disruptive error that actively undermines the dollar's credit and status. If the dollar's international status is replaced, it would bring significant shocks to the U.S.
In summary, Bitcoin can only be a new type of tradable wealth or digital asset, and it is difficult to become a true currency, fundamentally unable to replace sovereign currency. Whether it can replace gold as a national strategic reserve remains highly questionable. The international community should treat Trump's new Bitcoin policy with calm and objectivity, avoiding blind following.
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