The significant rise in Bitcoin is attributed to the Bitcoin policy proposed after Trump was elected president. Currently, rumors are circulating in the market about Trump possibly pushing for Bitcoin to become a legal currency in the United States. This news has not only put unprecedented pressure on the Federal Reserve but has also sparked widespread discussion in the market about Bitcoin's future status. Trump's potential plan to dismiss Federal Reserve Chairman Powell has further exacerbated market panic, intensifying this financial storm.
Currently, Trump is breaking conventions by supporting Bitcoin with a decentralized approach and questioning the independence of the Federal Reserve. There are even rumors that he is considering making Bitcoin one of the legal tender currencies in the United States. Trump continuously elevates the political status of cryptocurrencies, confronting the Federal Reserve and seeking to weaken its independence. He has stated that he will retain and increase his Bitcoin holdings, viewing it as a strategic reserve asset for the United States. This policy marks the formal entry of cryptocurrencies into the national strategic vision, attracting more investors and capital into the market.
Analysts point out that the rise of Bitcoin is closely related to Trump's governance philosophy. Trump advocates the idea of a 'small government', reducing government intervention and spending, which sharply contrasts with the large government spending promoted by modern monetary theory. In this context, Bitcoin, as a decentralized digital currency, reflects market concerns about the dollar's credit status. When the market loses confidence in the dollar, investors often seek other means of preserving value, and Bitcoin becomes a highly regarded option.
According to media reports, Trump's idea to adopt Bitcoin came from the suggestions of Musk, who was a major contributor to Trump's electoral victory. Moreover, Trump gave Musk's newly created department a significant name, the 'Department of Government Efficiency' (DOGE), which happens to be the abbreviation for Musk's Dogecoin.
It is well known that Musk has always been an advocate of Bitcoin. While ordinary people see cryptocurrencies as decentralized and untraceable transactions, Silicon Valley moguls view them as a hope for independence. In 2021, when cryptocurrencies were just flourishing, Musk, as a newly emerging force in Silicon Valley, purchased $1.5 billion worth of Bitcoin. This investment not only skyrocketed Musk's net worth but also made him see the potential for cryptocurrencies to overthrow the Wall Street elite. The innovative Musk, after tasting the sweetness of Bitcoin, immediately created his own new cryptocurrency, Dogecoin.
So, can Bitcoin replace the dollar and become a world currency? The answer is that there is currently no such possibility, for the following reasons:
1. The inherent shortcomings of Bitcoin limit its potential to become a world currency.
Bitcoin's volatility is high, and its price fluctuations are usually influenced by investor sentiment and market speculation, making it difficult to serve as a stable medium of exchange. The sharp price volatility of Bitcoin makes it difficult for investors to grasp market trends, increasing investment risks. Bitcoin's transaction speed is relatively slow, and transaction confirmations take a long time, limiting its use in daily transactions. Additionally, Bitcoin's instability is its greatest risk; it can be speculated as an asset but is difficult to truly become a stable means of payment. Furthermore, Bitcoin's security and regulatory issues remain contentious, limiting its application in financial markets.
2. The inadequate settlement capability of Bitcoin makes it difficult to replace the dollar.
Although Bitcoin can theoretically serve as a means of payment, its issues with transaction speed and costs make it impractical for international trade and daily transactions. Currently, Bitcoin is mainly used for speculation and investment, rather than as a currency for everyday transactions. Even if the dollar collapses, Bitcoin would become the biggest hindrance to economic development due to its lack of settlement capability, as Bitcoin's practicality is already insufficient. While the dollar may face a crisis due to the rise of Bitcoin, Bitcoin will face an even greater crisis because of the dollar's crisis.
3. The low legality and social acceptance of Bitcoin is also an important factor.
The low market acceptance is another important reason why Bitcoin finds it difficult to replace the dollar. Although Bitcoin occupies a leading position in the cryptocurrency market, its acceptance in the global market remains quite limited. Over the past decade, Bitcoin has merely been a niche movement, with no signs indicating it will become a major medium of exchange. In contrast, the dollar's position as the primary settlement currency globally is becoming increasingly solid, widely accepted and used by various countries. Although some countries have started exploring the application of digital currencies, Bitcoin's legal status and regulatory framework are still not well-established, limiting its widespread application globally.
4. The difficulty of regulation makes Bitcoin incapable of meeting the conditions to become a world currency.
In fact, the regulatory environment's constraints on Bitcoin are also one of the important reasons it is difficult to replace the dollar. Currently, many countries around the world have implemented restrictions on platforms for cryptocurrency trading, making the prospects for the use of digital currencies like Bitcoin more complex and uncertain. Furthermore, the anonymity and decentralized characteristics of Bitcoin make it susceptible to being used for money laundering and illegal activities, further limiting its widespread application globally.
5. The negative correlation between Bitcoin and the US dollar also affects its potential to replace the dollar.
It has been proven that cryptocurrencies are natural enemies of sovereign credit currencies. In other words, the strengthening of cryptocurrencies means the weakening of the dollar's credit status. When the dollar becomes unreliable, more and more people prefer to hoard cryptocurrencies to ensure that their assets do not depreciate excessively. The faster Bitcoin prices rise and the more participants there are, the more dollars get trapped in financial stagnation, as cryptocurrency trading does not generate any value, but such trading makes the dollars in circulation increasingly scarce. The ultimate result is that the dollar becomes a scarce commodity, which is also one of the reasons for the recent strong performance of the dollar. If Bitcoin continues to be overly speculated, the liquidity of dollars in the market will be depleted, leading to a liquidity crisis for the dollar, directly shaking its market position.
In summary, although Bitcoin has certain application prospects in specific areas and has shown strong growth momentum in recent years, its status as a substitute for legal currency still faces many challenges and restrictions, making it difficult to achieve in the short term.