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This article revolves around (The Rise and Challenges of Cryptocurrency), introducing that cryptocurrency is a blockchain-based digital currency, with three types: payment-type, stablecoins, and sovereign digital currencies, possessing seven major characteristics. The cryptocurrency market is developing rapidly, as evidenced by the soaring prices of Bitcoin and its surging market value. The political and business sectors in the United States are shifting their stance, aiming to build a 'digital dollar hegemony system', while the EU promotes unified regulation and green transformation, and other global economies face competition between stablecoins and sovereign digital currencies. China has both advantages and disadvantages in the blockchain and cryptocurrency field, and the U.S.-led crypto asset hegemony strategy poses multiple threats to China's financial security.
The theme I want to share today is (The Rise and Challenges of Cryptocurrency). Cryptocurrency is a type of digital currency that operates through computer networks, with the ownership of each unit of cryptocurrency recorded and stored in a digital ledger or blockchain. Blockchain is the underlying technology of cryptocurrency, with its core being consensus mechanisms like Proof of Work (PoW). Cryptocurrency mainly includes three types: first, payment-type cryptocurrencies, such as Bitcoin and Ethereum; second, stablecoins, the most well-known being the dollar stablecoins USDT and USDC; and third, central bank digital currencies, also known as sovereign digital currencies, with large-scale representatives like China's digital yuan. Cryptocurrencies have seven major characteristics: distributed; security; scarcity; anonymity; high volatility in price trading; massive energy consumption generated during the mining process; and instant trading globally, without considering currency exchange costs and international transfer time costs.
Since January 2009, when Satoshi Nakamoto (the team) mined the first block of Bitcoin (Genesis Block), cryptocurrency has gradually occupied a place in the financial ecosystem from being a niche virtual currency experiment. Currently, over 130 countries and regions have started to incorporate different forms of cryptocurrency into the discussion of mainstream financial systems. Against the backdrop of intensifying global geopolitical turmoil, high U.S. fiscal deficits, and sharply rising U.S. national debt, cryptocurrency assets represented by Bitcoin are gaining widespread attention. Recent developments indicate that the U.S. government is accelerating the construction of a 'digital dollar hegemony system' from three aspects: national strategic reserves, cryptocurrency legislation, and crypto financial infrastructure, attempting to extend its global hegemony in traditional finance to the digital economy era. Against this backdrop, I focus on elaborating on the global situation and risks and challenges of cryptocurrency development.
1. The latest trends in global cryptocurrency development.
(1) The cryptocurrency market is experiencing breakthrough progress.
In January 2024, the Bitcoin spot trading fund ETF was officially approved, marking a symbolic event of the integration of crypto assets with traditional financial assets. In December of the same year, the price of Bitcoin broke $100,000, driving the total market value of cryptocurrencies to surge from $800 billion to $3.4 trillion in just two years. At the same time, the total market value of crypto assets relative to the liquidity of the six major central banks (G6) has risen sharply from less than 1% in 2009 to 12% by the end of 2024. In the mainstream market, the investment attributes of Bitcoin are transitioning from a niche risk asset to a mainstream asset class. The strategic Bitcoin reserve plan (SBR) proposed by the new Trump administration further stimulates and strengthens this transition process.
Figure 1 Global funds began to flood into the cryptocurrency market in the second half of 2023.
Since the second half of 2023, the U.S. government's regulatory stance on the cryptocurrency sector has undergone a significant shift, and its strategic intent is likely attempting to extend the U.S. traditional financial hegemony into the digital financial field. Against the backdrop of the U.S. government's towering debt and persistent high inflation, this strategy can ensure the centralized position of the dollar in the wave of digital financial transformation while also supporting and alleviating its increasingly severe federal debt situation. This strategy may include short-, medium-, and long-term goals: in the short term, the U.S. government is attempting to build a preliminary framework for global digital currency hegemony through three major means: cryptocurrency strategic reserves, encouraging the expansion of dollar stablecoins, and controlling the core infrastructure of cryptocurrency trading; in the medium term, it will continue to attract (or coerce) top global crypto companies to migrate to the U.S. or fall under U.S. government regulation through a loose regulatory environment, tax incentives, and long-arm financial sanctions, promoting industrial agglomeration, employment, and economic growth, while maintaining the U.S.'s leading position in blockchain technology research and development; in the long term, the U.S. will ensure it always holds centralized power in the wave of decentralization in the digital economy by dominating the formulation of global digital financial infrastructure and rules, ensuring that the dollar maintains its centralized position in global investment and transactions in the digital economy era.
Figure 2 The explosive growth of cryptocurrency scale and its entry into the mainstream asset market after the second half of 2023.
(2) The shift in stance of the U.S. political and business sectors towards cryptocurrency and its strategic intent.
1. Since the second half of 2023, there have been five significant transformations in the U.S. government and industry regarding cryptocurrency.
First, the stance of U.S. financial regulators has shifted from 'harsh suppression' to 'guiding regulation.' The new chair of the Trump administration, Paul Atkins, is a long-time supporter of cryptocurrencies and is actively promoting the compliance path for crypto assets after taking office. His close relationship with the new Treasury Secretary, Scott Bessent, reflects the new U.S. government's active support for crypto assets and the trend of seeking a new balance between financial innovation and financial investor protection. In December 2024, the SEC approved Franklin Templeton's crypto index ETF (EZPZ) for listing and trading on Nasdaq, marking a significant turning point in the U.S. financial regulatory stance.
Second, from legislative suppression to legislative support. The U.S. Congress is actively promoting the 'dual pillars' of cryptocurrency regulatory legislation - the (21st Century Financial Innovation and Technology Act) (referred to as FIT21) and the (Guidance and Establishment of a National Innovation Act for U.S. Stablecoins) (referred to as GENIUS). The FIT21 Act will establish a comprehensive regulatory framework for cryptocurrencies, addressing many classification and jurisdictional issues, clarifying the regulatory boundaries between the SEC and CFTC (Commodity Futures Trading Commission), defining standards for recognizing the commodity and security attributes of digital assets, and establishing a legal framework for institutional digital asset custody. GENIUS aims to establish a comprehensive regulatory framework for stablecoins, bringing the two major currencies that account for 90% of the total global stablecoin market value - USDT and USDC - under regulatory oversight. FIT21 was passed in the House of Representatives in May 2024 with bipartisan support and is expected to be passed by the Senate and finally signed into law in 2025. GENIUS is scheduled for a Senate vote this March. Following the passage of these two bills, the U.S. will form the world's most complete cryptocurrency regulatory system, which will significantly influence the direction of innovation in the cryptocurrency industry and the market landscape.
Third, a shift in policy from severe crackdown to strategic assetization. The Trump administration plans to launch a strategic Bitcoin reserve of 1 million coins, which will be included in the Treasury's foreign exchange stabilization fund. In January of this year, Trump signed an executive order to (Strengthen U.S. Leadership in Digital Financial Technology), which primarily includes preparations to establish a Bitcoin strategic reserve (SBR) and prohibits the establishment, issuance, or promotion of any form of central bank digital currency within or outside the U.S., thereby targeting any potential competitors to dollar stablecoins.
Fourth, the industry has shifted from hesitation and observation to a more active response. A large number of star companies such as Apple, Tesla, and MicroStrategy have already included or plan to include crypto assets in their corporate asset allocations. Traditional large financial institutions (such as BlackRock, the world's largest asset management financial group) are also accelerating their holdings of Bitcoin. The global Bitcoin ETF fund assets have exceeded 1.1 million BTC. Among them, the BlackRock Bitcoin ETF (IBIT) accounts for 45% (with a market value of about $153 billion as of February 2025). The spot Bitcoin ETF attracted over $108 billion in funding in 2024, accelerating the integration of the crypto market with the traditional financial market.
Fifth, adjustments in tax policy. The U.S. Internal Revenue Service allows taxpayers to flexibly choose accounting methods for crypto assets in its temporary tax relief in 2025, temporarily alleviating the tax pressure on CEX users. However, in the long term, this may drive crypto investments to concentrate on platforms controllable by U.S. regulators.
2. The latest dynamics in various fields of crypto assets indicate that the strategic intent behind the shift in stance from the U.S. political and business sectors is likely to construct a 'trinity' digital dollar hegemony system in the digital age.
The three main pillars of this system are Bitcoin Strategic Reserves (SBR), dollar (pegged) stablecoins, and U.S.-controlled digital financial infrastructure. In this system, Bitcoin Strategic Reserves may play the role of gold reserves in the 1944 Bretton Woods Agreement. Bitcoin, as 'digital gold,' occupies a core value anchor position and will bring five potential strategic advantages to the U.S.
First, the first-mover advantage. As the currently most globally recognized cryptocurrency, Bitcoin's unique position helps it become a safe haven for funds during global geopolitical turmoil and high inflation periods. The United States has taken the lead in incorporating Bitcoin, which accounts for over 60% of the entire cryptocurrency market value, into its national strategic reserves. This first-mover advantage is beneficial for attracting international capital to continue to converge on both on-chain and off-chain dollar assets in the future.
Second, serving as a new tool for financial stability. During periods of financial crisis, the characteristic of low correlation with traditional assets allows Bitcoin reserves to serve as a second financial stability tool for the U.S. government, assisting in supporting the balance sheets of systemic financial institutions in the U.S. under certain emergency situations, thereby protecting the international status of the dollar.
Third, enhancing the competitiveness of the dollar system in the digital age. Dollar-linked stablecoins currently account for 95% of the total global stablecoin market value. Coupled with crypto asset transactions that are not dollar-linked but primarily settled in dollars, this will further consolidate the dollar's position as the central currency in the digital age, thereby extending the dollar's dominant status in the global monetary system from traditional finance to digital finance.
Fourth, strengthening the U.S. standards' discourse power in the digital financial era. In the future, by occupying the dominant position in the crypto market through strategic reserves and dollar stablecoins, the U.S. will lead the formulation of global crypto asset rules and, through international platforms such as the G7, IMF, and BIS, output and solidify the dual pillars of American standards based on GENIUS and FIT21, promoting a global crypto asset regulatory framework that aligns with its own interests, thereby ensuring its top discourse power in the formulation of international digital asset rules.
Fifth, curbing the development of potential competitive opponents' crypto assets. This is done through financial sanctions and legislative restrictions on the digital asset development of competitor countries, and through executive orders and legislation that strictly prohibit any institution from establishing, issuing, or promoting CBDCs within the United States. By providing technical assistance, the U.S. attracts emerging markets to adopt the U.S.-led payment system, squeezing the international space for competitors' digital currency assets.
Figure 3 'The Trinity' of the U.S. Digital Currency Hegemony System.
3. The EU's policy direction in the cryptocurrency field is unified market regulation and green financial transformation.
This is mainly reflected in three aspects: first, the EU's (Crypto Asset Market Regulation Framework) (MiCA) will come into full effect on December 31, 2024, aiming to establish a unified and clear regulatory framework for crypto assets across the EU. It will categorize all crypto assets into three types and conduct differentiated regulation, while strengthening compliance requirements for stablecoin issuance and the operation of cryptocurrency exchanges. While managing risks, it will promote innovation and ensure consumer rights and financial stability. Second, the unified regulatory framework lays the foundation for the EU to gain proactive control and discourse power in the global cryptocurrency market. Third, it guides the establishment of a green financial development path for cryptocurrencies. MiCA will impose high carbon emission taxes on energy-intensive blockchains, promoting the crypto industry to transition from PoW mechanisms to low-carbon consensus mechanisms like PoS, thereby reshaping the regional landscape of the mining industry.
4. Other global economies face competitive games between stablecoins and sovereign digital currencies.
This is mainly reflected in three aspects. First, the number of economies exploring and promoting CBDCs is continuously increasing. Currently, over 130 countries and regions around the world are exploring and promoting CBDCs. China's digital yuan has continuously expanded its domestic and cross-border pilot projects in recent years, making it the largest sovereign digital currency in the world. Japan, South Korea, India, Russia, and 18 other G20 member countries are also accelerating the layout of CBDCs or Bitcoin strategic reserves, actively vying for digital financial sovereignty and regulatory discourse power. Second, the competition and game between sovereign digital currencies and stablecoins. The CBDC model has sovereign advantages, but dollar stablecoins already have scale advantages. Between 2020 and 2024, the market value of USDT surged by 5.52 times, while USDC rose by 11.35 times, together accounting for 90% of the total market value of global stablecoins. The settlement volume reached $15.6 trillion by 2024. Third, future digital currencies face risks of regionalization and fragmentation. The United States is trying to reinforce the digital financial hegemony of the dollar through three major means: establishing SBR reserves, stablecoin legislation, and restricting the issuance and circulation of CBDCs. The EU's MiCA framework will objectively limit the development of non-euro stablecoins. Intensifying competition means that the global digital financial payment system may face risks of market segmentation and fragmentation in the future.
5. Stablecoins are becoming the frontier of the integration of crypto financial assets and traditional financial assets.
This mainly presents two typical facts. On one hand, stablecoins have enhanced the resilience of off-chain dollar assets. In the 2023-2024 fiscal year, the market value of stablecoins rapidly increased, surpassing the growth rate of U.S. M2, strongly supporting the demand for dollars and U.S. Treasury bonds amid the uncertain financial environment of continued high deficits in the United States. On the other hand, stablecoins are gradually entering mainstream payment channels. In the first 11 months of 2024, the stablecoin market completed $27.1 trillion in transactions, including a large amount of P2P and cross-border B2B payments, indicating that enterprises and individuals are increasingly using stablecoins to achieve commercial value while meeting regulatory requirements, and are closely integrating with traditional payment platforms such as VISA and Stripe.
2. The risks and challenges posed to China by the new trends in cryptocurrency development.
1. An objective view of China's current advantages and disadvantages in the blockchain and cryptocurrency field.
The advantages mainly manifest in three aspects: first, the leading layout of the digital yuan and the blockchain industry. In the central bank digital currency field, the digital yuan is currently the largest CBDC project globally and has received national strategic support, steadily advancing since its development began in 2014, covering multiple areas such as retail, wholesale payments, and cross-border settlements. Since 2021, the research and practice progress of the cross-border digital currency bridge project (mBridge) has also been globally leading. These foundations make the digital yuan likely to become a financial transaction tool and asset carrier competing with dollar stablecoins in the future. In terms of the blockchain industry, China incorporated blockchain technology into its national strategy in the early stages of industrial development and explicitly proposed the direction of integrating blockchain with the real economy. The market scale and growth potential of the industry are significant; it is expected that the scale of China's blockchain market will exceed 100 billion RMB by 2025, and it has already achieved extensive applications in finance, supply chain, government business services, and other fields, with the number of registered enterprises continuing to grow, reaching 63,300 by the end of 2023. Second, the richness of application scenarios. The scenarios for digital currency have expanded from initial retail, transportation, and government sectors to broader fields such as wholesale, catering, entertainment, education, healthcare, social governance, public services, rural revitalization, and green finance. The blockchain industry has also developed many mature cases in areas such as supply chain finance, cross-border trade, and e-government. Third, strict risk prevention and control. China implements strict regulation on cryptocurrency trading and initial coin offerings (ICOs), effectively preventing risks in the virtual economy and providing a more controllable and stable industrial environment for the compliant development of digital currencies.
China's current disadvantages mainly manifest in insufficient international competitiveness in certain areas. First, the influence of technical standards is relatively lagging. Due to differences in regulatory laws, the U.S. currently occupies a dominant position in underlying technologies such as ZKP and Layer 2 scaling, while the EU has also established technical barriers through the MiCA framework, resulting in insufficient discourse power for China in core protocols and global standard formulation. Second, the development of the public chain ecosystem is relatively lagging. China's blockchain industry mainly consists of consortium chains and private chains, and the absence of public chains leads to a gap in innovation capabilities in decentralized finance (DeFi) and Web 3.0 compared to Europe and the U.S.
2. The U.S.-led crypto asset hegemony strategy poses multiple threats to China's financial security.
First, capital outflow and exchange rate pressure. The long-term appreciation trend of crypto assets represented by Bitcoin against the dollar and other international currencies, along with the rapid expansion of the trading scale of dollar stablecoins, reinforces the dominant position of the dollar in the global monetary system through cross-border payment convenience and value storage functions, which will undoubtedly squeeze the valuation and internationalization space of the renminbi. In addition, dollar-dominated crypto channels have become a new path for capital flight. In recent years, major American companies have massively allocated Bitcoin, and the large-scale funding wave of on-site cryptocurrency ETFs has created a strong 'demonstration effect,' potentially attracting some domestic capital to flow out through gray channels.
Second, regulatory arbitrage in DeFi is forming cumulative industrial competitive advantages. The relatively loose regulatory and tax policies in the U.S. attract global DeFi innovation resources, thus harvesting more full-chain technological dividends from underlying standards to application layers. After long-term accumulation, this will form a competitive advantage against China's digital financial infrastructure technology.
Third, the competition for underlying technology standards and innovative resources. On one hand, the U.S. currently holds a leading position in innovation in areas such as ZKP and Layer 2, while the EU is also obtaining the network effects of a unified large market through MiCA and setting technical barriers. China needs to be vigilant against the risk of losing the right to formulate standards for the crypto asset industry. On the other hand, China faces pressure from blockchain industry innovation resources migrating abroad: the EU's carbon emissions policy for the crypto industry and the U.S. tax incentives for mining operations are leading Chinese mining companies and blockchain venture capital firms to consider relocating to Central Asia, the Middle East, and the U.S., which is objectively detrimental to the innovation capacity and computing power security of the domestic blockchain industry.
Fourth, the threat of U.S. crypto asset hegemony. First, the U.S. is accelerating the gradual inclusion of mainstream crypto assets into its financial hegemony system. Once this trend is established, it will inevitably squeeze China's strategic development space in the digital finance field. Second, after the Russia-Ukraine conflict, the U.S. government, in collaboration with the UK, UAE, and several other countries, has implemented large-scale long-arm financial sanctions against the Russian government, institutions, and individuals in the cryptocurrency sector, seizing and confiscating a large amount of crypto asset, with its digital financial hegemony power beginning to show. Finally, the Trump administration's promotion of the Bitcoin strategic reserve plan and resistance to foreign sovereign digital currencies has also intensified the confrontation between China and the U.S. in the digital currency field.
Of course, cryptocurrencies represented by Bitcoin are currently exhibiting a serious market bubble state, and sustained appreciation is difficult to maintain. Once the bubble bursts, it will be a huge blow to the U.S. crypto asset hegemony strategy. In this regard, we must maintain a clear understanding and strategic stability, adhere to the value concept of financial services for the real economy, and firmly follow the path of building a strong financial nation with Chinese characteristics.
