Wang Yongli: A rational view of Trump’s new Bitcoin policy

Author: Wang Yongli, co-chairman of Digital China Information Services Group and former vice president of Bank of China

Source: "China Foreign Exchange" Issue 1, 2025

Main points

Bitcoin can only be a new type of tradable wealth or digital asset. It is difficult to become a real currency. It cannot replace sovereign currency at all. There is still a lot of doubt whether it can replace gold as a national strategic reserve.

As Trump won the US presidential election, his proposed Bitcoin New Deal received widespread attention and heated 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, look at and grasp rationally and objectively, and avoid making subversive mistakes.

U.S. President-elect Trump’s Radical New Deal on Bitcoin

During the last presidential term, Trump once believed that cryptocurrency is not a currency, its value fluctuates violently, and it is a scam. Unregulated crypto assets may be used for drug transactions and other illegal activities, which is "a huge disaster that is about to happen." , the only real currency in the United States is the U.S. dollar. But starting in 2022, he changed his attitude, believing that the encryption industry is "the steel industry 100 years ago, and it is still in its infancy" and "Bitcoin's market value may surpass gold", and actively invests in encrypted assets, keeping in touch with the cryptocurrency circle. relationship continues to strengthen.

Confirmed to attend in 2024 After the 2016 presidential election, Trump took a more positive attitude towards Bitcoin, claiming to become a president who supports innovation and Bitcoin, and proposed a very radical new Bitcoin policy, which mainly includes: The United States must become the undisputed Bitcoin leader in the world. A mining powerhouse that ensures the United States becomes the world’s cryptocurrency capital and Bitcoin superpower super power; ensure the power supply for Bitcoin mining, relax cryptocurrency supervision, and fire the current chairman of the U.S. Securities and Exchange Commission (SEC) who has a strong regulatory attitude towards cryptocurrency on the first day of taking office; establish a national strategic reserve of Bitcoin, and after the government has On top of the seized Bitcoins, another 100 will be purchased More than 10,000; during his term as president, a digital dollar (CBDC) will never be launched, and the president’s control over the Federal Reserve will be strengthened, etc.

These claims have been embraced by the cryptocurrency community, which has led to significant donations to Trump’s presidential campaign. Many of Trump’s new administration nominees are also crypto-friendly or even enthusiasts. Among them, Elon Musk, a strong supporter of his campaign and nominated as the leader of the newly established "Government Efficiency Department", is also the "godfather of the currency circle" and owns a large-scale cryptocurrency. Vice President-elect Vance once revealed that he holds hundreds of thousands of dollars worth of Bitcoin. On December 5, 2024, Trump nominated Paul Atkins, a cryptocurrency supporter, as the successor chairman of the US SEC; he nominated David Sacks, the former chief operating officer of the electronic payment company PayPal, as the new The “White House AI and Cryptocurrency Affairs” head established (to lead the President’s Council of Advisors on Science and Technology) is committed to developing a legal framework so that the cryptocurrency industry can get the clarity it requires and can thrive in the United States.

Trump’s words and deeds have spurred a new wave of craze in the encryption industry. After Trump was elected president on November 6, 2024, the unit price of Bitcoin rose significantly based on the previous day's closing price of less than US$69,400. By December 5, 2024, the unit price exceeded US$100,000 for the first time (the highest on that day exceeded US$104,000), and the market value exceeded US$2 trillion for the first time.

Trump’s new Bitcoin policy has also caused major shocks around the world. Changpeng Zhao (CZ), the founder of the famous cryptocurrency trading platform "Binance" who has been heavily fined by the United States, also expressed that Bitcoin is increasingly popular with investors due to its scarcity and decentralization characteristics, and is comparable to traditional financial assets. Compared with Bitcoin, it has stronger value-preserving ability. It is inevitable for countries and large institutions around the world to establish strategic reserves of Bitcoin, and competition will be very fierce. Some institutions predict that by the end of 2025, the unit price of Bitcoin will reach US$200,000. Some people believe that the unit price of Bitcoin will exceed US$1 million by 2035; in the future, 21 million Bitcoins will correspond to the value of tradable wealth in the world, and there is huge room for price growth.

Of course, Trump's new Bitcoin policy and the above views have also caused great controversy around the world, and there are also many voices of opposition in the United States, although they appear to be very weak under the current craze.

View Bitcoin accurately

On October 31, 2008, the Bitcoin white paper "Bitcoin: A Peer-to-Peer Electronic Cash System" was released. On January 3, 2009, the first block of Bitcoin (the genesis block) was launched, and the first batch of 50 Bitcoins was officially released. Since then, Bitcoin has been operating safely to this day.

On May 22, 2012, someone exchanged 10,000 Bitcoins for two pizzas worth $25, becoming the first exchange of Bitcoins with a sovereign currency, with an exchange ratio of 1:0.0025. From this starting point, the unit price of Bitcoin reached US$100,000, and its appreciation reached 40 million times. This has indeed made many people full of faith and expectations for the greater appreciation of Bitcoin, although the price of Bitcoin often fluctuates significantly during this process.

So, what do you think of Bitcoin? This requires at least accurate answers to the following two questions:

Question 1: Can Bitcoin become a new super-sovereign currency?

Currency has a history of thousands of years in human society. It has mainly experienced natural physical currencies (such as Chinese shell coins), regulated metal coins (gold coins, copper coins, silver coins, etc.), metal-standard banknotes (metal-standard tokens), and separation from specific physical objects. The four major development stages of pure credit currency show a development trend of constantly moving from reality to virtuality. Among them, gold, as a currency or currency standard, has the longest history and the widest scope in the world. Especially the signing of the Bretton Woods Agreement in July 1944 brought the currency back to the gold standard at the level of the international monetary system. Therefore, gold Become the world's preferred currency material or value reserve.

However, after the United States stopped fulfilling its international commitment of 1 ounce of gold to US$35 in August 1971, gold completely withdrew from the monetary stage and returned to its origin as tradable wealth; currency completely withdrew from specific objects and became pure The measure of value and medium of exchange is called "credit currency". Why is this?

This is because currency serves exchange transactions, and its essential attribute and core function is the value scale and medium of exchange. For this reason, the currency value must be kept basically stable (significant fluctuations in currency value will seriously affect exchange transactions). Using any one or several specific physical objects as currency or currency standard will inevitably make it difficult to meet the requirements of unlimited growth in the value of tradable wealth due to the earth's reserves of this physical object, especially its limited currency supply. However, it has fallen into the increasingly serious "curse of physical currency shortage" and severely restricted exchange transactions and economic and social development, and in the end it can only be eliminated. Currency must be separated from specific physical objects, so that the total amount of currency can change with changes in the total value of tradable wealth ("total versus total" corresponds to each other). On the basis of maintaining an adequate supply of currency, the currency value should be kept basically stable and move towards We will continue to move forward in the direction of intangibility, digitization and intelligence, continuously improve the efficiency of currency operation, reduce operating costs, strictly control risks, and give full play to the functions of currency. Therefore, credit currency is the inevitable direction of currency development, rather than the helpless result of passive acceptance under huge shocks. Any attempt to return to a metal-based currency system or to re-anchor currency will violate the nature and development laws of currency and will be difficult to succeed.

For currency, one must grasp the essence through appearances. Shell coins, coinage, banknotes, etc. are all carriers or manifestations of currency, not the currency itself. The complete description of currency is: the essential attribute of currency is the value scale, 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 warrant).

After it is no longer anchored to any specific physical object, the release of credit currency requires a new channel or method, which is that the currency release institution lends currency in the form of credit (issuing loans, purchasing bonds, account overdrafts, bill discounts, etc.). Its principle is: it is supported by the realizable value of the wealth that the borrower already owns or will own within the agreed period of time, and the currency is released after the currency issuance agency evaluates and reaches an agreement with the borrower. In this way, as long as the borrower has real tradable wealth, the money placement institution can put the corresponding currency according to its realizable value, so that the total amount of money can adapt to changes in the total value of wealth. As a result, credit currency has completely broken the "curse of physical currency shortage" and can be fully supplied, greatly promoting exchange transactions and economic and social development. It can be said that without credit, there would be no real credit currency; without credit currency, it would be difficult for economic and social development, including economic and financial globalization, to reach today's level!

In order to prevent over-issuance of currency, credit-issued currency must repay principal and interest as agreed, and cannot be issued free of charge (this is a fiscal function). It is also necessary to establish a central bank system. The central bank no longer provides credit to the society, but only provides re-lending services to credit institutions, becoming the main body of monetary aggregate monitoring and monetary policy implementation. Credit lending institutions have become the new main body of money lending, but they must be strictly supervised by the central bank; credit lending institutions cannot be just one and are not allowed to lend credit to themselves. Liquidity constraints must be formed through fund transfers between institutions to inhibit credit Overdelivery. The loss of principal and interest that cannot be recovered by a credit institution becomes an actual over-issuance of currency. Loss provisions should be made in full in a timely manner or directly written off to eliminate the impact of the over-issuance as much as possible. If a credit institution encounters a liquidity crisis or becomes insolvent, it should also implement bankruptcy reorganization. It is necessary to improve the effective control mechanism of credit supply and curb excessive currency issuance from the source of currency supply.

Credit lending (including central bank re-loans) can be directly credited to the borrower's deposit account at the lending institution, and the deposits can be directly used for external payments (transfer payment accounting and clearing), which can greatly reduce the printing, receipt and payment of cash. The deposit needs to be exchanged for cash only when the depositor needs the cash. Therefore, cash is no longer the basic channel for currency investment. In the long run, cash is destined to completely withdraw from the monetary stage, just like shell coins and mints.

In the case of independent national sovereignty, the highest credit in the world today is the national sovereign credit. National sovereignty needs to implement bilateral protection of currency and the wealth used for exchange in order to maintain the total-to-total correspondence between currency and wealth. Therefore, credit currency also appears as a country's sovereign currency or legal currency, and its credit is the credit of the country, and is no longer the credit or liability of the money-issuing institution (such as the central bank) itself (this is the case only for metal-standard banknotes). It is difficult to promote denationalization of currency (including returning to physical currency) or super-sovereignty (including structurally linking with multiple sovereign currencies to create a super-sovereign currency, such as the International Monetary Fund’s Special Drawing Rights SDR). Successful. Stable coins that are equivalently linked to a single sovereign currency are essentially tokens of its linked currency. They can exist, but they must be subject to the supervision of monetary authorities and cannot replace their linked currencies.

Although Bitcoin has achieved great innovation in technology, at the "coin" level, it highly imitates gold: the earth's reserves of gold are certain. Intuitively, the easier it is to mine, the more money will be mined in the early stage. The further back you go, the harder it will be to dig out, so the new output will be lower and lower. Therefore, the total number of Bitcoins is also set to 21 million, with one block every 10 minutes or so. The number of Bitcoins assigned to each block is set to: 50 in the first 4 years, and decreases every 4 years. Half (currently 3.125) will be basically reduced to zero by 2140, and mining will end. This arrangement gives people the imagination that Bitcoin will appreciate significantly, which is conducive to attracting people to actively participate in mining or investment. However, its total amount and periodic new increments are completely set by the system, which is more stringent than gold (gold It is not clear how many actual reserves there are), and the amount that can be used for exchange transactions is even more limited. It cannot grow with the growth of the value of tradable wealth, which is inconsistent with the essential requirements of currency. Gold has withdrawn from the monetary stage, and it is difficult for Bitcoin to become a real currency in circulation.

Bitcoin is a purely chain-generated digital asset. Its blockchain only has the functions of mining coins, processing transfers between Bitcoin nodes, and distributed verification and accounting. It is highly closed and highly secure, but it is difficult to solve any problems in the real world. question. If Bitcoin cannot be exchanged with sovereign currencies, it will be difficult to realize its value outside of the game and have an impact on the real world. The Bitcoin blockchain needs to be maintained at all times, and is getting longer and longer, and can be traced back to its source. Therefore, it is difficult to be broken or surpassed by other cryptocurrencies. However, the cost of mining coins and system operation and maintenance are getting higher and higher, and the efficiency is getting higher and higher. It is low and cannot meet the real world’s needs for currency total amount and payment efficiency. This makes it difficult for Bitcoin to become a real currency and replace sovereign currencies.

Question 2: Can Bitcoin replace gold as a strategic reserve?

Bitcoin highly imitates gold at the "coin" level, and is therefore called "digital gold." However, Bitcoin is a purely chain-generated digital asset, not a natural physical asset. Its value depends on the development space of its application scenarios and people's beliefs and investment. Bitcoin can be divided into 1/100 millionth of a tiny unit, giving it greater payment flexibility, but it is not backed by real gold and is not strictly "paper gold". Once trust is lost, it will be wiped out and worthless, and the risks are huge. in gold.

As a digital asset, Bitcoin's mining and trading (including spot trading, futures and derivatives trading, ETF, etc.) are not a problem in principle, just like gold, unless the country explicitly prohibits it due to factors such as high energy consumption and difficulty in supervision. However, as a product and trading platform that can be traded globally 7x24 through the Internet to the public, it must be subject to stricter international joint supervision to avoid illegal activities such as manipulation and fraud. Complete relaxation of regulation will definitely cause serious problems and is extremely irresponsible.

The current application scenarios of Bitcoin are mainly used for initial coin offerings (ICOs), transactions, and as a sovereign currency transfer intermediary for gray or illegal fields such as money laundering, bribery, extortion, and terrorist transportation. Sovereign currencies originally had strict supervision and international cooperation in anti-money laundering, anti-terrorism, etc., but now through the transition to cryptocurrency, effective supervision has been lost. This is a very serious regulatory loophole that urgently requires the international community to attach great importance to and address it in a timely manner. clogged. The focus of supervision is not on cryptocurrencies, but on sovereign currencies, and international joint supervision must be strengthened to prevent sovereign currencies from engaging in illegal activities through cryptocurrency transactions and transfers.

Obviously, the regulatory risks of cryptocurrencies such as Bitcoin are much greater than those of gold.

Bitcoin is essentially a speculative asset, and investors' returns mainly come from its price increase. However, its price fluctuations are very violent, far exceeding the price fluctuations of stocks, bonds, foreign exchange, gold and other assets, and the investment risk is very high. When engaging in Bitcoin trading or investment, except for various service providers such as exchanges, only an increasingly small number of participants can actually gain benefits. At the same time, the correlation between Bitcoin and the price trends of stocks, gold, etc. has gradually increased, and its function as a risk hedging has accordingly weakened.

Judging from the above situation, although Bitcoin seems to have more appreciation potential than gold, its risk potential is also greater, and there is still a lot of doubt whether it can replace gold as a national strategic reserve.

Trump’s New Bitcoin Deal Is Difficult to Realize

First, it is more difficult for the United States to own new Bitcoins. The total number of Bitcoins is 21 million, of which more than 19.8 million have been mined, with less than 1.2 million remaining. Mining energy consumption is getting higher and higher, competition is becoming more and more fierce, and its mining is decentralized, which is difficult for the United States to guarantee. New Bitcoins can all be generated in the United States, and it is even more difficult to ensure that they all belong to the U.S. government. At the same time, Bitcoin is estimated to have 4 million untouchable "death coins", which are increasingly controlled by a few people. It is not easy to add another 1 million through purchase. The United States takes the lead in snapping up Bitcoin, which will inevitably push up the price of Bitcoin significantly, but will also significantly increase the risk of price bubbles and collapse. In addition, the development of quantum computing technology will also cause major challenges to the security of cryptocurrencies such as Bitcoin.

Secondly, the so-called national strategic reserve of Bitcoin, whether it is the strategic reserve of the government (finance) or the strategic reserve of the US dollar as the Federal Reserve (central bank), there are risks and uncertainties. If it refers to government reserves, then on the basis of the more than 210,000 Bitcoins that have been seized (of which there is still a legal dispute as to whether the portion taken by hackers or robbers should be returned to the victims), if the government purchases millions more Bitcoin will drive the price of Bitcoin up significantly. The current size of the U.S. Treasury Department's Exchange Stabilization Fund (ESF) is approximately US$215 billion. Even if all the ESF is used, it may not be enough. If the government issues additional debt to raise funds, the U.S. federal government's debt scale, which already exceeds $36 trillion, will become even larger. There is also uncertainty in relying on Bitcoin to appreciate significantly before selling it to stabilize foreign exchange (stabilize the US dollar exchange rate) or repay government debt, because large-scale sales will drive down its price. If it refers to the Federal Reserve's reserves, if the Federal Reserve uses U.S. dollars to purchase millions of Bitcoins, it will inject base currency on a large scale, which is entirely likely to put greater pressure on inflation. If the Federal Reserve replaces Bitcoin with gold reserves, it can weaken the impact on the base currency, but it may significantly lower the price of gold and push up the price of Bitcoin. There is also a great risk in whether it can actually benefit.

At the same time, we must also note that under credit currency, the reputation of a country's currency is fundamentally based on the country's wealth growth and currency management level, and no longer mainly relies on the value of reserve assets. Therefore, replacing gold reserves with Bitcoin reserves will hardly have a practical positive impact on the US dollar, and it will also be difficult to use it to repay government debt.

Once again, Trump’s new Bitcoin policy contradicts his stance of strengthening the US dollar as a key global currency. Bitcoin is decentralized and super-sovereign. Even if the United States increases its Bitcoin reserves significantly, it will not help strengthen the international status of the US dollar. On the contrary, if Bitcoin regulation is extremely relaxed, allowing large-scale cross-border flows of sovereign currencies through Bitcoin, and preventing the digital development of the US dollar, it may have a serious impact on the international status of the US dollar.

The special status of the US dollar as the international central currency is fundamentally determined by the comprehensive national strength and international influence of the United States. In the absence of fundamental changes in the world structure of the United States as the world's most powerful country, it must subvert or replace the US dollar's status as the number one international currency. It is difficult unless the United States itself makes a subversive mistake and actively weakens the credibility and status of the US dollar. Once the international status of the US dollar is replaced, it will have a huge impact on the United States.

To sum up, Bitcoin can only be a new type of tradable wealth or digital asset. It is difficult to become a real currency. It cannot replace sovereign currency at all. There is still a big doubt whether it can replace gold as a national strategic reserve. The international community should treat Trump's new Bitcoin policy calmly and objectively and not blindly follow the trend.