The rise of digital gold, can BTC replace gold as a national reserve, or become a tool for de-dollarization?

Federal Reserve Chairman Jerome Powell recently mentioned that BTC is like digital gold, competing with gold but not with the US dollar. The comparison between BTC and gold has once again sparked heated discussions. What are the differences between BTC and gold? Does BTC have the opportunity to replace gold as a national reserve, or will it become a weapon for de-dollarization?

Bitcoin market capitalization reached 1.9 trillion dollars

With BTC constantly reaching new historical highs, the BTCMarket Cap has reached 1.9 trillion US dollars, ranking seventh in the world in terms of assets, higher than Saudi Aramco, silver, and Meta, the parent company of Facebook. Meanwhile, gold sits firmly in the leader position with a market capitalization of 17.874 trillion US dollars, approximately 9.4 times that of BTC.

Source: 8marketcap The commonalities of BTC and gold

The price correlation between BTC and gold is a complex and ever-changing topic. The common characteristics between the two are roughly:

Hedge Assets: BTC and gold are both considered hedge assets, especially in times of increased economic uncertainty. Investors often turn to these assets to protect their wealth or avoid inflation.

Scarcity: Both have scarcity. The supply of gold is limited, and the total supply of BTC is limited to 21 million coins.

However, the price movements of the two are not interdependent. According to the data from newhedge, the 30-day rolling correlation of BTC and gold fluctuates around the zero axis (marked with a yellow line), sometimes showing positive correlation and sometimes showing negative correlation.

BTC/gold price has surged significantly

Looking at the trend chart of BTC divided by the gold Spot (XAU) price, the recent Bit/XAU has surged from around 9 near the low point in 2023 to the recent 37, showing that the price of BTC has risen significantly compared to gold in recent years.

The significant rise in the price of Bitcoin in the past month also reflects the Trump effect with a large number of speculative buyers, causing a decline in the safe-haven gold. However, BTC continues to hit new all-time highs. Gold has risen 28% year to date, the same as the US S&P index, and far outperforms many major indices in other countries. However, BTC has risen 131% year to date.

Will Bitcoin become part of the national forex reserves?

Whether BTC has the chance to become a national reserve asset is still a controversial topic.

The "2024 BTC Reserve Act" proposed by encryption-friendly Senator Cynthia Lummis aims to use BTC to manage the US national debt. The bill proposes the establishment of strategic BTC reserves to be stored in secure vaults nationwide.

(Republican Senator Lummis proposes BTC Strategic Reserve Act: Accumulating 1 million BTC within five years can solve the national debt of the United States)

Russia, which has been sanctioned by the United States and Western countries and excluded from SWIFT, President Vladimir Vladimirovich Putin recently stated that cryptocurrencies such as BTC may be a better alternative to forex reserves, and no one can stop BTC. With Russia's forex reserves being frozen one after another by Western countries, Russia is actively turning to digital asset reserves.

(Putin supports BTC: encryption currency as forex reserve alternative, BRICS needs to establish a financial system outside the US dollar)

Does BTC have the potential to replace gold as a national reserve?

According to the gold reserve ratio of the world's major economies compiled by Financial M Square, the gold reserve assets of major countries around the world have reached 2.3 trillion US dollars, accounting for 15% of total reserve assets, while the forex reserves dominated by the US dollar account for 78%.

The view that supports BTC replacing gold as a national reserve

The view that supports BTC replacing gold as a national reserve includes:

BTC is digital gold: Some analysts and investors believe that BTC has similar hedging properties to gold and may become a new store of value in the digital age

Scarcity: The total supply of BTC is limited to 21 million coins, which is similar to gold scarcity and may attract more countries to include it as a reserve asset.

Technical advantages: BTC is based on Blockchain technology, which has the characteristics of transparency and decentralization, which may make it more attractive than gold in certain situations.

Opposing the view of BTC as a national reserve

Possible opposing viewpoints may include:

Volatility: The price volatility of BTC is much higher than that of gold, which raises questions about its stability as a reserve asset.

Regulatory risk: The regulatory policies of various countries regarding cryptocurrencies are still unclear, which increases the risk of BTC as a national reserve asset.

Market Acceptance: Currently, the acceptance and trust of gold in the global financial market is far higher than BTC, which poses a huge challenge for BTC to replace gold.

Interestingly, the United States has not bought gold as a reserve asset for decades. If the United States were to use BTC as a reserve, regulatory issues would be the biggest hurdle to overcome. Gold longs master Peter Schiff recently suggested that BTC could ultimately destroy the US dollar—not because it replaces the dollar as the global reserve currency, but because the US government embraces BTC, prints trillions of dollars to buy it, and fuels a bigger bubble, wasting the country's funds.

BTC becomes a tool for de-dollarization?

Is it possible that BTC will not replace gold, but replace the US dollar as the national reserve, and become a tool and means to go against the US dollar?

Observing the global official forex reserve currency share in recent years, the US dollar has gradually decreased from 70% in 2000 to 58% this year. In addition, in recent years, the United States has occasionally used sanctions as a weapon, which has brought up the issue of de-dollarization for discussion.

According to previous reports, the BRICS group, composed of Brazil, Russia, India, China, and South Africa, is working to build a payment system based on blockchain and digital technology, and continues to reduce reliance on USD Settlement. The BRICS group has also expanded to include Iran, the United Arab Emirates, Ethiopia, and Egypt this year.

Russian President Putin (Vladimir Putin) is an advocate for weakening the international status of the US dollar, mainly because Russia has been banned from using SWIFT for international remittances and other economic sanctions due to the Ukraine-Russia war. If developing countries use BTC as forex reserves or even use BTC as a legal currency like El Salvador to counteract high domestic inflation and significant devaluation of their own currency, as long as there are iron-fisted leaders like El Salvador President Nayib Bukele, it is not an impossible approach.

However, the incoming Trump also warned the BRICS countries recently that he will demand their commitment not to create new currencies to replace the dollar, and threaten with a 100% tariff. What would President Trump's reaction be if they did not create new currencies and used existing Bitcoin to replace them?

This article discusses the rise of digital gold. Can BTC replace gold as a national reserve or become a de-dollarization tool? Originally appeared on ChainNews ABMedia.