Wang Yongli: Rationally Viewing Trump's New Bitcoin Policy

Author: 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; it is difficult to become a true currency and cannot replace sovereign currencies. 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 policy on Bitcoin 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 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 was highly volatile, 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 stance, viewing the crypto industry as "the steel industry of 100 years ago, still in its infancy," and claimed that "the market value of Bitcoin could surpass gold," actively investing in crypto assets and strengthening his ties with the crypto community.

After confirming his participation in the 2024 presidential campaign, Trump's attitude towards Bitcoin became more positive. He claimed he would become the president who supports innovation and Bitcoin, proposing a very radical new Bitcoin policy, which mainly includes: the U.S. should become the undisputed global powerhouse in Bitcoin mining, ensuring it becomes the world's cryptocurrency capital 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, among other points.

These proposals have been enthusiastically embraced by the crypto community, which has contributed significant funding to Trump's presidential campaign. Many of Trump's new government nominees are also crypto-friendly or even enthusiastic supporters. Among them, Elon Musk, a key supporter of his campaign, has been nominated to lead the newly established "Department of Government Efficiency" and is known as the "Godfather of Crypto," possessing 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 SEC; he also nominated David Sacks, former COO of PayPal, to head the newly established "White House AI and Cryptocurrency Affairs" (leading the President's Technology Advisory Committee), dedicated to formulating a legal framework for the crypto industry to gain the clarity it seeks and 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 capitalization surpassed $2 trillion for the first time.

Trump's new Bitcoin policy has also caused significant tremors globally. Zhao Changpeng (CZ), 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. It is inevitable for countries and large institutions to establish Bitcoin strategic reserves, 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 views mentioned above have also sparked considerable controversy globally, with many opposing voices within the U.S., although they seem 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 a 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 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 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, primarily experiencing four major developmental stages: natural physical currencies (such as China's shell money), regulated metallic 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 physical to virtual. Among these, 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 world's preferred currency material or value reserve.

However, after the U.S. ceased to fulfill its international commitment of exchanging 1 ounce of gold for $35 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 purely value scale and medium of exchange, known as "credit money." Why is this?

This is because currency serves the purpose of facilitating exchange transactions, and its essential attributes and core functions are the value scale 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 standard will inevitably lead to a "physical currency shortage curse," due to the limited supply of these physical objects, particularly their limited availability as currency supply, making it difficult to meet the infinite growth of tradable wealth value, which would severely constrain exchange transactions and economic development, ultimately leading to elimination. Currency must detach from specific physical objects, allowing the total amount of currency to change in accordance with the total value of tradable wealth (corresponding "total to total"), maintaining basic stability in currency value while ensuring sufficient currency supply, and continuously advancing towards intangibility, digitization, and intelligence, improving operational efficiency, reducing operational costs, and tightly controlling risks, thereby 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 to re-anchor currency is bound to fail as it contradicts 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 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 (a transferable and circulating value warrant).

Once detached from any specific physical object, the issuance of credit money requires new channels or methods, which means that currency-issuing institutions lend money through credit (issuing loans, purchasing bonds, account overdrafts, bill discounting, etc.). The principle is: the currency issued is supported by the realizable value of the wealth that the borrower already possesses or will possess within the agreed time frame, assessed by the currency-issuing institution and agreed upon with the borrower. Thus, as long as the borrower possesses real tradable wealth, the currency-issuing institution can issue corresponding currency based on 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 "physical currency shortage curse," enabling sufficient supply and greatly promoting exchange transactions and economic 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 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-issuing institutions, becoming the main body for monitoring the total amount of currency and implementing monetary policy. Credit-issuing institutions then become the new entities for currency issuance but must be strictly regulated by the central bank; there cannot be just one credit-issuing 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 should be timely and adequately provisioned or directly written off to minimize the impact of over-issuance. 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 payments and accounting clearing), significantly reducing 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 manifests as national sovereign currency or legal tender, with its credit being national credit, no longer relying on the credit or liabilities of the currency-issuing 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 unlikely 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.

Although Bitcoin has achieved significant innovation technically, at the "currency" level, it highly mimics gold: the Earth's supply of gold is finite, and it is visually apparent that the easier it is to mine, the more will be extracted in the early stages, and the harder it becomes to mine as time goes on, leading to diminishing new output. Thus, Bitcoin is also set at a total of 21 million, with a block being mined approximately every 10 minutes, and the number of Bitcoins awarded per block set as follows: the first four years at 50, halving every four years (currently at 3.125), and by 2140, it will essentially reduce to zero, marking the end of mining. This arrangement creates an imaginative space for the significant appreciation of Bitcoin, attracting people to actively participate in mining or investing, but its total quantity and phased new output are entirely system-defined, which is more stringent than gold (the actual reserves of gold are not entirely clear), and the quantity available for exchange transactions is fundamentally limited, making it impossible to grow in line with the growth of tradable wealth value, which does not meet the essential requirements of currency. Since gold has exited the currency stage, it is difficult for Bitcoin to become a true circulating currency.

Bitcoin is a purely chain-born digital asset, whose blockchain only serves the functions of mining, transferring Bitcoin between nodes, and distributed verification and accounting. It is highly closed and secure but cannot solve any real-world problems. If Bitcoin cannot be exchanged for sovereign currencies, it will struggle to realize any value outside its game and will have little impact on the real world. The Bitcoin blockchain needs to be maintained and grow longer, allowing for traceability, making it difficult to breach or be surpassed by other cryptocurrencies. However, the costs of mining and system operation are rising, and efficiency is declining, failing to meet the real-world needs for total currency volume and payment efficiency. All these factors make it difficult for Bitcoin to become a true currency and to replace sovereign currencies.

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 chain-born 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 more payment flexibility, but it lacks the backing of real gold and does not belong to the strict definition of "paper gold." Once trust is lost, it will become worthless, with risks far greater than those of gold.

As a digital asset, Bitcoin, like gold, does not have inherent issues with mining and trading (including spot trading, futures and derivatives trading, ETFs, etc.), unless a state 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 stricter international joint regulation to avoid manipulation and fraud. Completely relaxing regulations will inevitably lead to serious problems and is extremely irresponsible.

Currently, the main application scenarios for Bitcoin are for initial coin offerings (ICOs), trading, and as intermediaries for the transfer of sovereign currencies 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, but its price volatility is extremely high, significantly 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. Meanwhile, the correlation between Bitcoin and the price trends of stocks and gold is gradually increasing, corresponding to a weakening of 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 Bitcoin Policy is Difficult to Achieve

First, it is quite challenging for the U.S. to acquire new Bitcoins. The total number of Bitcoins is 21 million, with over 19.8 million already mined, leaving less than 1.2 million. Mining consumes increasing energy, competition is intensifying, and since mining is decentralized, the U.S. cannot guarantee that new Bitcoins will all be produced in the U.S., 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 few individuals, making it not easy to acquire an additional million through purchases. If the U.S. government leads the charge to buy Bitcoins, 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 will pose significant challenges to the security of Bitcoin and other cryptocurrencies.

Second, the so-called national strategic reserve of Bitcoin, whether as a government (fiscal) strategic reserve or as a strategic reserve of the Federal Reserve (central bank) for the dollar, carries risks and uncertainties. If it refers to government reserves, then based on the over 210,000 Bitcoins already seized by the government (including whether portions taken by hackers or robbers should be returned to victims, which remains a legal dispute), purchasing an additional million Bitcoins would significantly push up Bitcoin prices. Currently, the U.S. Treasury's Exchange Stabilization Fund (ESF) is about $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 sales could depress its price. If it refers to the Federal Reserve's reserves, if the Federal Reserve purchases a million Bitcoins with dollars, it would significantly increase the base currency supply, potentially putting greater pressure on inflation. If the Federal Reserve replaces Bitcoin with gold reserves, it could mitigate the impact on the base currency, but it might significantly depress gold prices while pushing up Bitcoin prices, raising substantial risks regarding whether any real benefit can be achieved.

Moreover, it should be noted that under credit money, the reputation of a country's currency fundamentally rests on the growth of that country's wealth and the level of currency management, rather than primarily relying on the value of reserve assets. Therefore, replacing gold reserves with Bitcoin reserves is unlikely to have any practical positive impact on the dollar and is also unlikely to be used to repay government debt.

Third, Trump's 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 regulations are relaxed to the extreme, allowing massive cross-border flows of sovereign currencies through Bitcoin while hindering the digitization of the dollar, it could seriously impact the international status of the dollar.

The unique status of the dollar as an 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. Once the international status of the dollar is replaced, it will bring tremendous shocks to the U.S.

In summary, Bitcoin can only be a new type of tradable wealth or digital asset; it is difficult to become a true currency and cannot replace sovereign currencies. Whether it can replace gold as a national strategic reserve remains highly questionable. The international community should treat Trump's Bitcoin policy with calm and objectivity, avoiding blind following.