Can Bitcoin After Gaining The Strategic Reserve Status Become The New Gold?

Bitcoin may soon become the US government’s strategic reserve. The hopes surrounding Bitcoin continue to rise along with its prices. The prices of Bitcoin have hovered over $100,000 now which is a record in itself. The sentiments surrounding cryptocurrencies and cryptocurrency exchanges are overwhelmingly positive because Donald Trump has promised to promote cryptocurrencies. He also wants to turn Bitcoin into a strategic reserve. This can be a landmark moment in the history of the crypto sector. Therefore, some analysts are speculating whether the decision can turn Bitcoin into a new form of gold. 

The Former Reputation of Gold As a Strategic Reserve

Since the dawn of human civilization, gold has been recognized as an intrinsically valuable commodity. It was stored during uncertain times for its stability, security, and widespread recognition. The reliability of gold was the sole reason it was made the standard for the world’s monetary system. During those days, every national currency including the US dollar was pegged to gold. However, in 1971, the Bretton Woods Agreement was signed and established that the US Dollar would become the reserve currency. The erstwhile President Richard Nixon terminated the convertibility of the US dollar into gold. This marked the beginning of the fiat currency. 

Exploring The Potential of Bitcoin as A Strategic Reserve

There is an urgent need to explore and analyze the potential Bitcoin as a strategic reserve. There is no doubt that the current surge in Bitcoin prices has sparked a lot of optimism among crypto enthusiasts. This will invariably have a positive impact on companies such as PayBitoPro that have white-label cryptocurrency exchanges.

During the times of the pandemic (2020-2022), the world economy was experiencing a steep downfall and was becoming very uncertain. The banks were struggling to manage inflationary pressures and prices were skyrocketing. This compelled many people to store their savings in safe-haven assets like cryptocurrencies such that the impact of economic exigencies remains minimal. Inflations erode the value of fiat currencies and equity. If it continues for a prolonged period, then it may reduce the purchasing power by more than 95% and cause irreversible devaluation. 

Arguments Favoring Bitcoin’s Strategic Reserve Status

The proponents of those who favor granting Bitcoin the status of a strategic reserve often offer several arguments. Almost all these arguments are speculative and center around the benefits of a Bitcoin reserve. 

• Donald Trump in July 2024 said that Bitcoin’s strategic reserve will help the US to dominate the international Bitcoin market in the face of stiff competition from China.
• By having a stockpile of Bitcoin, the value will keep appreciating over the long term, and the US government can finally address its trade deficit without the need for raising taxes. Therefore, this will indirectly empower the US dollar. 
• Bitcoin may also help the US to half its debt in 20 years.  As a hedge against inflation, Bitcoin does have the potential to become a strategic reserve.
• Once the US dollar stabilizes and revives its strength, the country will have more leverage over foreign countries such as India, Russia, and China. 

Bitcoin May Exactly Become Like “New Gold”

The status of Bitcoin is undoubtedly rising, but it would be an exaggeration to say that it will become like gold. However, it is logically coherent to suggest that Bitcoin can become like new gold. This is because gold has certain fundamental characteristics that Bitcoin cannot fully substitute for and the reverse is also true. For example, gold is a tangible asset and is highly liquid.  People store gold in safes and vaults for physical protection. Sometimes, gold may also require insurance coverage. 

Bitcoin on the other hand is a cryptocurrency and is coded on a blockchain. Digital wallets are necessary to store them. On the count of liquidity, both gold and Bitcoin have strong liquidity. However, the cryptocurrencies are fundamentally different from the concept of the centralized monetary system. There is no central bank or financial institution to govern or supervise the supply and demand of Bitcoin and cryptocurrencies. This is the reason people are equating it with gold. 

Bottom Line

The ripple effect of Bitcoin’s price rise will have a positive impact on cryptocurrency. It will invariably help more companies to launch free cryptocurrency exchanges. The positivity is likely to increase considerably after January 2025, when Donald Trump formally assumes office. Although the status of gold and Bitcoin remains quite different, there are certain fundamental similarities as strategic reserves. It is unwise now to overlook these similarities. It is also true that once Bitcoin becomes the reserve, then the US can indeed reclaim its dominant status in global financial markets. However, this will invariably require more rules and regulations to ease legal complications.