Can Bitcoin Moon to $1,300,000 on ‘Global Reserve’ Opportunity

Recently, China and Brazil reached an agreement to abandon the US dollar and trade in their own currencies. In fact, China already has similar currency agreements with Russia, Pakistan and several other countries. This development gives us a context to talk about how the US dollar’s dominance globally has declined by a significant margin over the years.

According to the Bank for International Settlements (BIS) in 2010, the US dollar and euro accounted for 63% of all foreign exchange trade. The USD’s role as a global reserve currency was particularly strong at the time.

However, if we examine the official foreign exchange reserve figures for the fourth quarter of 2021 and 2022, we can see that the dollar’s dominance has declined significantly. In other words, the USD’s position as the primary global reserve currency is no longer as strong as it once was.

Consider this chart for example –

Source: IMF

Therefore, it goes without saying that countries’ faith in the US dollar seems to be waning a little. In the wake of the war between Russia and Ukraine, sanctions against Putin’s nation took a front seat. The introduction of sanctions against Russia’s central bank resulted in the elimination of the reserves denominated in USD, EUR and JPY.

According to VanEck, the renowned global investment manager, the sanctions against Russia reduced the demand for USD, EUR and JPY currencies as reserve assets, “while increasing the demand for currencies that can perform the functions of reserve currencies.”

In fact, in a 2022 report, VanEck explained a framework that analyzed where the value of Bitcoin would end up if it were to be adopted as the world’s reserve currency.

The framework evaluated,

“Gold prices around $31,000 per ounce and potential Bitcoin prices around $1,300,000 per coin. Adjusting for greater strains on financial and monetary systems generates even higher prices.”

Not only investment managers, but even some venture capitalists believe that Bitcoin potentially becoming a global reserve currency in the distant future cannot simply be ruled out.

Consider this – Popular venture capitalist David O. Sacks claimed in a recent podcast with Anthony Pompliano,

“Basically, there are three currencies that have scaled – one is the US empire of the USD, then there’s China, the renminbi. And there’s Bitcoin and the crypto world. It’s these three currencies that can get enough scale to be a sort of world reserve currency. »

Now the pertinent question here is – Can Bitcoin outperform gold to win the trust of central banks worldwide? To answer that, we must first dive deep into the historical significance of gold.

Does Bitcoin match the gold standard?

Remember that JP Morgan stated in his testimony before Congress in 1912: “Gold is money. Everything else is credit.” No doubt, back then it was true when gold was stored safely in vaults and paper currency was issued based on the bullion.

Well, by the end of World War II, the United States held most of the world’s gold due to being paid in gold by other countries during the wars.

At the Bretton Woods conference, it was mutually decided to link the world’s currencies to the US dollar, which in turn was linked to gold. This system lasted until 1971 when most currencies switched to a floating exchange rate system that remains in place today.

Despite the move away from the gold standard, central banks continue to hold significant reserves of gold, with about a fifth of all gold ever mined in them.

Source: Statistics

This is where you might wonder why gold is considered to have value. Primarily, it is due to the limited supply of gold, which is both durable and very difficult to produce, unlike other metals.

If you notice, there are four factors that gold’s value is inherently based on – Supply, durability, ease of use and the narrative around it.

What about Bitcoin then?

In recent years, several large institutions, including Tesla, Square and MicroStrategy, have gotten involved in Bitcoin. This suggests that even traditionally conservative investors are beginning to see the potential of Bitcoin as a store of value.

Furthermore, there is an increasing number of businesses that accept Bitcoin as a form of payment. This includes, among others, large retailers such as Microsoft, PayPal and Overstock. If more businesses follow suit, it could help boost Bitcoin’s legitimacy.

Bitcoin is based on a technology that is immutable, making the digital asset durable in nature. Furthermore, the convenience of Bitcoin’s use in the financial world as opposed to gold or the US dollar is undeniable.

As we know, Bitcoin’s decentralized nature makes seamlessness possible in global trades. Countries looking to reduce their reliance on the US dollar as a reserve currency may consider the sovereign as a serious alternative.

Now, talking about the narrative, the royal coin has brought about a revolution in the financial world. Clearly, the cryptocurrency investment adoption curve is also on an upward trend.

Source: FINOa

For example, according to Crypto.com, over 10% of global Internet users probably own some form of cryptocurrency. This simply highlights the change in the preferences of investors worldwide.

Source: Crypto.com

That said, one of the biggest challenges facing Bitcoin in its quest to become a reserve currency is its volatility. Which could make it difficult for governments to rely on BTC as a stable store of value.

On the other hand, the hard cap on Bitcoin’s supply may make it challenging for the royal coin to meet the demands of the global economy.

Also, thanks to crypto-related debacles (recall LUNA, FTX), cryptocurrencies may find it difficult to stay in the government’s good books.

Simply put, the conversation around Bitcoin and its status as a reserve currency looks pretty shallow at the moment. In reality, aside from narratives, there are no statistics or data sets that prove that the king of the crypto world can overtake the dollar.

In conclusion, only time will tell if Bitcoin can ever become a truly global currency and a viable alternative to the dollar as a reserve currency.