Source: Wenli Podcast
Long time no see, here comes an exciting topic: let's talk about Bitcoin.
When we recorded the podcast, Bitcoin was around $90,000. Interestingly, almost no one on Twitter or in the crypto circle is now shouting "bubble"; no one mentions Satoshi Nakamoto, anti-US dollar, anti-government, or the idea of surpassing the Federal Reserve. It's as if everyone has forgotten their original intentions since the US government, especially the former president, expressed support for Bitcoin.
In the 2024 US presidential election, cryptocurrencies have become a key variable in shaping the political landscape and election outcome. From Trump's active embrace of the crypto community to the divisions within the Democratic Party on crypto regulation, cryptocurrencies have become an important tool and policy focus for both parties to attract voters, and have begun to influence the US political landscape.
The election results show that an emerging crypto voter base is influencing the election outcome, and the battle over crypto regulation has become an important battleground between the two party camps. From Trump publicly embracing cryptocurrencies and vowing to end "hostile regulation", to the Democrats also starting to pay attention to this group and getting closer to crypto professionals, the possibility that the crypto field is redefining the US financial ecosystem and even reshaping the future international monetary system cannot be ruled out.
Is cryptocurrency a new political darling, or a new tool for America's future financial hegemony? Can the former president use Bitcoin to make the US dollar great again and reshape financial hegemony?
Edited by: Xiaobowl
Timestamps:
(00:01:35): Reviewing the trend from before the election to the present. By the way, I'd like to ask weakly: is Bitcoin a bubble now?
(00:15:08): Polymarket
(00:20:10): Crypto voting bloc
(00:26:15): Why did Trump support cryptocurrencies?
(00:33:10): Does Bitcoin help or hinder the maintenance of US dollar hegemony?
(00:35:35): How can Bitcoin increase US dollar hegemony?
(00:44:30): Can Bitcoin solve the problems of the US dollar?
(00:51:46): If Bitcoin is co-opted by Wall Street, will it lose its uniqueness?
Transcript:
(00:01:35) Reviewing the trend from before the election to the present. By the way, I'd like to ask weakly: is Bitcoin a bubble now?
Bitcoin's price has skyrocketed recently, closely related to the US election. At the beginning of the year, the price was fluctuating between $50,000 and $60,000, until the end of June, when Trump and Biden had their first debate. Biden's poor performance, combined with the Republican Party's clear support for Bitcoin, changed the market sentiment, and Bitcoin started to rise.
In July, the Republican Party released a policy statement with much content related to cryptocurrencies, with a very positive attitude. The Republican National Committee also passed a draft resolution, including supporting the return of the mining industry to the US, which further boosted the price.
On July 13, Trump was nearly shot, which sharply increased voter support, and Bitcoin also jumped to around $70,000. On November 6, when Trump announced his victory, Bitcoin jumped to $75,000. In the following week, the price rocketed from $70,000 to $93,000, and then fluctuated around $90,000. It's not impossible for it to reach $100,000 before Thanksgiving.
From the perspective of a bubble, the timeline of Bitcoin's price fluctuations is very clear. The analysis can be divided into two aspects: one is the asset, or the secondary market, using traditional technical and fundamental analysis; the other is the unique indicators in the crypto circle.
The technical analysis in the crypto circle has its own set of indicators, some of which are similar to stocks, such as uptrend lines, downtrend lines, overbought and oversold, etc. There are also some unique to the crypto circle, such as MV, RV, rainbow bands, escape index, etc. You can search online for the specific content. Now looking at the indicators in the crypto circle, this round of Bitcoin's rise may only be halfway, and it has not yet reached the stage of excessive greed or the need to sell.
The fundamental reasons are more due to the Fed's interest rate cuts and the US dollar policy. The current interest rate cut cycle has just begun (but after Trump took office, inflation expectations may rise again, and the interest rate cut cycle may enter a period of uncertainty), plus the approval of Bitcoin ETFs, which made it a tradable asset within the market, and many companies, pension funds, and mutual funds may include Bitcoin in their asset allocation. Asset allocation theory believes that if all US financial asset holders allocate a certain proportion of Bitcoin, the price will soar. In addition, Bitcoin is increasingly entering the traditional financial field, and the number of holders is increasing. These factors have pushed up the price of Bitcoin.
But to be honest, it is currently more of a FOMO (fear of missing out) mentality. But the long-term asset allocation theory may have a deeper impact. In other words, if asset allocation does not occur, Bitcoin may not be as high in the long run as everyone thinks. This is likely to be the key to determining Bitcoin's long-term trend.
(00:15:08): Polymarket
Polymarket was one of the internet celebrities in this election - it not only reflected market sentiment, but also had a real impact on the election situation. The changes in Polymarket's odds are like real-time polls, affecting people's psychological expectations. It's different from traditional polls and news, as it can update data almost every second, and more timely reflect market sentiment. Moreover, the changes in Polymarket's bets will also affect people's views on the election situation, forming a cycle.
Traditional voting is to draw circles on paper with a pen, while Polymarket is to vote with money, which requires more serious analysis than traditional voting. This not only affects the election results, but its influence is also close to social media, and may even be greater. Polymarket uses big data and AI analysis to analyze speech tendencies, and has advantages not only in quantity, but also in using real money as an indicator, with greater influence. It may even become a new model of social governance.
(00:20:10): Crypto voting bloc
The crypto circle's support for Trump and its impact on the US election are controversial. Although the influence of the crypto circle is not as strong as that of Musk personally, Musk's support for Dogecoin, combined with Trump's response to Dogecoin, has given the crypto circle a certain influence on Trump and the US election.
The rise of cryptocurrencies has also given birth to a new "crypto voting bloc". This group is predominantly young, male, and minority, with high political participation, and generally supports Trump. Polls show that more than half of crypto currency holders support Trump, and only about 30% support Harris. And almost all crypto currency voters plan to vote, making them a key group for both parties to compete for.
The Republican Party's support for cryptocurrencies is very strong. Trump has expressed support for Bitcoin mining in the US and accepted crypto currency donations. Some Republican lawmakers have even proposed establishing a Bitcoin strategic reserve. The Democratic Party is relatively cautious, but there are also voices supporting cryptocurrencies. For example, California Governor Gavin Newsom, Illinois Governor J.B. Pritzker, Pennsylvania Governor Josh Shapiro - actively promoting the development of cryptocurrencies and attracting crypto companies to settle.
The active voting of the "crypto voting bloc" has become a key factor in this election.
(00:26:15):Why does Trump support cryptocurrencies?
There are many reasons why Trump supports cryptocurrencies. From a political perspective, he may have seen the enthusiasm of cryptocurrency users and their desire for deregulation. To attract voters, he publicly expressed support for cryptocurrencies. The deepening understanding of Bitcoin, such as the emergence of Bitcoin ETFs, has also driven this trend.
At the Bitcoin conference, although Trump's speech mainly attacked the Democratic Party, it also prompted people to think about "whether Bitcoin is an enemy of the US dollar". He believes that only government behavior will endanger the US dollar, not Bitcoin itself. If Bitcoin is seen as digital gold, its relationship with the US dollar has not fundamentally changed. Trump's stance seems to indicate that the US government can control Bitcoin by accepting and utilizing it, rather than confronting it. This marks a shift in the US government's attitude towards cryptocurrencies.
Since the emergence of Bitcoin ETFs, the attitude of traditional financial institutions has also been changing. Earlier, they tried to "tame" Bitcoin (as early as 2018, the chairman of CME had said "we will tame Bitcoin"). But with government support, as Bitcoin's status has risen, traditional financial institutions have also begun to re-evaluate their relationship with cryptocurrencies.
Trump's endorsement not only drove a short-term market rally, but may also reshape the global financial landscape in the long run: if Bitcoin's price soars to $1 million in the future and is pegged as part of the US dollar, will this strengthen the US dollar's position and maintain its global hegemony? It is not ruled out that Bitcoin may play a more important role in the future financial system, and its relationship with the US dollar will become more complex and closer.
(00:33:10): Does Bitcoin promote or undermine the US dollar's hegemony?
There are divergent views: some believe that Bitcoin is a decentralized currency, and its emergence may affect the status of the US dollar. Some believe that after being pegged to the US dollar, it may strengthen the US dollar's position and maintain the US dollar's hegemony. The emergence of any currency must first be accepted by the market. The US has begun to observe it cautiously, which is in line with the development rules of the capitalist market economy. When any thing, including currency form, appears, it will perform in the market, and if it can be accepted by the market, the government will endorse it as legal tender, and if the market does not accept it, it will be eliminated. The US has not suppressed cryptocurrencies, nor has it advocated their natural development. The US has taken many regulatory measures, which shows that the market has already accepted cryptocurrencies. The government has now reached this stage, and it is very likely that it will be transformed into a legal digital currency.
Currently, many major US financial institutions have already accepted cryptocurrencies as part of their asset allocation. If it is incorporated into the regular financial system, it may become another part of the US dollar payment system. If cryptocurrencies have already become a parallel financial market to the traditional financial market, the US must regain its hegemony and cannot give it up.
(00:35:35): How can Bitcoin increase the US dollar's hegemony?
The essence of currency is consensus. The US dollar's hegemonic position is being challenged, partly because the US has over-borrowed and issued too much currency, leading to a weakening of the US dollar's consensus. In the past, the Bretton Woods system transferred the consensus of gold to the US dollar. Now, if the US uses Bitcoin ETFs to make Bitcoin freely convertible with the US dollar, it is equivalent to grafting the consensus of Bitcoin onto the US dollar, which may strengthen the US dollar's position.
This is similar to viewing Bitcoin as "digital gold". The difference is that gold consolidated its position through a fixed exchange rate, while Bitcoin is integrated into the mainstream system through modern financial instruments. Currently, various countries are reducing their dependence on the US dollar and using their own currencies for settlement, further weakening the US dollar's dominant position. Trump's support for Bitcoin not only allows him to find a new asset to replace gold, but also enhances the US's influence in the global financial system through the legalization and popularization of Bitcoin.
Globally, the increase in gold reserves by various countries also indicates that the US dollar's hegemony is facing challenges. If Bitcoin is incorporated into the US dollar system, it can both meet the demand for new assets and maintain the US dollar's position. The impact of Bitcoin on the US dollar's hegemony lies in its ability to integrate into the mainstream system through modern financial instruments, satisfying the demand for new assets while potentially consolidating the US dollar's position. However, the risks and complexities involved require careful consideration, and the future development remains uncertain.
(00:44:30): Can Bitcoin solve the problems of the US dollar?
Even if the US dollar is pegged to Bitcoin to increase its consensus, it is difficult to fully restore the US dollar's strong position. The fundamental problem lies in the serious over-issuance of the US dollar. The key to solving this problem is to reduce the over-issuance of the US dollar and repay foreign debt. Trump's policy focus is also in this area, such as adjusting tax and economic policies and reducing foreign aid, which are more important than pegging to Bitcoin.
The over-issuance of US debt is due to the high cost of maintaining the US's international position. Even if the price of Bitcoin rises tenfold, its impact is still limited compared to the global scale of the US dollar. As Trump said, the enemy of the US dollar is the behavior of the US government itself, not Bitcoin. Restoring confidence in the US dollar is key to solving the US's own economic and policy problems.
However, the US embracing cryptocurrencies will bring new changes. In the context of the global de-dollarization, various countries are establishing currency alliances for trade settlement. But these countries still need to choose the settlement method. The US has openly established a direct exchange relationship between the US dollar and Bitcoin, and even supports Bitcoin ETFs.
Taking USDT as an example, the US is relatively tolerant of it because it essentially promotes the global flow of the US dollar. The scale of USDT has reached hundreds of billions, and it has even begun to create credit - this is the reason why the US will not develop a central bank digital currency. If the US holds 1 million Bitcoins, at the current price, it would be worth $90 billion. In the future, if Bitcoin rises to $1 million per coin, it would be worth trillions of dollars, close to the scale of the US gold reserves.
Nevertheless, even if Bitcoin can replace gold, according to the monetary multiplier theory, this is still difficult to fully support the existing US dollar system, but it can serve as an important buffer pool.
(00:51:46): Will Bitcoin be co-opted by Wall Street and lose its uniqueness?
Is it likely that the US will use cryptocurrencies to establish a new hegemony and launch a financial war? The possibility is not high. The focus of the US embracing Bitcoin is not on Bitcoin itself, but on the identity of the rule-maker. Just like in the fields of the US dollar and the WTO, the US's goal is to set the rules in the crypto world as well. The approval of the Bitcoin ETF has a huge impact on the entire industry, and the US is gradually becoming the rule-maker in the crypto world.
One possible outcome is: the rules of Bitcoin will no longer be defined by the crypto community, but will return to the financial logic of Wall Street. In the short term, the price of Bitcoin may rise, but in the long run, Bitcoin may lose its uniqueness.
How does the US achieve the goal of rule-making? The Bitcoin ETF is the first step - the approval of the Bitcoin ETF marks the beginning of a historic transformation in the crypto world. There are two important logics here:
First, the trading logic of financial assets. The US Bitcoin ETF is cash-settled, which means that ETF shares can only be bought and sold with US dollars, and Bitcoin cannot be withdrawn. This gives the US unilateral influence over the US dollar and Bitcoin prices. As the ETF scale expands, on-exchange trading will dominate Bitcoin prices. Ultimately, Bitcoin prices will be determined by US stock ETFs, rather than the crypto world.
Second, the security of Bitcoin. With the Bitcoin halving, the miners' profits depend on the rise in Bitcoin prices and on-chain transaction fees. But as the ETF scale expands, more Bitcoins are stored in the hands of Americans, on-chain transactions decrease, and miners' income and computing power may decline, which may reduce the security of the Bitcoin network.
If both Bitcoin prices and security are controlled by the US, is it a blessing or a curse for Bitcoin?
Perhaps there will be a new blockchain to inherit the crypto spirit. The rule of law and openness in the United States have determined its pursuit of rule-making power. The United States, through the Bitcoin ETF, has actually accepted the Bitcoin POW mechanism. But when the United States controls a large amount of Bitcoin and computing power, the pattern will change.
To see the essence of things, we should focus on actual actions, not media reports: financial practitioners react fastest to the market, followed by crypto media, then mainstream media, and finally scholars. Focusing on capital flows and actual actions is a reliable basis for judgment. As long as the world is still made up of people, these rules will exist forever.
