Chen Yulu's Latest Speech:

The Rise and Challenges of Cryptocurrencies

The topic I want to share today is "The Rise and Challenges of Cryptocurrencies". Cryptocurrencies are a form of digital currency that operates through computer networks, and the ownership of each cryptocurrency unit is recorded and stored in a digital ledger or Blockchain. Blockchain is the underlying technology of cryptocurrencies, and its core is the Proof-of-Work (PoW) consensus mechanism. Cryptocurrencies can be mainly divided into three categories: payment-type cryptocurrencies such as BTC and ETH; stablecoins, the most famous of which are USDT and USDC; and central bank digital currencies (CBDCs), also known as sovereign digital currencies, with large-scale representatives such as China's Digital RMB. Cryptocurrencies have seven main characteristics: decentralization, security, scarcity, anonymity, high price volatility, large energy consumption in the mining process, and global instant transactions without considering currency exchange costs and international transfer time costs.

Since Satoshi Nakamoto (the team) mined the first BTC Block (Genesis Block) in January 2009, cryptocurrencies have gradually gained a foothold in the financial ecosystem, from a niche virtual currency experiment. Currently, more than 130 countries and regions have begun to incorporate different forms of cryptocurrencies into the discussion of the mainstream financial system. Against the backdrop of escalating global geopolitical turmoil, the US's persistently high fiscal deficits, and the sharp rise in US public debt, cryptocurrencies represented by BTC are receiving widespread attention. The latest developments indicate that the US government is accelerating the construction of a "digital dollar hegemony system" from three aspects: national strategic reserves, cryptocurrency legislation, and cryptocurrency financial infrastructure, and attempting to extend its global hegemony in traditional finance to the digital economy era. Based on the above background, I will focus on elaborating on the global situation and risk challenges of cryptocurrency development.

I. The Latest Trends in Global Cryptocurrency Development

(I) The Cryptocurrency Market is Experiencing Breakthrough Progress

In January 2024, the BTC spot trading fund ETF was officially launched, marking a landmark event in the integration of crypto assets and traditional financial assets. In December of the same year, the price of BTC broke through $100,000 per coin, driving the total cryptocurrency market capitalization to surge from $800 billion to $3.4 trillion in just two years. At the same time, the total crypto asset market capitalization has rapidly risen from less than 1% of the liquidity of the world's six major central banks (G6) in 2009 to 12% by the end of 2024. In the mainstream market, BTC's investment attributes are shifting from a niche risk asset to a mainstream asset class. The new Trump administration's proposed Strategic BTC Reserve (SBR) program has further stimulated and strengthened this transition process.

Figure 1 Global capital began to pour into the cryptocurrency market in the second half of 2023

Data source: Coinbase: Crypto Market Outlook 2025.

Since the second half of 2023, the US government's regulatory stance on the cryptocurrency field has undergone a significant shift, and its strategic intention is likely to be an attempt to extend the US's traditional financial hegemony to the digital finance field. Against the backdrop of the US's high government debt and persistently high inflation, this strategy can both ensure the centralized position of the US dollar in the wave of digital finance transformation and indirectly support and alleviate its increasingly severe federal debt situation. This strategy may contain short-, medium-, and long-term goals: in the short term, the US government is trying to build the initial framework of global digital currency hegemony through three means: cryptocurrency strategic reserves, encouraging the expansion of US dollar stablecoins, and controlling the core infrastructure of crypto asset transactions; in the medium term, through a relaxed regulatory environment, tax incentives, and long-arm financial sanctions, it will continue to attract (or coerce) the world's top crypto companies to migrate to the US or be incorporated into the US government's regulatory system, promoting industry clustering, employment, and economic growth, and maintaining the US's leading position in blockchain technology R&D; in the long term, the US will ensure that the US dollar maintains a centralized position in global digital economic investment and transactions by dominating the formulation of global digital finance infrastructure and rules, ensuring that the US retains centralized power in the wave of decentralization in the digital economy era.

Figure 2 The scale of cryptocurrencies surged and entered the mainstream asset market after the second half of 2023

Data source: Coinbase: Crypto Market Outlook 2025.

(II) The Shift in the Stance of the US Government and Industry on Cryptocurrencies and Its Strategic Intentions

1. Since the second half of 2023, there have been five landmark changes in the US government and industry's stance on cryptocurrencies

First, the stance of the US financial regulatory authorities has shifted from "severe suppression" to "guiding regulation". Paul Atkins, the new chairman of the Trump administration, is a long-term supporter of cryptocurrencies, and after taking office, he actively promoted the compliance path of crypto assets, coupled with his close relationship with the new Treasury Secretary Scott Bessent, reflecting the new US government's positive support for crypto assets and the trend of finding a new balance point between financial innovation and financial investment protection. In December 2024, the SEC approved the listing and trading of Franklin Templeton's crypto index ETF (EZPZ) on the Nasdaq, which is an important sign of the US financial regulatory stance's comprehensive shift.

Second, from legislative suppression to legislative support. The US Congress is actively promoting the "dual pillar" of crypto regulation legislation - the "21st Century Financial Innovation and Technology Act" (FIT21) and the "Guiding and Establishing the US Stablecoin National Innovation Act" (GENIUS). The FIT21 Act will comprehensively lay the foundation for the crypto regulatory framework, resolve many classification and jurisdiction issues, and clarify the regulatory boundaries between the SEC and the CFTC (Commodity Futures Trading Commission), formulate standards for identifying the attributes of digital assets as commodities or securities, and establish a legal framework for institutional digital asset custody services. GENIUS aims to establish a comprehensive regulatory framework for stablecoins and bring the two largest stablecoins, USDT and USDC, which account for 90% of the global stablecoin market capitalization, into the regulatory scope. FIT21 was passed in the House of Representatives with bipartisan support in May 2024 and is expected to be passed by the Senate and signed into law within 2025. GENIUS is planned to be voted on in the Senate this March. After the passage of these two bills, the US will form the most comprehensive crypto regulatory system in the world, which will significantly influence the direction of crypto industry innovation and market patterns.

Third, the shift from a stance of severe crackdown to strategic asset-ization. The Trump administration plans to launch a 1 million BTC strategic reserve and incorporate it into the Treasury Department's Exchange Stabilization Fund. In January this year, Trump signed the Executive Order "Strengthening US Leadership in Digital Finance Technology", the main content of which includes preparing to establish a Strategic BTC Reserve (SBR) and banning the establishment, issuance, and promotion of any form of CBDC within or outside the US, thereby undermining any potential competitors to US dollar stablecoins.

Fourth, the industry has shifted from hesitant observation to a more positive response. A large number of star companies such as Apple, Tesla, and Microstrategy have already or plan to include crypto assets in their corporate asset allocation. Traditional large financial institutions (such as BlackRock, the world's largest asset management financial group) are also accelerating their holdings of Bitcoin. The global Bitcoin ETF fund assets have exceeded 1.1 million BTC. Among them, the BlackRock Bitcoin ETF (IBIT) accounts for 45% (market value of about $153 billion as of February 2025). Spot Bitcoin ETFs attracted over $108 billion in 2024, and the crypto market and traditional financial market are accelerating their integration.

Fifth, adjustments to tax policies. In the 2025 temporary tax relief, the US Internal Revenue Service allowed taxpayers to flexibly choose the accounting method for crypto assets, which temporarily eased the tax burden on CEX users in the short term, but in the long run may drive crypto investments to concentrate on platforms that are controllable by the US regulatory authorities.

2. The latest developments in various fields of crypto assets indicate that the strategic orientation behind the change in the stance of the US political and business circles is likely to be the construction of a "trinity" digital era US dollar hegemony system.

The three pillars of this system are the Bitcoin strategic reserve (SBR), the US dollar (pegged) stablecoin, and the US-controllable digital financial infrastructure. In this system, the Bitcoin strategic reserve may play the role of the gold reserve in the 1944 Bretton Woods system agreement. Bitcoin, as the "digital gold", occupies the core value anchor position and will bring five potential strategic advantages to the US.

First, the first-mover advantage. As the most globally consensual cryptocurrency, Bitcoin's unique position is conducive to it becoming a safe haven for capital during global geopolitical turmoil and high inflation periods. The US's early inclusion of Bitcoin, which accounts for more than 60% of the total crypto market capitalization, into its national strategic reserve, will give it an advantage in attracting international capital to continue to converge on US dollar-linked on-chain and off-chain assets.

Second, the role as a new tool for financial stability. During financial crises, its low correlation with traditional assets makes the Bitcoin reserve a second financial stability tool for the US government in addition to traditional US dollar quantitative easing, which can assist in supporting the balance sheets of US systemic financial institutions and protecting the international status of the US dollar in some emergency situations.

Third, enhancing the competitiveness of the US dollar system in the digital era. Stablecoins pegged to the US dollar currently account for 95% of the global stablecoin market value, and combined with crypto assets that primarily use the US dollar for settlement but are not pegged to the US dollar, this will further consolidate the US dollar's status as the central currency in the digital financial system, helping to extend the US dollar's dominance from traditional finance to the digital finance domain.

Fourth, strengthening the US's discourse power on digital finance standards. In the future, after occupying a dominant position in the crypto market through strategic reserves and US dollar stablecoins, the US will lead the formulation of global crypto asset rules and, through platforms such as the G7, IMF, and BIS, export and solidify the US standards based on GENIUS and FIT21, promoting a global crypto asset regulatory framework that serves its own interests, ensuring its top-level discourse power in international digital asset rule-making.

Fifth, curbing the crypto asset development of potential competitors. Through financial sanctions and legislative restrictions, the US will prohibit any institution from establishing, issuing, and promoting CBDC within its borders. Through technical assistance, it will attract emerging markets to adopt US-led payment systems, squeezing the internationalization space of competitors' digital currency assets.

Figure 3 The "Trinity" of the US Digital Currency Hegemony System

3. The policy orientation of the European Union in the field of cryptocurrencies is to unify market regulation and green finance transformation

This is mainly reflected in the following three aspects: First, the EU's "Crypto Asset Markets Regulation" (MiCA) came into full effect on December 31, 2024, aiming to establish a unified and clear crypto asset regulatory framework across the EU. It will classify all crypto assets into three categories and implement differentiated regulation, while strengthening the compliance requirements for stablecoin issuance and crypto asset exchange operations. It will manage risks while promoting innovation and ensuring consumer rights and financial stability. Second, the unified regulatory framework lays the foundation for the EU to gain the initiative and discourse power in the global crypto currency market competition. Third, it guides the establishment of the green finance development path for cryptocurrencies, with MiCA imposing higher carbon emission taxes on energy-intensive blockchains, driving the crypto industry to shift from PoW mechanisms to low-carbon consensus mechanisms like PoS, thereby reshaping the regional landscape of the mining industry.

4. Other global economies are facing a competitive game between stablecoins and sovereign digital currencies

This is mainly reflected in three aspects. First, the number of economies exploring and promoting CBDCs is constantly increasing. Currently, about 130 countries and regions around the world are exploring and promoting CBDCs. China's digital renminbi has been continuously expanding its domestic and cross-border pilots in recent years, making it the largest sovereign digital currency in the world. 18 G20 member countries, including Japan, South Korea, India, and Russia, are also accelerating the deployment of CBDCs or Bitcoin strategic reserves, actively vying for digital finance sovereignty and rule-making discourse power. Second, there is a competitive game between sovereign digital currencies and stablecoins. The CBDC model has sovereign advantages, but US dollar stablecoins have already gained scale advantages. From 2020 to 2024, the market value of USDT increased 5.52 times, while USDC increased 11.35 times, together accounting for 90% of the global stablecoin market value. The settlement volume reached $15.6 trillion in 2024. Third, digital currencies may face the risk of regionalization and fragmentation in the future. The US is trying to strengthen its digital finance hegemony through the establishment of an SBR reserve, stablecoin legislation, and restrictions on CBDC issuance and circulation. The EU's MiCA framework will objectively limit the development of non-euro stablecoins. Intensified competition means that the global digital finance payment system may face the risk of market segmentation and fragmentation in the future.

5. Stablecoins are becoming a frontier field for the integration of crypto financial assets and traditional financial assets

This is mainly manifested in two typical facts. On the one hand, stablecoins have enhanced the resilience of off-chain US dollar assets. In the 2023-2024 fiscal year, the market value of stablecoins grew rapidly, exceeding the growth rate of US M2, strongly supporting the demand for the US dollar and US Treasuries in the uncertain financial environment of the US's persistent high fiscal deficits. On the other hand, stablecoins are gradually becoming mainstream payment channels. In the first 11 months of 2024, the stablecoin market completed $27.1 trillion in transactions, including a large amount of P2P and cross-border B2B payments, indicating that enterprises and individuals are increasingly using stablecoins to realize commercial value while meeting regulatory requirements, and are closely integrating with traditional payment platforms such as VISA and Stripe.

II. Risks and Challenges Faced by China from the New Trends in Cryptocurrency Development

1. Objectively view China's current advantages and disadvantages in the fields of blockchain and cryptocurrencies

The main advantages are in three aspects: First, the layout of the digital RMB and the blockchain industry is leading. In the field of central bank digital currencies, the digital RMB is currently the largest CBDC project in the world, and it has received national strategic support. Since its R&D in 2014, it has steadily progressed, covering retail, wholesale payments, and cross-border settlement. Since 2021, the development and practice of the cross-border digital currency bridge project (mBridge) have also been leading globally. These foundations make it possible for the digital RMB to become a financial transaction tool and asset carrier that can compete with the US dollar stablecoin in the future. In the blockchain industry, China has included blockchain technology in the national strategy in the early stages of industry germination, and has clearly proposed the direction of integration of blockchain and the real economy. The market size and growth potential of the industry are relatively large, and it is estimated that China's blockchain market size will exceed 100 billion RMB by 2025. It has been widely applied in fields such as finance, supply chain, and government affairs and business services, and the number of registered companies has been growing continuously, reaching 63,300 by the end of 2023.Second, the application scenarios are rich. The scenarios of digital currency have expanded from the initial retail, transportation, and government affairs to wholesale, catering, entertainment, education, medical care, social governance, public services, rural revitalization, and green finance. The blockchain industry has also accumulated many mature cases in supply chain finance, cross-border trade, and e-government.Third, strict risk prevention and control. China has implemented strict regulation on cryptocurrency trading and initial coin offerings (ICOs), which has effectively prevented the risks of the virtual economy and provided a more controllable and stable industrial environment for the compliant development of digital currencies.

The weaknesses of China at this stage are mainly reflected in the lack of international competitiveness in some areas. First, the influence of technical standards is relatively lagging. Due to differences in regulatory regulations, the United States currently dominates in underlying technologies such as ZKP and Layer2 scaling, and the EU has also set technical barriers through the MiCA framework, resulting in China's lack of discourse power in the formulation of core protocols and global standards.Second, the development of public chain ecology is relatively lagging. China's blockchain industry is mainly based on consortium chains and private chains, and the lack of public chains has led to a gap in innovation capabilities with Europe and the United States in areas such as decentralized finance (DeFi) and Web3.0.

2. The crypto asset hegemony strategy led by the United States poses multiple threats to China's financial security

First, capital outflows and exchange rate pressure. The long-term appreciation trend of crypto assets represented by Bitcoin against the US dollar and other international currencies, as well as the rapid expansion of the trading volume of US dollar stablecoins, have further strengthened the dominant position of the US dollar in the global monetary system through the convenience of cross-border payments and the function of value storage, which will undoubtedly squeeze the valuation and internationalization space of the RMB. In addition, the US dollar-dominated crypto channels have become a new path for capital flight. The massive allocation of Bitcoin by leading US companies in recent years and the wave of financing of crypto ETFs have produced a strong "demonstration effect", which may attract some domestic capital to flow out through gray channels.

Second, the accumulation of industrial competitive advantages through DeFi regulatory arbitrage. The relatively loose regulation and tax policies in the US have attracted global DeFi innovation resources, thereby reaping more technological dividends from the underlying standards to the application layer. After long-term accumulation, it will form a competitive advantage over China's digital finance infrastructure technology.

Third, the competition for underlying technology standards and innovation capability resources. On the one hand, the US is currently in a leading position in innovation in areas such as ZKP and Layer2, while the EU is also acquiring the network effects of a unified large market through the integration of MiCA regulations, while setting up technical barriers. China needs to be vigilant and prevent the risk of losing the right to formulate crypto asset industry standards. On the other hand, China is facing the pressure of outflow of blockchain industry innovation resources: the EU's crypto industry carbon emission policies and the tax incentives for mining farms in the US have led to a trend of Chinese mining companies and blockchain investment companies shifting to Central Asia, the Middle East and the US, which is objectively unfavorable for the domestic blockchain industry's innovation capabilities and computing power security.

Fourth, the threat of US crypto asset hegemony. First, the US is accelerating the gradual incorporation of mainstream crypto assets into its financial hegemony system, and this trend, once established, will inevitably squeeze China's strategic development space in the field of digital finance. Second, after the Russia-Ukraine conflict, the US government, in conjunction with the UK, the UAE and other countries, has imposed large-scale long-arm financial sanctions on the Russian government, institutions and individuals in the field of cryptocurrencies, seizing and confiscating a large amount of crypto assets, and arresting relevant practitioners, demonstrating the power of its digital financial hegemony. Finally, the Trump administration's promotion of the Bitcoin strategic reserve plan and resistance to foreign sovereign digital currencies have also intensified the confrontation between China and the US in the field of digital currencies.

Of course, crypto assets represented by BTC are currently showing a serious market bubble, and the sustained appreciation is difficult to continue. Once the bubble bursts, it will be a huge blow to the US crypto asset hegemony strategy. In this regard, we need to maintain a clear understanding and strategic determination, adhere to the value concept of financial services to the real economy, and firmly follow the path of building a financial power with Chinese characteristics.■