One of the many narratives surrounding Bitcoin is that it represents a pathway to an alternative global economy that might contest the US dollar’s supremacy. After all, Bitcoin did emerge as a counterpoint to the 2008 US financial debacle, a digital champion for free markets and sound money.
Yet bitcoin the asset remains intricately linked to the US economy. Factors like dollar-pegged stablecoins, US regulatory sway and the sheer weight of US financial entities anchor the cryptocurrency to the old greenback.
Will this continue to hold true in an increasingly multipolar world? The simple answer is “yes, for now.” Is this the outcome we should expect in the long term? That would be a hard “no.”
What hinders Bitcoin’s independence
Three principal factors are roping bitcoin to the dollar, hindering its complete global currency independence:
Dollar-pegged stablecoins
Stablecoins such as USDT and USDC have amplified crypto’s reliance on the US economic landscape. Bitcoin predominantly trades against the US dollar on numerous crypto platforms, often indirectly via stablecoins.
The controversial issuer of USDT, Tether, recently shared its Q2 attestation report, where it grew to a $71 billion market cap, and it’s even larger today. In total, stablecoins are a $124 billion market, with significant influence over bitcoin’s own $500 billion one.
When a single asset makes up roughly 25% of another’s market cap, the two are correlated.
With bitcoin’s value so closely intertwined with the US economy, bitcoin users around the world are prey to any instability the currency faces, meaning it truly isn’t a free market yet.
Regulatory dynamics
The US regulatory landscape has a significant impact on bitcoin’s market sentiment. Any positive or negative news regarding policy can have ripple effects on the entire crypto market, including bitcoin.
Globally, crypto’s legality and mainstream acceptance are at stake. The US exerts influence on global crypto policies, framed mainly by the Financial Action Task Force (FATF)’s 2021 guidelines. And the US, given its stature, plays a pivotal role in directing FATF’s advice.
US legislative moves also shape institutional investor inclinations. The unfolding saga of the prospective Bitcoin ETF is a prime example of this, with entities like BlackRock and Fidelity patiently awaiting the SEC’s verdict. The recent Grayscale victory is a sure sign that institutional adoption isn’t a dream but a reality.
Institutional acceptance
US institutional adoption has further intertwined bitcoin with the nation’s economy. ETF outcomes aside, significant financial bodies now include bitcoin in their asset arrays, tying its value to US market sentiments.
This means that those using bitcoin as an alternative investment are still at the whims of US firms. Let’s remember the impact Tesla’s purchase of $1.5 billion worth of bitcoin had on the market.
The path to decoupling
Many investors turn to bitcoin as a hedge against US dollar depreciation in uncertain economic climates. Yet, if current conditions continue, bitcoin might more closely mirror traditional US investment avenues like equities.
This scenario is problematic, to say the least. Free markets shouldn’t hinge on the US economic climate, legislative landscape or decisions by its major corporations. Bitcoin was envisioned to counter exactly this.
Fortunately, the bond between Bitcoin, the US and the broader American economy is breakable. As the crypto realm matures, multiple factors can help Bitcoin evolve into a truly global, uncorrelated asset.
Emerging stablecoins with diverse denominations could promote a shift from USD-centric tokens. Enthusiasts advocate for stablecoins tethered to varied currencies to lessen dependency on the US dollar, fostering a truly diversified crypto market.
Alternative fiat currencies include the Japanese yen or Chinese yuan as dominant bitcoin trading counterparts. Europe’s MiCA legislation might lead to more diversity in the form of EUR-denominated stablecoins. But this potential shift will take time — likely many years.
There’s also notable momentum toward augmenting bitcoin’s global adoption, reducing US market dependency. Efforts include regional partnerships, educational drives, and crafting use cases specific to areas like Africa and Latin America, where Bitcoin’s appeal as a sovereign currency resonates.
Crypto champions are continuing to actively working with regulators globally, striving for balanced rules that spur innovation without undue US influence. This regulatory diversity poses challenges for regions reluctant to welcome Bitcoin and its peers.
Technological strides are boosting Bitcoin’s reach and applicability, rendering it more apt for regular global transactions. Universal adoption for purposes beyond just a value reserve could insulate Bitcoin from single-economy volatilities.
Reflecting on what’s to come
Bitcoin’s intrinsic potential to foster free markets has remained unchanged since 2009. Roughly fifteen years after its inception, stakeholders — both within and outside the US — are still unlocking its possibilities.
In this narrative, the US dollar, economy and geopolitical clout remain pivotal in the cryptocurrency’s evolution. Yet as bitcoin and its ecosystem evolve, its reliance on the US dollar has a chance to diminish, heralding a more balanced global economic landscape.
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