Coinbase Monthly Outlook: The global monetary system shifts, and Bitcoin begins to be negotiated

Monthly Outlook: Dethroning the Dollar

Original article by: David Duong, CFA – Global Head of Research

Compiled by: Daisy, ChainCatcher

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This article is compiled from the latest monthly outlook research report released by Coinbase. The report points out that as the US twin bất chấpcits continue to expand and trade protectionism intensifies, market confidence in the US dollar continues to weaken, and the world may usher in a round of large-scale asset portfolio reconstruction. In this context, Bitcoin is being regarded by more and more countries as a potential supranational reserve asset because of its sovereign neutrality and freedom from capital controls. According to the conservative estimate of the report, if Bitcoin is gradually included in the global reserve system, its total market value is expected to increase by about US$1.2 trillion.

The following content is a compilation and summary of the main points of the report.

bản tóm tắt

Global capital flows are being reshaped by the intensification of trade protectionism, and the dominance of the US dollar as the worlds reserve currency is being challenged. As the US fiscal deficit and trade deficit continue to expand and the debt level is on an unsustainable path, the markets confidence in the US dollar as a safe-haven asset is being shaken. This trend may lead to a reversal of US dollar capital inflows, prompting large global institutions to readjust their asset allocations. In the long run, the US dollar may face sustained and significant selling pressure.

It is worth noting that we believe that the turmoil of the past few months has further exacerbated the decade-long decline in the dominance of the US dollar. The next changes may become a key turning point for Bitcoin and the entire mật mã market. The current changes in the US dollar system make store-of-value assets such as gold and Bitcoin more attractive alternatives in the emerging monetary landscape. Gold was promoted from a Tier 3 asset to a Tier 1 asset by the Basel III Agreement, which is a typical example. In particular, Bitcoin, with its sovereign neutrality and freedom from sanctions and capital controls, is expected to become a viable supranational unit of account in international trade.

We believe that the decline in demand for the US dollar may prompt more countries to promote the diversification of international reserves. According to conservative estimates, this trend is expected to bring about an increase of about US$1.2 trillion in the market value of Bitcoin. This also partly explains why more and more countries are beginning to pay attention to strategic Bitcoin reserves, further highlighting the growing importance of Bitcoin in geopolitics.

The continuation of dangerous times

Over the past half century, the US has undergone a profound transformation in its economic management model. Since the stagflation crisis of the 1970s, economists such as Milton Friedman have questioned Keynesian demand management theory, which has led to the formation of the modern central banking system – a system based on stable inflation targets and the theory of the natural rate of unemployment. Since then, this framework has been institutionalized through the political independence of central banks, which mainly rely on interest rate policies (and later some macroprudential tools) to regulate money supply and achieve economic stability.

This framework has been under constant pressure from fiscal activism for years, including massive deficit spending and trillion-dollar stimulus programs. While some of the spending was necessary to address challenges such as the global financial crisis and the COVID-19 pandemic, the U.S. debt-to-GDP ratio has soared from 63% in 2008 to about 122% today, and is clearly on an unsustainable track. In addition, the Feds aggressive rate hikes between 2022 and 2023 have significantly increased the U.S. governments borrowing costs, and the surge in related interest payments has further exacerbated the fiscal deficit problem. See Figure 1.

In this context, the rise of trade protectionism may reshape the pattern of global capital flows. The status of the US dollar as a safe-haven asset is under attack, which means that some large institutions (such as non-US pension funds, life insurance companies and sovereign wealth funds) may change their previous investment strategies. In the past two decades, about half of the approximately US$33 trillion in US dollar asset exposure (including US$14.6 trillion in bonds and US$18.4 trillion in stocks) of these institutions have not been systematically hedged (source: Reuters). We believe that in the coming months or even years, a new round of large-scale asset portfolio adjustments may occur globally. See Figure 2.

This is not the first time that the United States has reversed its dollar inflows due to its twin deficits (i.e., the fiscal deficit and trade deficit are expanding at the same time), but this time it happened at a time when the global economic landscape is undergoing profound changes. We believe that the world is currently in the process of a major transformation of the dollar system, and this trend may trigger a new round of large-scale dollar selling pressure.

Even if the retaliatory tariffs are eventually cancelled, we still believe that the above trend will be difficult to reverse. The reasons are: (1) The impact of the confidence shock has left a deep impression on many investors; (2) Tariff cuts and tax cuts will weaken government fiscal revenue and further increase deficit pressure. Of course, the weakening of the US dollar will help to reduce the debt burden in an inflationary way by reducing interest costs to a certain extent, and may also boost US exports. However, the cost of this process is to weaken the credibility of the US dollar as a store of value and global reserve currency, accelerating the markets search for alternative assets.

When we explored the topic of “de-dollarization” in December 2023, we pointed out that the dollar was at a critical inflection point, but at that time we believed that this process might take “many generations” to actually happen. However, a series of events in recent months seem to have significantly accelerated this process. In fact, the decline of the dollar’s influence has long been traceable – Harvard economist and cryptocurrency critic Kenneth Rogoff once pointed out that the peak of the dollar’s hegemony occurred around 2015, and since the outbreak of the Russo-Ukrainian war, this trend has been further accelerated due to sanctions against Russia.

The next outlet

But the question is, where are the alternatives? When the monetary system undergoes fundamental changes and the basis of monetary value is redefined, gold and other store-of-value assets such as Bitcoin, which has received widespread attention in recent years, tend to become particularly important. In fact, in recent weeks, Bitcoins positioning as digital gold has become increasingly clear, especially in the context of outperforming U.S. stocks after risk adjustment. Its value advantage is more prominent. In a recent report, Coinbase Asset Management pointed out that in the next decade, the global store-of-value asset market may grow from the current $20 trillion to $53 trillion, with an expected annual average real return rate (adjusted for inflation) of 6%.

The logic is that including assets such as Bitcoin and gold in the investment portfolio can help diversify risks (which we have previously analyzed) and improve the stability of returns during the transformation of the economic system. Although Bitcoin is more volatile than gold, its higher potential returns can complement the stability of gold, thus constructing a more balanced wealth preservation strategy.

In addition, we believe that Bitcoin is not subject to arbitrary government expropriation and capital controls, which is significantly different from gold. A typical case is that in 1934, Roosevelt signed the Gold Act, which prohibited private ownership of gold and forced it to be placed in custody of the U.S. Treasury. At the international level, because gold relies on traditional financial infrastructure and physical custody (such as banks and vaults), it is prone to sanctions when held on a large scale; Bitcoin, on the other hand, has the ability to be digitally self-managed by various income groups. For example, in 2022, more than 2,000 tons of gold stored by Russia in friendly countries were frozen and could not be cashed. As for capital controls, previous Argentine governments not only restricted citizens from obtaining US dollars, but also banned the sale of gold to prevent capital outflows.

For this reason, we regard Bitcoin as a supranational store of value and believe that it has unique advantages in building monetary credit in international trade. Currently, more than 80% of international trade is still settled in US dollars (see Figure 4), but as the world gradually moves towards a multipolar system, more and more countries are uneasy about continuing to rely on the US dollar as an intermediary in international payments. However, the alternatives available in reality are still very limited.

For example, the currencies of countries with current account surpluses may not circulate enough globally (this is the Triffin dilemma coined by economist Robert Triffin, who once proposed to deal with this problem by establishing a new reserve currency unit). At the same time, due to the high degree of fiscal fragmentation in the euro area and the many institutional limitations of the European Central Bank, the euro is still far less influential than the US dollar despite being the worlds second largest reserve currency.

We believe that for politically sensitive trade relationships, especially for countries with current account surpluses, assets that are censorship-resistant and sovereign neutral (i.e. supranational assets) will be more attractive. Of course, the choice of such assets is very limited, so Bitcoin may be the most promising competitor at present. In the long run, this may bring huge asymmetric upside to Bitcoin. However, it should be noted that its widespread adoption may still be limited because many countries are reluctant to give up their control over their own monetary policy. Of course, given that most commodities are still denominated in US dollars, from an actual operational perspective, the Federal Reserve has actually influenced the policy direction of most central banks around the world to a large extent.

Why now?

This is why we emphasize not to confuse store of value assets with inflation-resistant assets, although the two are closely related. We define store of value assets as assets that can maintain their value over long-term investment cycles, while inflation-resistant assets are tools used to cope with price shocks and protect purchasing power in the short term. Even if an asset is a high-quality store of value tool, it is not necessarily an effective means of fighting inflation, and vice versa.

From this perspective, we believe that the potential capital inflow into Bitcoin could be significant, especially in 2025, when cryptocurrencies are expected to truly enter the mainstream market. Bitcoin holdings have surged (see Figure 5), mainly due to the launch of investment tools such as spot Bitcoin ETFs, which have significantly lowered the investment threshold; at the same time, the liquidity and depth of the market have also increased significantly in the past five years. In addition to Bitcoin, the field of encrypted payments has also begun to accelerate, and more and more institutional participants are gradually recognizing the unique advantages of blockchain infrastructure in improving efficiency and controlling costs.

The growing investor base of Bitcoin is being paralleled by moves by several countries (and some U.S. states) to establish strategic Bitcoin reserves (or digital asset reserves). In March 2025, the White House formally established a strategic Bitcoin reserve by executive order, using Bitcoin seized by the U.S. government, totaling about 198,000 BTC. It is worth noting that China may be the worlds second-largest national Bitcoin holder, with an estimated 190,000 BTC, also mainly from seized assets, although the Bitcoin reserve plan has not yet been officially launched. At the same time, countries such as the Czech Republic, Finland, Germany, Japan, Poland and Switzerland are also studying the feasibility of incorporating Bitcoin into their national reserve systems.

In contrast, according to data from the International Monetary Fund (IMF) and the World Gold Council, by the end of 2024, global above-ground gold reserves exceeded 216,000 tons, of which national central banks and sovereign fiscal departments held about 17% (about $3.6 trillion) as reserves. On the other hand, affected by exchange rate fluctuations in 2024, global foreign exchange reserves fell from $12.75 trillion to $12.36 trillion in the fourth quarter of 2024. This means that gold holdings (not included in foreign exchange reserve statistics) currently account for about 23% of global comprehensive international reserves, compared with only 10% a decade ago. In addition, the Basel III Agreement will officially take effect on July 1, 2025, when gold will be reclassified from a Tier 3 asset to a Tier 1 high-quality liquid asset, which may also further promote the global de-dollarization of asset allocation.

As demand for the U.S. dollar weakens, we believe that more countries will seek to diversify their foreign exchange reserves in the future. Conservatively estimated, if only 10% of the worlds total international reserves are allocated to Bitcoin, the total market value of Bitcoin is expected to increase by approximately $1.2 trillion in the long run.

Tóm lại là

The global monetary system is undergoing a major transformation, manifested in the growing concerns about US fiscal and trade policies and the gradual weakening of the dominance of the US dollar, which has created a unique development opportunity for alternative store of value assets. We believe that Bitcoin, due to its sovereign neutrality, freedom from international sanctions, and being gradually regarded by more and more countries as a potential strategic reserve asset, is expected to benefit significantly from this trend in the future. At the same time, the redefinition of gold asset categories in the Basel III Accord and the slowdown in the pace of gold holdings by some central banks have further confirmed this structural shift. Overall, we believe that the world is accelerating its move away from its traditional dependence on the US dollar, and Bitcoin has the potential to become a key component of the future global financial system.

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