Source: Xue Tao Macro Notes
Author: Song Xuetao Li Mengying

The essence of currency is credit, the essence of credit is order, the essence of order is technological competition, and the essence of technological competition is energy efficiency.

Trump fulfilled his campaign promise in$Bitcoin (BTC.CC)$which appointed cryptocurrency supporter Paul Atkins as the SEC chairman, replacing current chairman Gary Gensler, who is known for his tough regulatory stance on cryptocurrencies. After Trump's election, the price of Bitcoin quickly surpassed $76,000, setting a new historical high, and then continued to soar past the $0.1 million mark.

Trump was once a skeptic of Cryptos during the 1.0 era, but in the 2.0 era, he transitioned to being a strong advocate for "making the USA the crypto capital of the world." One main reason for this is that MAGA needed an alternative to maintain the dominance of the dollar, and Bitcoin has been given a unique mission that transcends technological development.

Trump's 2.0 strategy aims to escape the political fate of falling due to stagflation, hoping to improve fiscal efficiency and total factor productivity through AI. However, if AI fails to achieve the expected results, deficit monetization will accelerate the process of "de-dollarization". Over the past two years, Gold has benefited as a result of de-dollarization and has become a favorite among investors.

However, MAGA cannot tolerate the erosion of the dollar's monetary hegemony, so Trump needs an alternative to maintain the dollar's status. This alternative must be something that the USA can control and exert influence over; Gold is likely already off the table, while Cryptos, represented by Bitcoin, may still have a chance. But the essence of currency is credit, and if there is no credit, then inject credit.

Trump's Unbreakable Bond with Bitcoin.

After announcing his candidacy for president again, Trump's relationship with the crypto world has been increasingly close. First, Trump's stance of "deregulation" coincides with the demands of the crypto world. Furthermore, Silicon Valley elites, including Musk and Peter Thiel, are increasingly unable to tolerate the California government's and the Democratic Party's leftward policy inclinations, such as antitrust threats to the growth of efficiency-oriented technology giants, which indirectly promotes Trump's collaboration with Silicon Valley and, to some extent, becomes a catalyst for the development of Bitcoin.

Since Trump announced his candidacy for president, Bitcoin's price has experienced two notable surges, both exceeding 40%. The first surge was from the successful Iowa primary, where the price skyrocketed from approximately 0.04 million dollars to about 0.07 million dollars, and the second was after winning the presidential election, climbing further from around 0.07 million dollars to about 0.1 million dollars.

The rise in Bitcoin's price is related to Trump's campaign period linking the MAGA ideology to it. Trump stated, "Bitcoin is a miracle of technology and human achievement, and it will surpass Gold in the future," expressing the intention to grant Bitcoin the same status as a reserve currency as the dollar, maintain a national strategic Bitcoin reserve, and never sell off government-seized Bitcoin, aiming to make the USA a capital of Cryptos.

Bitcoin is not a substitute for Gold.

After Trump was elected, the decline of Gold contrasted sharply with the rise of Bitcoin. The discussion of whether Cryptos, especially Bitcoin, known as digital Gold, can replace Gold has resurfaced.

(1) Bitcoin and Gold have three similarities:

First of all, both have supply scarcity. Specifically, as of the end of 2023, the above-ground stock of Gold is 212,582 tons, and the underground reserves are about 59,000 tons. The Bitcoin protocol stipulates a total supply limit of 21 million coins, and the mining reward for Bitcoin, known as the "block reward," undergoes halving every four years. This is one of the key mechanisms the Bitcoin protocol uses to maintain its scarcity, as it means that the difficulty of mining will gradually increase.

Secondly, both are decentralized and non-sovereign assets. Gold and Bitcoin are not issued by central authorities. In other words, central banks cannot decide to mint more gold coins. Similarly, finance ministers cannot command to slow down or speed up Bitcoin mining. In the past, investors chose to invest in Gold to hedge against currency and fiscal policy risks for asset diversification, and now Bitcoin has become a new choice.

Moreover, both have certain speculative and hedging properties. However, there are significant differences in degree: Bitcoin is more often a risk asset with strong speculative characteristics and only occasionally exhibits hedging features. In this regard, Gold acts like a mirror to Bitcoin, showing more pronounced hedging characteristics and only occasionally demonstrating speculative traits. The speculative characteristics of Gold may appear as a momentum effect during rapid price increases, but this reaction is usually short-lived since Gold has characteristics different from Bitcoin.

(2) Gold and Bitcoin also have three differences:

First, Gold has physical uses, involving industrial production, personal Consumer, etc., while Bitcoin is a digital asset constituted by code and belongs to a virtual existence. Physical items have physical uses, while virtual items have virtual uses; for example, Bitcoin may be used in money laundering, tax evasion, financing illegal activities, and other gray areas, which also poses challenges for global anti-money laundering regulation, especially in tracking KUAJINGZIJIN.

Secondly, Gold holds a unique position in the Commodity market, and no other Precious Metals, whether Silver or Platinum, can compare with Gold. Bitcoin currently still dominates the Cryptos market, accounting for about 56.72% of the total market cap of all Cryptos, but an increasing number of Bitcoin substitutes are emerging, such as$Ethereum (ETH.CC)$(Ethereum),$Binance Coin (BNB.CC)$(Binance Coin), etc.

Finally, Gold and Bitcoin also differ in terms of security. Gold, as a physical asset, is not easily affected by cyber attacks or digital fraud, but it requires secure storage, especially during cross-border Transportation. On the other hand, Bitcoin holders may encounter hacking attacks or loss of private keys, which leads to a loss of control and lacks additional security measures. Bitcoin wallets are divided into hot wallets (where private keys are stored online) and cold wallets (where private keys are stored offline).

In Bitcoin transactions, users must use their private keys to digitally sign and confirm their control and ownership of the wallet. However, incidents of hot wallets being hacked are common. As for cold wallets, many investors also suffer from significant Bitcoin losses due to device failure or loss.

Bitcoin is Plan B when AI fails.

Trump, who has returned to the White House, has realized that if the efficiency issues of USA's finances and manufacturing are not addressed, the economy will increasingly rely on deficit monetization. Once a certain critical point is broken, a debt spiral will occur, and the dollar's dominance will be accelerated.

Therefore, Trump's governing philosophy for his second term is very clear: to improve production efficiency and governmental financial efficiency through AI, letting the USA break away from the stagnation track and maintain the dollar's globally recognized status as a reserve currency. In this process, Musk will play an important role, which is why Trump elevated Musk's political status, making him the most important person around him, and Musk has already had a direct impact on the USA government's budget proposals.

Once it fails, the dollar will not only depreciate against Gold but may further undermine its status as a global reserve currency and sovereign credit money. Although the probability of this happening in the short term is low, such a shift is often suddenly accelerated at a certain moment. Historically, the transition of great power status often goes through a long period of parallelism and competition, and the eventual transfer of power is completed in a short time.

Therefore, Trump needs to develop a Plan B to maintain the status of the dollar, in case AI Technology fails to improve productivity, reduce fiscal deficits, lower inflation, and narrow the wealth gap, and this alternative plan is Bitcoin.

Although there is currently no currency that can replace the dollar in the short term, linking Bitcoin to the dollar can be seen as a hedging strategy against the dollar's status. Once the dollar's position as a global reserve currency is severely threatened, the USA can at least weaken the status of Gold by controlling Bitcoin to continue maintaining the dollar's monetary position.

Energy is crucial to the technological revolution.

After meeting with several Company Executives from cryptocurrency mining companies, Trump proposed in June 2024 to fully realize "Made in America" for Bitcoin. Energy, as a key limiting factor for Bitcoin mining and trading, is of paramount importance. Bitcoin's energy demand is entirely dependent on Electrical Utilities supply. According to estimates from the UK University of Cambridge, Bitcoin consumes about 172.1 terawatt hours of electricity per year, exceeding the annual electricity consumption of countries like Egypt, Malaysia, and Poland. In Texas, where many crypto mining companies are concentrated, 10 mining companies consume more than 1,800 megawatts of electricity each year.

Bitcoin miners tend to seek low-cost Electrical Utilities to ensure profitability. In 2023, 81% of newly commissioned renewable energy projects (about 382 gigawatts) had costs lower than fossil fuel projects. For example, the cost of photovoltaic power generation dropped to about 4 cents per kilowatt-hour in 2023, which is 56% lower than fossil fuel and nuclear energy generation costs. Therefore, the share of renewable energy used in Bitcoin mining continues to increase. According to Woocharts data, as of October 2024, the proportion of mining using sustainable energy was 56.8%.

Historically, a country's strength is often closely linked to its energy productivity. For instance, the technological revolution allowed the UK to achieve breakthroughs in Coal Mining and usage technology, providing a foundation for the long-term status of the British Pound. The USA has reinforced its global leadership status through controlling the extraction, Transportation, and consumption of oil, as well as its influence on global geopolitics. Countries that master advanced productive forces reliant on energy are able to stand out in long-term competition, establishing their dominant position from trade to manufacturing and then to Consumer and finance.

Today, the constraints of traditional energy are gradually diminishing, and New energy Fund represented by sustainable energy is rising. For a country, developing and mastering new energy has become crucial, as low costs, stable and sufficient supply, decentralized layout, and movable energy supply systems are critical foundations for triggering a new round of technological revolution and improving productivity.

Thus, AI represents Plan A for maintaining the dollar's status, while Cryptos represent Plan B for hedging against the erosion of the dollar's status. However, whether it is Bitcoin or AI, energy is an unavoidable core element. The essence of currency is credit, the essence of credit is order, the essence of order is technological competition, and the essence of technological competition is energy efficiency. Countries that master new energy can lead the application of new technologies, improve productivity, and expand the scope of efficient and low-cost applications, thereby enhancing total factor productivity. Regardless of which country wins in this competition, once a new order is established, the historical mission represented by Gold in the major changes unseen in a century will be declared complete.

Risk Warning

The development of Bitcoin has not met expectations; Bitcoin has failed to help the USA maintain its currency hegemony; the USA has successfully achieved improvements in administrative efficiency and production efficiency using Technology.

Editor/rice