Viewpoint: The US dollar will be further coupled with Bitcoin

The main medium of exchange for cryptocurrencies at present is the US dollar stablecoin. In fact, the original US dollar stablecoin USDT was created to facilitate global users to trade cryptocurrencies. Today, various US dollar stablecoins have become the default medium of exchange for cryptocurrencies. These dollar-based stablecoins include USDT, USDC, PAX and GUSD, among which USDT still occupies the vast majority of the market share. These stablecoins can be divided into two categories: compliance and non-compliance. There has always been a lot of uncertainty about USDT's compliance. USDC, PAX and GUSD are issued strictly in accordance with the 1:1 method with the US dollar under the supervision of the United States. But no matter what the compliance attributes of these stablecoins are, they are currently used in global cryptocurrencies transactions, including transactions with Bitcoin.

Bitcoin as a Store of Value and the Dollar

Recently, the U.S. financial regulator clarified its position on stablecoins, indicating that it encourages the issuance of digital stablecoins based on the U.S. dollar in the U.S. market. Given the various innovative opportunities that U.S. dollar stablecoins can bring, it is expected that a large number of U.S. dollar stablecoins will be generated in the market (see my article "U.S. Commercial Banks Will Launch U.S. Dollar Stablecoins"). These newly generated U.S. dollar stablecoins will change the existing U.S. dollar stablecoin market landscape. One of the most important changes will definitely be to determine the nature of USDT and the corresponding regulatory measures. This will definitely affect the market share of each U.S. dollar stablecoin in the market. One of the most direct results of the emergence of a large number of U.S. dollar stablecoins is to further strengthen the position of the U.S. dollar in cryptocurrency transactions. Given that the newly emerging U.S. dollar stablecoins will be issued under the premise of compliance, more funds will flow into U.S. dollar stablecoins. Traders who hold these U.S. dollar stablecoins for cryptocurrency can also reduce their risk exposure in this trading medium. Therefore, in terms of transactions, U.S. dollar stablecoins will be more closely coupled with Bitcoin.

Bitcoin as a value transfer tool coupled with the US dollar

In the cryptocurrency market, Bitcoin is traded as a value storage tool. The main purpose of users engaging in these transactions is to keep their assets from depreciating, especially to hedge against the depreciation of their assets caused by the depreciation of the US dollar. Therefore, in this sense, Bitcoin can be said to be the biggest competitor to the US dollar (see my article "Bitcoin is the biggest competitor of the US dollar"). However, as a value transfer tool, in some other parts of the world, Bitcoin's value transfer tool attributes are used to exchange local legal currencies with the US dollar.

In some areas with economic turmoil and rapid currency depreciation, some transactions in the market can only be completed in US dollars due to the depreciation of local legal tender. For local users, one of their convertible channels is to exchange Bitcoin for the US dollars they need for daily transactions. For example, this is the case in Lebanon. In this case, Bitcoin becomes the exchange medium between local legal tender and US dollars. Therefore, there is a cooperative relationship between Bitcoin and the US dollar. However, when the US dollar stablecoin appears, the market demand for this attribute of Bitcoin will definitely weaken, because the exchange of local legal tender and US dollar stablecoin will be more convenient.

US regulatory policies will further promote the coupling of Bitcoin and the US dollar

At the beginning of 2021, the new US government took office. In terms of financial regulation, its core figure is Gary Gensler. Gensler first served as an advisor on financial regulation to the Biden administration transition team. Now he has been nominated as the new SEC chairman. It is believed that under his influence, the candidates for the other two major US financial regulatory agencies, CFTC and OCC, were nominated. Both candidates have extensive experience in the field of blockchain encrypted digital assets. If the appointments of the candidates for these three financial regulatory agencies are approved, they will definitely promote the development of encrypted digital finance in the US market. Under the promotion of the new financial regulatory agencies, one change that will occur is the further recognition of Bitcoin in terms of regulation. Specifically, Bitcoin will be traded as a mainstream trading product on digital asset exchanges at the national level in the United States (see my articles "Some predictions on the emergence of digital asset exchanges in the United States" and "Bitcoin will become the first product traded on each digital asset exchange"). In addition, Bitcoin-based ETFs will also be approved for trading on existing stock exchanges (see my article "Bitcoin ETF application is a question that the new SEC chairman needs to answer immediately"). Therefore, these measures will promote the further coupling of the US dollar with Bitcoin.