If Bitcoin Becomes World’s Reserve Asset, What Happens then?

Bitcoin may eventually end up becoming the world's reserve asset, taking over gold

Among all digital asset classes, Bitcoin has the most volatile trading history. The cryptocurrency's first big price rise occurred in 2010 when the value of the BTC token jumped from being just a fraction to US$0.09. Now, the status of Bitcoin clearly declares that the crypto is one of the top digital assets in the world, with the largest market capitalization, and the most mainstream adoption. Bitcoin's value skyrocketed to become a genuine store of value, several investors even started calling Bitcoin the 'digital gold'. Well, even Indian investors, who strongly believed in investing in traditional forms of physical assets like gold have now migrated to buying digital assets like Bitcoin. This fight between Bitcoin and gold has been longstanding now. BTC has proved itself to be an outstanding asset for investors because it has been around long enough to gain support and recognition, and currently, it is showing advanced adoption trends. Gold has been acting as an asset that held value over long periods and was used as a hedge during economic downturns. But even though Bitcoin is young and unpredictable, investor speculations have derived it as the new storehouse of value during inflation and other financial crises. Experts believe that BTC can overtake gold as a reserve asset if its exponential growth continues. While some feel that this was inevitable, others wonder about the impact this might have on the traditional economic markets and the cryptocurrency market individually. 

Historically, gold performs exceptionally well during market corrections since it maintains a value, is somewhat steady, and rises as investors tend to move from stocks to gold if the recession is threatening, which makes it extremely useful as a hedge against market corrections or recessions. But when it comes to Bitcoin, the crypto has only recently emerged as a competition against such a powerful investment class. But in a recent report published by the American investment firm VanEck, the firm revealed that the value of Bitcoin might end up as high as US$4.8 million, per coin, if it becomes the global reserve asset. 

The Struggling Global Economy

The prevailing economic and financial system already has its fair share of obstructions. Currently, most countries would want their fiat currencies to serve as a global reserve asset to provide sufficient support to global demands. And to meet these demands, the central banks of the world's largest economies can easily print fiat money. 

Reserve currencies are generally acquired by central banks and major financial institutions as foreign exchanges aim to stabilize exchange rates and facilitate efficiency in global trade. Initially, the US dollar served as the world's primary reserve currency. But the present struggles of the US dollar speak a different story. The government's inability to hold enough gold reserves, combined with the occasional printing initiatives to combat financial crises has led the US dollar to sink in value, in terms of its purchasing power, giving Bitcoin an even bigger scope to emerge as the new global reserve asset.

Bitcoin's scope as the World's Reserve Asset

Now, coming to BTC's scope to become the reserve asset of the asset, experts and Bitcoin supporters are quite eager and confident that the crypto oozes potential to handle global trade and support the global financial markets. But that also means the global markets will be handled and governed by a volatile, decentralized currency. Then, will the governments eventually centralize Bitcoin, and integrate stability in the market? Well, only time will tell, but Bitcoin was created with the intention to be scarce in nature. Its maximum supply is capped at 21 million, making it even more valuable over time.

Nevertheless, crypto analysts have time and again urged crypto participants to be aware of the coins' movements and ensure that they are always updated with the investor sentiments and curate their investment strategies accordingly.