Is Bitcoin The Next Reserve Currency?

Is Bitcoin going to become the next reserve currency? A lot of speculation is going around currently about the next reserve currency since Dray Dalio posted his infamous video about the Principles of a Changing World Order. In this video he describes very well the cycles that different economic world powers went trough the history of time and how the US Dollar is currently on the decline which is heavily accelerated by the heavy money printing we saw in the last years combined with the results of the pandemic. In this article I want to talk about why the next cycle could be completely different and why Bitcoin is a major player in the upcoming decades.

Terra’s BTC Accumulation

It was recently announced that Terra is planning to accumulate around 10 Billion US Dollar worth of BTC. For those who do not know Terra: This project are behind the UST decentralized algorithmic stable coin which has a mint and burn mechanism behind it. This mechanism allows you to trade one US Dollar worth of Luna against one UST and vice versa. This concept is a very successful one while the crypto market is in a pump period in which the demand and hype around LUNA goes up which brings the price of LUNA up as well. The problem with so many algorithmic stable coins is that they are not very crash resistant. In the case of a crash or bear market the system quickly loses its charm when more and more selling pressure is added to LUNA which essentially ends up in a death spiral.

The difference now is that Terra is planning to implement an additional Reserve pool to the equation where people can trade one dollar worth of BTC against one UST and one UST against around 0.98 worth of BTC. This would not only add additional security and collateral to the system but would also take away pressure away from LUNA in the case of a crash. So far there is already around 1.4 billion dollars worth of BTC accumulated.

Bitcoin’s New Role

This project would result in a decentralized stable coin that is represented by the best collateral in crypto: BTC. That means that UST would position themselves as one of the biggest and most reliable stable coin in crypto. This is a very big step to guarantee the stability of a stable coin without actually having it backed by real US Dollars. The beauty about this solution is that BTC is widely recognized in the crypto world as the most decentralized project and is therefore trusted and has already a big network to work with. This would essentially mean that BTC is taking a new role. So far it was a potential store of wealth but with this move it could back the whole DeFi space which would essentially make BTC the reserve currency of the DeFi world.

Outlook Into The Future

Now I mentioned in the intro that BTC might be the world reserve currency at some point. This could get a possible reality if Terra’s experiment is successful. Like we are seeing now, BTC could become the reserve currency of the decentralized finance. Because we all can see DeFi taking over at some point this would undoubtedly mean that BTC could also become the world’s reserve currency. Now this will not happen without a fight from the US Dollar side as well as from the potential next superpower: China. But I truly believe that a decentralized system will have the upper hand over a centralized currency over the long time as the advantages of freedom and self determination are clear in my opinion. Until we could get to this point it could definitely take a few more years or decades but I truly believe in the idea of it!

Published by ga38jem on
Steemit
On 8th April 2022