With Donald Trump elected as the US President, the cryptocurrency market is foreseeing huge changes. Trump’s administration is in favor of Bitcoin and cryptocurrency’s growth. Their interest in Bitcoin has already marked a significant shift in its value. On November 06, 2024, Bitcoin’s value reached a new height of 76,243 USD dollars following Trump’s presidential victory.
According to resources, from Trump’s administration, there is a high possibility of passing the Bitcoin Act. If this Act passes, Bitcoin will be designated as a reserve asset adding to its legitimacy. Furthermore, the U.S. government will get up to 5-6% of the total supply of Bitcoin and will make it as important as gold. This will increase the shift of investors’ interest in the Bitcoin market and its value will exponentially grow.
In this article, we will discuss how Trump’s Bitcoin Act will impact the cryptocurrency market. But before that, we need to learn the concept of reserve assets.
The Rise of Bitcoin and the Concept of Reserve Assets
Before we discuss the impact of the Bitcoin Act on the financial domain, it is important to learn what is a reserve asset.
A currency or entity held by the central banks or governments is called a reserve asset. A reserve asset necessarily supports the currency of a country and manages its economic stability. The U.S. dollar and gold are examples of reserve assets because they are highly stable and globally acceptable. Bitcoin is a decentralized currency and is shortly supplied. Moreover, its unstable market value prevented it from becoming a reserve asset for a long time.
Despite this, it is enormously popular and is about to gain the status of a reserve asset. Some of its attributes such as scarcity, portability, and being decentralized make it independent of the government. Because of these properties, Bitcoin has attracted hundreds of thousands of investors. Several financial institutes and hedge funds have started assigning parts of their portfolios to Bitcoin. This is a signal that Bitcoin is about to make a shift from a risky asset to a legitimate reserve.
What does the Bitcoin Act Imply?
The Bitcoin Act implies that it should get regulatory support and recognition from governmental entities. Proper regulatory support would make Bitcoin favorable for institutional investors to adopt it. This will definitely increase its legitimacy making Bitcoin a reserve asset. The act also demands that there should be increased protection and guidance related to Bitcoin transactions so that illegal activities like money laundering can be repelled.
If the Bitcoin Act passes, it will urge financial institutions to incorporate Bitcoin as a legal asset in their investments. It will greatly benefit them in return as Bitcoin’s worth will be largely enhanced. Governmental acceptance and regulatory guidance are the major factors that help an asset get established and legalized. This will enhance Bitcoin’s possibility of becoming a strategic reserve asset.
How the Act Could Affect Bitcoin’s Legitimacy?
Bitcoin couldn’t achieve legitimacy primarily because of the government. The governmental entities were hesitant to make it a legal asset because of the highly volatile nature of Bitcoins. It also lacks regulatory monitoring. However, all these hurdles are about to be shackled, as the Bitcoin Act is greatly supposed to be accepted after Donald Trump’s electoral victory.
Bitcoin’s value has already surged making a historic increase in its price. As reports say, the price of Bitcoin reached its all-time high of $A114,173 on Wednesday. Therefore, It is set to change the landscape of the cryptocurrency market shortly.
After this Bitcoin Act passes, financial institutes and reputable investors will no longer be reluctant to embrace Bitcoin. The enhanced transparency and protection of Bitcoin transactions will reduce the distrust among governments, banks, and investors. The risks of potential fraud will also be mitigated. The regulatory protection will reduce the market instability that was subjected to Bitcoins. Hence, more and more investors will be attracted to make Bitcoin a reserve asset.
The Importance of Bitcoin as a Global Reserve Asset
If Trump’s administration succeeds in making the Bitcoin Act legitimate, the possibility of Bitcoin becoming a reserve asset would increase. If the U.S. government being the most powerful force acting in the World as of now, gives regulatory approval to Bitcoin then other nations will also be delighted to consider it.
The world largely affected by inflation and financial instability might look to Bitcoin as a fence against devaluation. This is because it is independent of government control. Moreover, if Bitcoin becomes more stable, economically weak countries will tend to keep it as a reserve asset instead of U.S. dollars. That will be more convenient for them.
There is a high possibility that some nations might use Bitcoins to diversify their portfolios. This will reduce the need for other countries’ currencies. It will result in the transformation of the financial world with Bitcoin being universally accepted as a reserve asset.
Economic Impacts of Bitcoin Act on Financial Markets
If the Bitcoin Act gets legalized, it will greatly impact the financial market. With many people and institutions adopting Bitcoin, the demand for other cryptocurrencies will also be enhanced. It will bring innovation in the digital assets world. Investors would tend to include Bitcoin in their portfolios and this will result in the market’s increased volatility. This will affect the stock market greatly and other assets will also be affected.
If Bitcoin becomes a reserve asset, the central banks will face challenges in managing currencies and inflation. They will not be able to manage inflation traditionally. Moreover, as more institutions and countries will have Bitcoin in their reserves, demand for the U.S. dollar will decline. This will affect exchange rates and trade balances.
There will also be a change in the investment habits. Many companies will take part in developing blockchains and cryptocurrencies. This is how there will be more job opportunities and calls for innovative minds in the tech world.
Conclusion:
Donald Trump’s presidential victory has surged the worth of Bitcoin. Its value has reached the levels it was never before. The U.S. government is considering making Bitcoin legitimate and giving it regulatory protection. They have proposed a Bitcoin Act. If this Act gets approved, it will further enhance the worth of Bitcoin. Shortly it will serve as a reserve asset. People will largely invest in it and will use it instead of U.S. dollars.
The Bitcoin Act will also reduce the market instability that Bitcoin has always experienced. Reputable financial institutions and companies will greatly adapt to it. There will be increased job opportunities because the companies’ interest will shift to the development of cryptocurrencies and demand for creative and innovative minds will increase.
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