Reserve currency exists so countries can trade with each other. Bitcoin is technically suitable for these purposes, but can people and states recognize BTC as a reserve currency? What are the chances of this happening anytime soon?
What is a reserve currency
A reserve currency is usually considered to be one that is held in the reserves of banks and states, and is also actively used in international trade and mutual settlements.. Any country's currency can obtain reserve status.. Although in reality it is not so simple: it is necessary to ensure relative stability and efficiency of the economy, which will be expressed in budget stability, free trade, a healthy business climate, fulfillment of obligations, and so on.
Nowadays, quite a lot of currencies are reserve: dollar, euro, pound sterling, franc and so on.. The American currency is dominant in the formation of reserves. This does not apply to individual jurisdictions like Russia, which has been subject to unprecedented international sanctions since 2022.
So can Bitcoin or another cryptocurrency become a reserve? For example, for countries like the Russian Federation.
Chances of BTC becoming a reserve currency
Now, in 2023, the chances are slim. Why? The status of a reserve currency is inextricably linked with legislative regulation. And cryptocurrencies and the industry as a whole have a lot of difficulties with this.. Year after year, politicians are tightening the screws on the free crypto market; legislation in the field of digital assets is almost everywhere in an embryonic state.
Do not forget: historically, the first cryptocurrency arose precisely as a method of free monetary exchange between people, as opposed to traditional financial institutions.
Firstly , this is hinted at by a message in the hash value of the genesis block of the Bitcoin blockchain with content referring to the headline of The Times newspaper: Chancellor on brink of second bailout for banks (can be translated as: “The Chancellor is on the verge of (providing?) a second bailout assistance to banks»). In this way, Satoshi Nakamoto emphasized the idea of the failure of traditional finance and the banking system.
Secondly , the Bitcoin White Paper clearly describes the idea of cryptocurrency as a peer-to-peer system, that is, a system in which people can exchange money directly with each other, without any intermediaries at all.
Thirdly , reserve currency status gives advantages to countries that print/mint it. This will not happen with a cryptocurrency like Bitcoin.. Lawmakers don't have a machine that prints Bitcoin, Ether, or Solana.
So, now the possibility of cryptocurrency becoming a reserve currency looks unlikely, but not unrealistic?
Why Bitcoin will become a reserve currency
The first argument: cryptocurrency in international transactions is often a more efficient, faster and cheaper coin compared to regular fiat. However, although the crypt has transaction fees, if you come to a conditional Spain with conditional Turkish lira, you will lose incomparably more on the exchange of money.
Second : the advantage of Bitcoin is that with its help you can bypass any sanctions and restrictions. Yes, this is a plus for entrepreneurs and individuals, and not for officials who formally establish the status of a reserve currency. But digital assets are already becoming a kind of safety net for countries subject to sanctions and restrictions on the free movement of fiat money.. In short, this is a double-edged sword.
The third reason why the same Bitcoin could be recognized as a reserve cryptocurrency is its limited emission. It is profitable to keep BTC in reserves, as it will not lose value due to inflation. In addition, the cryptocurrency is quite resistant to global shocks: the COVID-19 pandemic and military conflicts will not let you lie.
American Senator Rand Paul previously successfully spoke in favor of this point of view. The politician is confident: Bitcoin looks more attractive as a global reserve currency than the US dollar, amid the crisis of the institution of state currencies. The congressman considers the latter not reliable enough in comparison with BTC.
Why Bitcoin Won't Become a Reserve Currency
First and most importantly , this is unprofitable for the governments of most countries in the world. By making Bitcoin, a decentralized cryptocurrency, a reserve currency, they will therefore be giving away a significant amount of control and power, as well as supporting a “market rival” to fiat currency.
The head of the investment company Berkshire Hathaway, the legendary investor Warren Buffett, speaks in favor of this point of view.. He argues that although people's confidence in the dollar has been shaken amid macroeconomic problems, this does not yet mean that Bitcoin will become a global reserve currency. According to an experienced trader, the dollar simply has no worthy competitors.
Second : Bitcoin has proven its worth over time, but it may not be the best solution for mass transfers with the support of most countries due to the problem of network scalability (at least if you do not take into account solutions like the lightning network and others). BTC is simply too slow: the five transactions per second that are inherent to the network is too low compared to modern cryptocurrencies. The same Solana with 65,000 transactions per second looks preferable. But it has its drawbacks: issues with decentralization, periodic failures (recently, however, sharply reduced) and low recognition in comparison with Bitcoin.
On the other hand, Bitcoin is often compared to gold. By analogy, it can be assumed that although gold coins have not been a “reserve currency” for many years, gold savings themselves are used as reserves. There is nothing stopping you from using Bitcoin for the same purposes or going further by creating an asset like a Bitcoin-backed stablecoin for mutual settlements.
With the advent of neural networks, various enthusiasts posed the question to artificial intelligence: what will happen if BTC becomes a reserve currency?
What AI thinks about BTC as a reserve currency
Bticoin.com News specialists conducted their experiment in early June. They directly asked five neural networks (Chatgpt 3.5, Claude 4, Chatgpt4, Bing AI and Bard) whether Bitcoin could become a reserve currency.
The answers of artificial friends are unlikely to please crypto enthusiasts. For the most part, there was quite a lot of vague wording, as is typical for AI.. Nobody gave an exact answer. For the most part, neural networks answered that everything is possible, we just need to overcome a bunch of obstacles (from better development of legislation to improved technology, etc.). If all this is done, then Bitcoin could become the world's reserve cryptocurrency.. It's just a low probability. Only two neural networks set any time frames. Bard believes that within the next ten years, Bitcoin can become a reserve currency, having overcome all obstacles. And Claude 4 estimates the likelihood of this happening in the next 10-15 years as low or moderate.
Conclusion
Thus, in modern realities there are few prerequisites for Bitcoin to become a reserve currency.. BTC is capable of becoming this if serious changes occur in the legislation and attitude of society in countries around the world. On the other hand, due to the distinctive market advantages in comparison with fiat currency, against the backdrop of macroeconomic problems and crises, states could well begin to increase reserves, diversifying their savings, including in Bitcoin — already now.