Will Nation-States Power The Next Bitcoin Bull Run?

The first bitcoin BTC/USD bull run in 2011 to $20 was driven by cybercriminals and libertarians. In 2013, demand led by Chinese citizens seeking more monetary freedom drove the price to over $1,000. In 2017, retail investors started piling in after the CME approved the first Bitcoin futures, driving prices to over $20,000. 

In the latest bull run to $64,000, institutional and corporate investors started investing, including Michael Saylor’s MicroStrategy and Elon Musk’s Tesla. El Salvador also contributed to the hype by becoming the first country to make Bitcoin legal tender. 

So will there be another bull run, and if so, what will drive it?

Who’s Buying?

There are a number of factors that fuel Bitcoin bull runs— economic uncertainty, block reward halving, and favorable decisions by regulators all play a role. But at the end of the day, Bitcoin price goes up when the supply exceeds the demand, triggering the infamous FOMO; “fear of missing out.”

So the question is where will the demand for another bull run come from? Another major surge in interest from private wealth management firms seems unlikely. A recent survey showed that interest in cryptocurrency by wealth management firms has dropped significantly over the last 2 years.  

Institutional interest in Bitcoin is still strong, with major players like JP Morgan and Goldman Sachs still experimenting, but major funds appear to be taking a very cautious and gradual approach. Institutional investment could be a major factor in driving up cryptocurrency prices. Their decisions are ultimately a reflection of their clients, and as the client base shifts more from baby boomers to millennials, demand for Bitcoin and crypto products is bound to grow. 

This may help build momentum for a future rally, but it’s unlikely to provide the kind of surge that powered past bull runs. Increased interest in cryptocurrency by national governments, however, could provide the catalyst for another boom.

How National Governments Could Power A Bitcoin Rally

There are two major ways that national governments could trigger a Bitcoin rally; 

1. Holding Bitcoin as a reserve currency.

2. Making Bitcoin legal tender.

Even a mid-sized national economy like Turkey or Argentina making a move toward either of these would send shockwaves through the market and probably set off a buying frenzy. Imagine then, if a major economic power like Brazil or India made such a move. 

Right now, countries adopting Bitcoin as a reserve currency is much more likely than adopting it as legal tender, but this could change. It all depends on what happens to the current reserve currency, the US dollar. 

Foreign currency reserves are an important tool used by national governments for regulating exchange rates and facilitating imports and exports. The US dollar is by far the most popular reserve currency worldwide.

The total amount of foreign currency reserves worldwide amounts to more than $12 trillion, with approximately 60% of that in the form of US dollars. If the dollar were to collapse, it would send national governments scrambling to replace those reserves with something else. If that something was Bitcoin, it would lead to an explosion in Bitcoin price.

But could the dollar really collapse? And if it did, how likely is it that Bitcoin could replace it?

The Case For Bitcoin

No reserve currency in history has lasted forever. Five other countries have held world reserve currency status over the last 600 years; Portugal, Spain, Netherlands, France, and Britain. On average, reserve currency status lasted 94 years.

The US dollar has been the world reserve currency now for almost 80 years. This means that historically speaking, the US dollar may be approaching its expiration date. 

Some economists argue that Bitcoin can never replace to US dollar because of its volatility, and this is a real problem. However, Bitcoin does have one thing going for it— its apolitical nature. 

Many countries around the world are tired of the US using the dollar as a political weapon to run high deficits and sanction opponents. China and Russia have been pushing for a gold-backed currency for a while, but this is unlikely to gain traction. It would be just as politically biased as the dollar, if not more so. 

The Bitcoin network is distributed worldwide, and no nation or political interest group can control it. The longer that it runs, the stronger its record becomes as a stable store of value. These properties could make it appealing as a reserve currency. This is one reason US presidential candidate Robert F. Kennedy Jr. recently made backing the US dollar with Bitcoin part of his campaign platform. 

Manipulation By National Governments

One of the strongest arguments for increased use of Bitcoin by nation-states is the potential for manipulation. It would be easy for prominent officials to accumulate large reserves of Bitcoin, and then make a public announcement about including Bitcoin in foreign currency reserves.

Global cryptocurrency markets would go wild at such an announcement, allowing officials to trade the news and pocket a tidy profit. This is common among major banks and investment firms who regularly pay huge fines for market manipulation and insider trading. 

But when nations engage in market manipulation, who is going to punish them? After all, they are the ones making the laws. 

More Government Involvement In Bitcoin And Cryptocurrency Inevitable

We can be sure that national governments will get more involved in cryptocurrency because there is profit to be made from it. El Salvador’s sizable Bitcoin position is likely just the beginning of a major trend.

Cryptocurrency markets are an anomaly, because there has never before been a truly global market that anyone can access. This means that unlike stock markets of the past, no regulatory body will be able to control the market, and national governments will be able to make profits through market participation, whether just by holding reserves or by manipulation. 

Just as early adopters of Bitcoin made a lot of money by investing in (and manipulating) cryptocurrency markets, the first nations to adopt will also probably be able to amass wealth and power.

This process is very likely to cause a lot of capital to flow into cryptocurrency markets, pushing prices to new highs. Any decline or loss of confidence in the US dollar will greatly accelerate this process.