Bitcoin vs USD: Why BTC is yet to catch up to the dollar for global dominance

When the US expanded its financial might in the Second World War, global finance became the subject of a rapid transformation. In the post-World War, the US became the de facto top global power, and the US Dollar essentially became the currency of might, as well as trade, something that went on to become the spearheading aspect of the US’s economic sanctions in the later years.

However, as the world relied on US banks and the US Dollar for global trade, economic sanctions became the weapons of choice against many. De-dollarisation, or reducing the reliance on the US Dollar, began echoing in selected corners of the world as a result, however, with little mileage before 2009.

What happened in 2009 was unprecedented in the world of finance. A mysterious individual named Satoshi Nakamoto launched Bitcoin, the world’s first-ever decentralised currency, Bitcoin — a development that went on to have a significant impact in the upcoming years. Presently, Bitcoin has accumulated a valuation beyond leaps and bounds, leading several states around the world to confirm their participation in it.

The US has created a Strategic Bitcoin Reserve, countries have reportedly been using it to complete trade, and in nations like El Salvador, it has garnered legal tender status. Despite making significant inroads, Bitcoin’s status as a risk asset has not changed, and it remains miles beyond the US Dollar as the preferred currency for transactions.

Bitcoin’s present capacity

While many Bitcoin enthusiasts, analysts and economists have stressed the importance of DeFi, or Decentralised Finance, it is easier said than done. In layman’s terms, a comparison between Bitcoin and the US Dollar remains unfruitful owing to numerous reasons.

For starters, if we look at Bitcoin’s strengths, we soon understand that decentralisation has been the foundation of its growth, meaning no central organisation or state is responsible for its dynamics or circulation. On the other hand, the US Dollar is circulated and managed by the US Federal Reserve, and the country’s gigantic global positioning and financial might over a considerable time means that it is capable of sustaining its position as the de facto king of international transactions.But what does that mean for Bitcoin? At present, Bitcoin is used by only a handful of the global population. In fact, several geographies across hemispheres restrict or have banned the usage of Bitcoin, like China, Egypt and Morocco. While the majority of the first-world countries have been endorsing Bitcoin for some time now, the fact remains that the vast majority of the global population still do not have a footprint in this new-age asset. On the other hand, the US, under the current Trump administration, has been vehemently opposing any de-dollarisation efforts. For instance, the Indian CBDC program, or the BRICS countries’ bid to create a unique currency for trade, has been on the receiving end of international pressure, leading to either the plans being dropped or being restricted significantly.

As a result, the US Dollar has strengthened significantly, and the country has been focusing on becoming the largest stakeholder in Bitcoin ever since.

The US Dollar supremacy

Not going into the economic details, what makes the US Dollar the supreme currency in the world is not how widely circulated it is, but its functionalities across the world. The current world order that is headed by the USA provides the US Dollar with extensive stability, something that cannot be said about any other currency.

On the other hand, Bitcoin is widely known for its volatility, something that does not suit the requirements of global trade or transactions. Stability is one of the key factors that has made the US Dollar legal tender beyond its national borders, which at the same time impacts Bitcoin’s credibility and bid to replace the USD at the international stage.

Furthermore, while Bitcoin remains one of the fastest-growing assets in the world, the reality is that it has been operating for less than half a century. At present, stakeholders still consider it a risk asset, and without significantly more adoption across the world, it is far from possible for BTC to replace the US Dollar at the top. Bitcoin’s high transaction costs and slow processing time also impact its role as a means of transaction for global trade, essentially making it ineffective when compared to the US Dollar.

However, while the US Dollar supremacy is expected to remain for many more years, Bitcoin’s rise to prominence should not be understated by any means. With its operational activity spanning 16 years, Bitcoin has achieved the unthinkable with DeFi, an aspect that will only grow with time. However, it is not feasible to replace the US Dollar in any way at its current capacity, but should instead be looked at as a supplementary asset, something the US itself, along with other countries like Brazil, Bhutan and many others, are doing at the moment.

Future outlook

The bottom line is, the supremacy of the US Dollar is expected to continue for many years. Without a significant shift in the world order like the last century, when the seat of power transferred from Europe to the US, it is practically not probable for the US Dollar to lose its dominance across the world. At the same time, Bitcoin is expected to rise in prominence;

However, without its status as a legal tender and significantly increased adoption, Bitcoin will not be able to close the gap between itself and the USD.

At the same time, decentralisation of finance is expected to be looked upon by several countries in the world, something that is being advocated by countries like India and even the US. Global dominance for these currencies, considering their current capacities, does not warrant a serious discussion at the moment, and instead should be looked upon for separate functionalities as a whole.

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