The scale of US debt has exceeded 36 trillion dollars. Can Bitcoin become the future international settlement currency?

At the beginning of the new year, the scale of U.S. national debt has surpassed $36.4 trillion. How can the U.S. debt crisis be resolved, and can the international hegemony of the U.S. dollar continue? How will Bitcoin react, and what will be the future alternatives for international settlement units?

We will start with the debt economic model of the United States, then explore the debt risks faced by the current internationalization of the US dollar, and analyze whether the US debt repayment plan is feasible. Looking at the past and present, let's see where US debt points the way for Bitcoin.

Establishment of the Economic Model of US Debt

After the collapse of the Bretton Woods system, the hegemony of the US dollar has grown recklessly on a debt-driven economic model.

The Bretton Woods system collapsed, and the US dollar became a fiat currency.

After World War II, the Bretton Woods system was established, linking the US dollar to gold, forming an international monetary system centered around the dollar. However, the "Triffin Dilemma" precisely predicted the collapse of the Bretton Woods system: the demand for international settlements continued to grow, the dollar flowed out of the United States and settled overseas, and the US had a long-term trade deficit; while the dollar, as an international currency, had to maintain stable value, which required the US to have a long-term trade surplus. In addition, the Vietnam War exacerbated the twin deficits, and in 1971, President Nixon announced the decoupling of the dollar from gold, transforming the dollar from a commodity currency into a fiat currency, with its value no longer backed by precious metals but by the national credit of the United States.

The debt economy model is established, and the hegemony of the US dollar continues.

On this basis, the U.S. debt economic model was established: global trade is settled in U.S. dollars, and the U.S. must maintain a huge trade deficit, allowing other countries to acquire a large amount of dollars; countries around the world purchase U.S. Treasury bonds to preserve and increase the value of the dollar, and then reinvest in U.S. financial products, causing the dollars to flow back to the U.S.

The US dollar, as a world currency, is a public good and should maintain value stability. However, after abandoning the gold standard, US monetary authorities gained the right to issue currency, allowing the US to change the value of the dollar according to its own interests. The hegemony of the dollar has been strongly sustained through a debt-based economic model.

The Internationalization of the Dollar Faces Risks

The US dollar is facing risks from the economic model of US national debt and commercial real estate debt.

is contrary to the internationalization of the dollar and the return of manufacturing.

The debt economic model of the United States is an important support for the internationalization of the dollar, but it is not sustainable. The Triffin dilemma still exists. On one hand, the internationalization of the dollar requires maintaining a long-term trade deficit, exporting dollars and accumulating them overseas. Once overseas investors worry about the repayment capacity of U.S. Treasury bonds, they may turn to other alternatives and demand higher interest rates on U.S. Treasury bonds to balance future repayment risks, leading the U.S. into a vicious cycle of "dollar credit weakening - rising commodity prices priced in dollars - increased inflation resilience - U.S. Treasury bond rates remaining high - heavier interest burden for the U.S. - increased repayment risk of U.S. Treasury bonds - dollar credit weakening."

On the other hand, the United States needs to implement an economic combination strategy to promote the return of manufacturing, which will reduce the trade deficit and lead to a high demand for dollars, resulting in a significant long-term appreciation. This will hinder the dollar's role as an international settlement currency. Although Trump proposed the return of manufacturing while also suggesting high tariffs, while high tariffs may benefit the return of manufacturing in the short term, in the long run, they will cause inflation, and in fact, the two are in conflict.

The idea of wanting both the hegemony of the US dollar and a manufacturing industry is unrealistic. Currently, the pressure of the US dollar's appreciation is not yet clear, and it is expected that there will not be a fundamental change in the trade deficit in the short term, with depreciation pressure being the main factor for the dollar.

Commercial Real Estate Debt Crisis

In addition, in addition to the risks associated with U.S. Treasury bonds, commercial real estate also carries debt risks.

According to a recent report published by Moody's, due to the continued expansion of remote work, it is expected that by 2026, the vacancy rate of office buildings in the United States will rise from 19.8% in the first quarter of this year to 24%. Compared to before the pandemic, the demand for office space in the white-collar sector has decreased by about 14%. McKinsey predicts that by 2030, the demand for office space in major cities worldwide will decrease by 13%, and in the coming years, the market value of global office properties could shrink significantly by $800 billion to $1.3 trillion.

A study shows that by the end of 2023, commercial real estate loans accounted for 26% of the total loans in the U.S. banking system, while large banks' commercial real estate loans only accounted for 13%, and small and medium-sized banks reached as high as 44%. The U.S. has experienced waves of bank bankruptcies and restructuring due to real estate risks at the end of the 1980s and in 2008. After the pandemic, the risks in U.S. commercial real estate still exist and have not improved. The $1.5 trillion in commercial real estate liabilities in the U.S. will mature next year, and if small and medium-sized banks face crises, it could trigger a financial crisis.

Analysis of U.S. Debt Repayment Plans

To break this vicious cycle, it mainly depends on how the large-scale U.S. national debt should be repaid. Borrowing new debt to pay off old debt is similar to a "Ponzi scheme"; the dollar will eventually lose its credibility and thus its status as the world's currency, which is obviously not feasible. We will analyze whether the following repayment plans are feasible.

Sell gold to repay US debt?

Federal Reserve Asset Side Analysis

On December 4th, the Federal Reserve disclosed its asset side, stating that its main assets are bonds, including government bonds and quasi-government bonds, totaling approximately $6.57 trillion, accounting for about 94.45% of total assets.

The gold holdings amount to 11 billion dollars, but this portion is calculated based on prices after the collapse of the Bretton Woods system. Referring to the exchange rate when the system completely collapsed, 1 troy ounce of gold = 42.22 dollars, and calculated based on the spot price of approximately 2700 dollars/ounce on December 11, the value of this batch of gold is approximately 704.358 billion dollars. Therefore, the adjusted gold accounts for about 10% of the total asset value.

US Debt Liquidity Crisis

Therefore, some have proposed selling gold to repay U.S. debt. While it seems that the scale of gold is large, it is actually impractical. Gold serves as a universal currency of international spontaneous consensus, playing a key role in stabilizing currencies and responding to economic crises. The vast gold reserves provide the U.S. with significant influence in the international financial market, making its position very important. If the Federal Reserve sells gold, it would indicate that the Federal Reserve has completely lost trust in U.S. debt, seemingly "having no way out", and would rather weaken its own influence to make up for the "sinkhole" of U.S. debt. This would undoubtedly lead to a liquidity crisis in U.S. debt, amounting to self-destruction.

Sell BTC to repay US debt?

The acceptance issue of Bitcoin checks

Trump once said, "Give them a little cryptocurrency check. Give them some Bitcoin, and then wipe out our $35 trillion." Although BTC acts as a store of value in the cryptocurrency space, it is still much more volatile compared to traditional fiat currencies. Whether the check can be cashed at a value recognized by the other party remains to be seen, as holders of U.S. debt may not necessarily agree. Additionally, economies holding U.S. debt may not implement Bitcoin-friendly policies, and considering the regulatory issues within those economies, they might not accept Bitcoin checks.

Insufficient Bitcoin reserves to repay

Secondly, using the Bitcoin held by the United States is not enough to solve the debt crisis. According to data from a certain platform on July 29, the U.S. government holds $12 billion in Bitcoin, which is just the ant's leg in repaying $36 trillion in U.S. debt. Some speculate whether the U.S. could manipulate the price of Bitcoin. This is unrealistic; extracting money is a problem that speculators think about, and given the terrifying $36 trillion U.S. debt, even if they could manipulate the price of Bitcoin, $12 billion would not be enough to create a solution.

In the future, it is possible for the United States to establish a Bitcoin reserve, but it cannot solve the debt problem. A certain senator has proposed that the U.S. establish a reserve of 1 million Bitcoins, but this plan is still controversial.

Firstly, establishing a Bitcoin reserve will weaken the world's confidence in the dollar, and the global community will see this as a signal of an imminent collapse of U.S. debt risk, with interest rates likely to soar and a financial crisis erupting.

Secondly, the United States is currently negotiating whether to implement Bitcoin reserves through laws or executive orders. If Trump mandates the purchase of Bitcoin through an executive order, it may very well be interrupted due to not aligning with public opinion. The American public does not have a deep understanding of the possible impending dollar crisis, and the Trump administration's acquisition of large amounts of Bitcoin using executive measures may face public scrutiny: "Would this expenditure be better used in other areas?" or even, "Is it necessary to spend so much money on Bitcoin?" The challenges faced by legislative measures are clearly even more daunting.

Thirdly, even if the United States successfully establishes a Bitcoin reserve, it can only slightly delay the collapse of the debt. There are viewpoints supporting the repayment of U.S. debt with Bitcoin reserves that cite conclusions from asset management companies: establishing a reserve of 1 million Bitcoins could reduce the U.S. national debt by 35% over the next 24 years. This assumes that Bitcoin will grow to $42.3 million by 2049 at a compound annual growth rate of 25% (CAGR), while U.S. national debt will rise from $37 trillion at the beginning of 2025 to $119.3 trillion in the same period at a compound annual growth rate of 5%. However, we can convert the remaining 65% of the debt into specific amounts, meaning that by 2049, there will still be about $77.3 trillion in U.S. national debt that cannot be resolved with Bitcoin. How will this huge gap be filled?

Is USD pegged to BTC?

Another bold idea is that if Trump keeps releasing positive news to drive up the Bitcoin price, and then uses other methods to push for the use of Bitcoin for settlements between countries and the US, it could decouple the US dollar from national credit and link it to Bitcoin. Could this solve the massive US debt problem?

"New Era Bretton Woods System"

Linking to Bitcoin is a disguised return to the Bretton Woods system, similar to the peg between the US dollar and gold. Supporters argue that the similarity between Bitcoin and gold lies in: rising mining costs with increased supply, limited supply, decentralization ( and de-sovereignization ).

The cost of gold mining increases as the shallower gold is extracted, similar to the rising difficulty of Bitcoin mining. Both have a supply limit and can serve as a good store of value. Both exhibit decentralization characteristics. Modern fiat currencies are enforced by sovereign states, while gold naturally becomes a currency, and no country can control it. Due to the global distribution and relative stability of gold's supply and demand across various regions and industries, gold priced in different currencies has very low correlation with local risk assets. Bitcoin, needless to say, can avoid the regulation of sovereign governments due to its decentralized operational characteristics.

Threat to the internationalization of the US dollar

The unreasonable aspect is that the anchoring of the US dollar to BTC will threaten the internationalization of the US dollar.

First, assuming that the US dollar is pegged to Bitcoin, it means that any group or individual has the right to use Bitcoin to issue their own currency. Just like during the free banking era from 1837 to 1866, before the establishment of the Federal Reserve, the right to issue currency was free, and "wildcat banks" were prevalent------ various states, cities, private banks, railroads, construction companies, stores, restaurants, churches, and individuals issued about 8,000 different currencies by 1860, often located in remote and sparsely populated areas, earning the nickname "wildcat banks" due to their extremely low viability.

Currently, Bitcoin has the characteristics of decentralization. If the US dollar is pegged to Bitcoin, it will greatly undermine the international status of the US dollar. The interests of the United States require the protection of the internationalization of the dollar and the promotion of dollar hegemony, and it will not be counterproductive, so it will not implement the anchoring of the dollar to BTC.

Secondly, Bitcoin has high volatility. If the US dollar is pegged to Bitcoin, the real-time transmission of international liquidity could amplify the volatility of the US dollar, affecting the international community's perception of