The next international reserve currency

The news did not make much noise because the report is not public. Only a few excerpts are available online, but the gist is there.

The big investment bank is thinking about what the U.S. should do if it decides to make bitcoin its reserve currency.

What began as a joke on Twitter has quickly escalated.

The report by Morgan Stanley was not widely covered by the press and it is not clear if a complete version of the document exists online. Only a few excerpts are highlighting some of the key findings.

According to the bank, the U.S. should ideally hold the equivalent of $370 billion in bitcoin if the latter were to become a full reserve currency. That is about 18% of bitcoin’s market capitalization which is around $2 trillion.

This projection is made by drawing a parallel with how central banks typically manage foreign exchange reserves.

According to the International Monetary Fund (IMF), the dollar currently accounts for 57% of the world’s foreign currency reserves. The euro is second at 20%. The Japanese yen and the British pound, along with some other currencies, share the remainder. In fact, the greenback only accounts for 42% of global reserves if gold is included.

The United States holds about $600 billion in gold which is 17% of all global gold reserves that total $3.5 trillion.

This is interesting because Senator Cynthia Lummis previously suggested buying one million bitcoins which would cost $100 billion or 3.7 times less than what Morgan Stanley suggests.

If the senator does not succeed in having this measure voted on by Congress, it is also worth recalling that the Presidential Council on Crypto Assets is to submit by July 22 a strategy aimed at accumulating bitcoins without affecting the budget.

In other words, the United States has already made bitcoin their reserve currency. The only remaining question is how many BTC? As many as possible according to the White House adviser Bo Hines.

But gold has not yet said its last word. The yellow metal now weighs $20 trillion having gained 86% since the end of 2023. Central banks bought over a thousand tons last year.

Yet, the whole world will soon realize that bitcoin is infinitely superior. Its money supply is fixed at 21 million while more and more gold is mined each year. Not to mention that bitcoin is both a payment network and a store of value, two-in-one. Gold does not circulate on the internet.

We will have a clearer picture when all cryptocurrencies (XRP, Ethereum, etc.) have completely collapsed, a process that is already underway with ETH falling almost 80% against BTC since August 2022.

Here is where the main cryptocurrencies stand compared to their record against the dollar:

The bitcoin imitators still represent $970 billion (excluding stablecoins which weigh $246 billion). All this money will sooner or later end up in bitcoin, as well as a good part of the $20 trillion still invested in gold.

Bitcoin dominance is currently back at 66%, its highest level since January 2021. We could quickly rise above 70% if bitcoin manages to surpass its all-time high of $108,000.

And if Washington sells gold to buy bitcoins, things could really move very fast.