US dollar’s reserve currency status at risk, but what does that mean for Bitcoin?

2020 has turned out to be quite an unpredictable year. The COVID-19 pandemic and the lockdown that followed in its wake have had a tremendous effect on the global markets. In the past few months, popular cryptocurrencies like Bitcoin have seen a resurgence with regard to its safe-haven narrative. Interestingly, the chaos that has come to signify 2020 may end up being a key catalyst when it comes to the greater adoption of digital currencies world over.

In a recent episode of the Unchained podcast, U.S. House Representative, Warren Davidson, discussed global shifts in power centers and role crypto is likely to play in the coming years. He noted that as the world sees greater utilitarian merit in cryptocurrencies like Bitcoin there is the growing possibility of more users viewing digital assets as more suited to their major needs. This in turn is likely to create even more challenges for the present global reserve currency – the US dollar. He highlighted that,

“China, Russia, or even Christine Lagarde at the European central bank, they’ve been long time advocates of creating a rival to the US dollar, whether it’s a different currency, synthetic currency, basket of currencies approach.”

Davidson noted that it was crucial for US to maintain its lead in terms of innovation even from a “national security” standpoint and noted that fintech needs to be an area in which the US does not lag behind countries like China. He noted,

“It is actually very essential to our national security programs. So we don’t want to undermine that. We should be moving with FinTech instead of lagging. And unfortunately, we’re, we’re lagging.”

In the past years, stablecoins have seen increased demand from users and have attracted greater interest from governments and private entities. Facebook’s Libra project that was based on a basket of fiat currencies did attract a lot of legislative attention in the US. While volatility and the regulatory uncertainty that surrounds digital assets may be problems when it comes to attracting a more diverse user-base, digital currencies like Bitcoin have proved that they can function as robust store of value assets – a quality that may come in handy when competing for the ‘reserve currency’ status. Market data from skew does show how in terms of returns percentage Bitcoin has outperformed other more popular assets.

Source: skew

As countries and economies emerge out of the aftermath of the pandemic, Davidson noted that the economy is going to be heavily debt-ridden and maybe an opportunity for China and the EU to establish a form of digital currency that can rival and beat the US dollar. Drawing parallels with the state of the USD post-WWII, Davidson pointed out that the dollar emerged as a strong currency back then but may not necessarily be the case post pandemic.