Introduction

At the beginning of the new year, the U.S. national debt has exceeded US$36.4 trillion. How can the U.S. debt crisis be resolved? Can the international hegemony of the U.S. dollar continue? How will Bitcoin react, and how will the International Unit of Settlement change in the future?

We will start with the U.S. debt economic model, then discuss the current debt risks faced by the internationalization of the U.S. dollar, and analyze whether the U.S. debt repayment plan is feasible. Looking at the past and present, let’s see where U.S. debt leads Bitcoin.

The establishment of the American debt economic model

After the disintegration of the Bretton Woods system, the hegemony of the U.S. dollar flourished on the debt economic model.

The Collapse of the Bretton Woods System: The Dollar Becomes a Fiat Currency

After World War II, the Bretton Woods system was established, pegging the U.S. dollar to gold, with the International Monetary Fund (IMF) and the World Bank overseeing related regulations. This system formed a dollar-centered international monetary framework. However, the well-known “Triffin Dilemma” accurately predicted the eventual collapse of the Bretton Woods system: as global settlement demands grew, U.S. dollars continuously flowed out of the country and accumulated abroad, leading to a persistent U.S. trade deficit. Meanwhile, for the U.S. dollar to remain a stable international currency, the U.S. needed to maintain a long-term trade surplus—an inherent contradiction. Exacerbated by the fiscal strain from the Vietnam War, this dilemma led President Nixon to announce in 1971 that the U.S. dollar would no longer be pegged to gold. As a result, the dollar transitioned from a gold-backed currency to a fiat currency, with its value no longer guaranteed by precious metals but instead backed solely by the credit of the U.S. government.

The Debt-Driven Economic Model and the Continuation of Dollar Hegemony

On this foundation, the U.S. debt-driven economic model was established: global trade is conducted in U.S. dollars, requiring the U.S. to maintain a massive trade deficit so that other countries can accumulate large amounts of dollars. To preserve and grow the value of their dollar reserves, countries then purchase U.S. Treasury bonds and reinvest in U.S. financial products, allowing dollars to flow back into the U.S. economy.

As the world’s reserve currency, the U.S. dollar functions as an international public good and should ideally maintain stable value. However, after abandoning the gold standard, U.S. monetary authorities gained full control over the issuance of currency, allowing the U.S. to manipulate the value of the dollar in accordance with its own interests. Consequently, U.S. dollar hegemony was further reinforced through this debt-driven economic model.

Risks Facing the Internationalization of the U.S. Dollar

The U.S. dollar faces risks stemming from the debt-driven economic model of U.S. Treasury bonds and the debt burden of commercial real estate.

Dollar Internationalization Conflicts with Manufacturing Reshoring

The debt-driven economic model of the U.S. is a key pillar of dollar internationalization, but it is unsustainable. The Triffin Dilemma remains unresolved. On one hand, dollar internationalization requires the U.S. to maintain a long-term trade deficit, continuously exporting dollars and allowing them to accumulate abroad. However, if foreign investors begin to doubt the U.S. government’s ability to repay its debt, they may seek alternative assets and demand higher interest rates on U.S. Treasury bonds to compensate for future repayment risks. This could lead to a vicious cycle: weakening dollar credibility → rising prices of dollar-denominated goods → persistent inflation → high Treasury bond yields → increasing U.S. interest burden → escalating debt repayment risks → further weakening of dollar credibility.

On the other hand, the U.S. seeks to strengthen its economy by promoting manufacturing repatriation, which would reduce the trade deficit and cause a dollar supply shortage, leading to long-term appreciation of the currency. However, this would hinder the dollar’s role as an international settlement currency. Former President Donald Trump advocated for manufacturing repatriation while also pushing for high tariffs. While high tariffs may initially support domestic manufacturing, they can also cause long-term inflation, making the two policies contradictory.

Ultimately, pursuing both dollar hegemony and manufacturing repatriation is unrealistic. Currently, the pressure for dollar appreciation remains uncertain, and in the short term, the trade deficit is unlikely to see fundamental changes. Instead, the dollar is expected to face continued depreciation pressure.

Commercial Real Estate Debt Crisis

In addition, in addition to risks in U.S. Treasury bonds, commercial real estate also has debt risks.

According to a recent report released by Moody’s, the office vacancy rate in the United States is expected to rise to 24% by 2026 from 19.8% in the first quarter of this year due to the continued expansion of home offices, with white-collar industries requiring about 14% less office space than before the epidemic. McKinsey predicts that demand for office space in major cities around the world will fall by 13% by 2030, and that the market value of global office property may shrink by a significant $800 billion to $1.3 trillion over the next few years.

Research from China International Capital Corporation (CICC) shows that as of the end of 2023, commercial real estate loans accounted for 26% of total loans in the U.S. banking system. However, large banks held only 13% of these loans, whereas small and mid-sized banks were far more exposed, with commercial real estate loans making up 44% of their total lending portfolios. The U.S. previously experienced waves of bank failures and restructuring due to real estate crises in the late 1980s and during the 2008 financial crisis. Following the COVID-19 pandemic, risks in the U.S. commercial real estate sector have persisted without significant improvement. With $1.5 trillion in commercial real estate debt set to mature next year, there is a risk of financial instability if small and mid-sized banks experience major defaults. If these banks collapse under financial strain, it could trigger a broader financial crisis.

Analysis of U.S. Debt Repayment Plans

Breaking the vicious cycle of U.S. debt dependency largely depends on how such a massive national debt can be repaid. Simply issuing new debt to pay off old debt resembles a “Ponzi scheme”—eventually, the U.S. dollar would lose credibility and forfeit its status as the world’s reserve currency, making this approach clearly unsustainable. Below, we analyze the feasibility of various repayment options.

Selling Gold Pay Off U.S. Debt?

Analysis of the Federal Reserve’s Assets

The following table presents the details of the Federal Reserve’s assets as of December 4.

Federal Reserve Assets as of December 4 (Unit: Million USD)

Source:Federal Reserve Balance Sheet: Factors Affecting Reserve Balances - H.4.1 - December 05, 2024

The Federal Reserve’s primary assets consist of debt securities, including U.S. Treasury bonds and quasi-government bonds, totaling approximately $6.57 trillion, which accounts for about 94.45% of total assets.

The Fed holds $11 billion worth of gold, but this valuation is based on prices set after the collapse of the Bretton Woods system. If we adjust the valuation using the historical exchange rate when the system fully collapsed—1 troy ounce of gold = $42.22—and then compare it to the spot price of approximately $2,700 per ounce as of December 11, the adjusted value of these gold reserves would be about $704.36 billion. Consequently, the adjusted proportion of gold in the Fed’s total assets would be around 10%.

Liquidity Crisis in U.S. Treasury Bonds

Given this, some have suggested selling gold to repay U.S. debt. While the scale of U.S. gold reserves appears significant, this approach is not feasible. Gold is universally recognized as a stable form of currency and plays a crucial role in stabilizing monetary systems and addressing economic crises. A large gold reserve grants the U.S. strong influence in international financial markets, making its strategic importance undeniable. If the Federal Reserve were to sell its gold reserves, it would signal a complete loss of confidence in U.S. Treasury bonds—essentially acknowledging that the U.S. has no viable alternatives. This would mean sacrificing its own financial influence merely to cover the “black hole” of national debt. Undoubtedly, such a move would trigger a liquidity crisis for U.S. Treasury bonds and significantly undermine confidence in the dollar, ultimately proving to be a self-destructive decision.

Sell ​​BTC to Pay off U.S. Debt?

The Acceptance of Bitcoin-Based Payments

Former President Donald Trump once remarked, “Give them a little crypto check. Give them some Bitcoin, and then wipe out our $35 trillion debt.” While BTC serves as a store of value within the cryptocurrency ecosystem, its high volatility compared to traditional fiat currencies raises concerns about its acceptance as a valid payment method. Whether bondholders would recognize Bitcoin’s value remains uncertain. Additionally, not all holders of U.S. Treasury bonds operate under Bitcoin-friendly policies. For example, China, due to internal regulatory considerations, is unlikely to accept Bitcoin payments.

Bitcoin Reserves Are Insufficient to Cover U.S. Debt

Furthermore, the U.S. government’s current Bitcoin holdings are far from sufficient to resolve its debt crisis. According to Arkham Intelligence data from July 29, the U.S. government holds approximately $12 billion worth of Bitcoin—a mere fraction of the $36 trillion national debt. Some speculate whether the U.S. could manipulate Bitcoin prices to generate more value. However, this is unrealistic. Market manipulation strategies are typically a concern for major traders, but even if the U.S. government attempted to manipulate Bitcoin prices, it would be impossible to inflate $12 billion into an amount capable of covering a $36 trillion debt burden.

While the U.S. may build up Bitcoin reserves in the future, it would not be a viable solution for its debt crisis. Senator Cynthia Lummis has proposed that the U.S. establish a reserve of 1 million Bitcoins, but this proposal remains controversial.

First, the establishment of Bitcoin reserves will weaken the world’s confidence in the U.S. dollar. The world will regard this as a signal of an imminent collapse of U.S. debt risks, and interest rates may soar sharply, leading to the outbreak of a financial crisis.

Second, the United States is currently negotiating whether to implement Bitcoin reserves through laws or administrative orders. If Trump compels the purchase of Bitcoin through an administrative order, it will most likely be interrupted because it does not conform to public opinion. The American public does not have a deep understanding of the possible U.S. dollar crisis. The Trump administration’s use of administrative means to purchase a large amount of Bitcoin may face public doubts: “Would this expenditure be better spent on other aspects?” or even, “Is it necessary to spend so much money to buy Bitcoin?” The challenge faced by legislative means is obviously more difficult.

Third, even if the United States successfully builds Bitcoin reserves, it will only slightly delay the debt collapse. Some people who support the idea of ​​using Bitcoin reserves to repay the U.S. debt cite the conclusion of asset management company VanEck: by establishing a reserve of 1 million Bitcoins, the U.S. national debt can be reduced by 35% in the next 24 years. It assumes that Bitcoin will grow at a compound annual growth rate (CAGR) of 25% to $42.3 million in 2049, while U.S. Treasuries will climb at a CAGR of 5% from $37 trillion at the start of 2025 to $119.3 trillion over the same period. However, we can convert the remaining 65% of the debt into a specific amount, that is, as of 2049, there will still be approximately $77.3 trillion in U.S. national debt that cannot be solved with Bitcoin. How will this huge gap be filled?

Pegging the U.S. Dollar to BTC?

A bold idea suggests that if Trump continues to release positive news about Bitcoin, driving up its price, and simultaneously encourages international trade settlements using Bitcoin, the U.S. dollar could detach from national credit and instead be pegged to Bitcoin. Could this approach resolve the massive U.S. debt crisis?

A “New Bretton Woods System”

Pegging Bitcoin is a return to the Bretton Woods system in disguise, similar to pegging the U.S. dollar to gold. Supporters believe that Bitcoin and gold are similar in that mining costs rise with supply, supply is limited, and decentralization (removal from sovereign control).

Gold mining costs increase as easily accessible surface deposits are depleted, making extraction more expensive—similar to Bitcoin mining, where difficulty rises as more BTC is mined. Both assets have a fixed supply, making them reliable stores of value. Additionally, both gold and Bitcoin operate in decentralized systems. Unlike fiat currency, which is enforced by sovereign states, gold naturally became a global currency without any single nation controlling it. Gold’s supply and demand are spread across various industries worldwide, and it has a low correlation with local risk assets, regardless of the currency in which it is priced. Bitcoin, being fully decentralized, takes this a step further by completely avoiding government regulation.

Threat to the Dollar’s International Status

However, the idea of pegging the U.S. dollar to Bitcoin presents several fundamental issues that could undermine dollar internationalization.

First, assuming that the U.S. dollar is pegged to Bitcoin, it means that any group or anyone has the right to use Bitcoin to issue their own currency. Just as before the establishment of the Federal Reserve, during the free banking era from 1837 to 1866, the right to issue money was free and “wildcat banks” prevailed - states, municipalities, private banks, railroad and construction companies, stores, restaurants, churches and individuals issued approximately 8,000 different currencies by 1860, often in remote and remote places where wildcats outnumbered people, earning them the nickname “wildcat banks” because of their extremely low viability.

Nowadays, Bitcoin has the characteristics of decentralization. If the US dollar is linked to Bitcoin, the international status of the US dollar will be greatly weakened. The interests of the United States need to defend the internationalization of the U.S. dollar and promote U.S. dollar hegemony. It will not put the cart before the horse, and it will not promote the anchoring of the U.S. dollar and BTC.

Second, Bitcoin is highly volatile. If the US dollar is linked to Bitcoin, the real-time transmission of international liquidity can amplify the volatility of the US dollar and affect the international community’s stable confidence in the US dollar.

Third, the number of Bitcoins held by the United States is limited. If the U.S. dollar needs to be pegged to Bitcoin, the United States does not hold sufficient Bitcoin reserves, which will result in restrictions on its monetary policy.

Manipulating USD via BTC?

Some argue that Bitcoin is the “digital gold” of the future. Does this mean the U.S. could manipulate Bitcoin in the same way it has historically manipulated gold to control the dollar?

How the U.S. Has Historically Manipulated the Dollar Through Gold

After the establishment of the Jamaican monetary system in 1976, large investment banks, governments, and central banks had aligned interests in maintaining confidence in fiat currencies. Since fiat money relies on trust, a rapid increase in gold prices could undermine confidence in paper currencies, making it difficult for central banks to control liquidity and inflation targets.

To counter this, the U.S. has historically suppressed gold prices to encourage capital to flow into the dollar, thereby strengthening its value. Conversely, it has also allowed gold prices to rise to weaken the dollar when needed.

Would the U.S. be able to manipulate Bitcoin in the same way to control the dollar? The answer is no.

Manipulating the Dollar Through BTC Is Unrealistic

First, Bitcoin operates on a decentralized network, and no single entity, including the U.S. government, can manipulate the price the way it controls gold.

Secondly, Bitcoin captures global liquidity and is affected by too complex and diverse international factors. Even if the US government wants to manipulate Bitcoin prices, the effect will be greatly reduced.

Finally, even if the United States is able to manipulate the price of Bitcoin and suppress the price of Bitcoin, the liquidity flowing out of Bitcoin will not necessarily hold U.S. dollars. Because Bitcoin holders have a higher risk appetite relative to traditional U.S. dollar holders, they may turn to other high-risk assets. It should be noted that the U.S. dollar and gold are both highly liquid and low-risk assets with highly overlapping safe-haven attributes and the same recognition, so there is an obvious substitution effect, and there are still certain differences between Bitcoin and the U.S. dollar.

Eliminating Debt Holders: Japan and Jewish Financial Groups?

Continued U.S.-Japan Cooperation

Some have speculated that a radical alternative would be to eliminate major U.S. debt holders, such as Japan—the largest foreign holder of U.S. Treasuries. However, this is not a viable short-term strategy.

The Ishiba cabinet needed to restore trust due to the black gold issue, and at the same time was constrained by the opposition parties. Therefore, after taking office, it turned to pragmatism as a whole and sought to safeguard vested interests through strategic bundling with the United States.

Additionally, the U.S. is already burdened by the Ukraine crisis and instability in the Middle East. Given these geopolitical strains, the U.S. needs Japan to play the role of a “deputy sheriff” in the Indo-Pacific region, helping to share the strategic burden.

As a result, the overall trend of U.S.-Japan cooperation in economic security will persist, making it unlikely that the U.S. would take aggressive action against Japan.

Challenging Jewish Financial Groups Is Unwise

In addition to state holders, Jewish syndicates also play an important role on Wall Street. About 80% of debt is held by domestic investors and financial institutions in the United States, such as pension funds, mutual funds, and insurance companies. Most of the shareholders of these financial institutions are Jews, the so-called Jewish syndicates. Some people believe that the Federal Reserve may take advantage of the public’s growing dissatisfaction with the “rich” to blame part of the blame for the economic crisis on Jewish consortiums. We believe this would be too costly and not easy to implement.

Opening fire on Jewish conglomerates will affect economic stability and may lead to rising unemployment, sluggish innovation, and a decline in investor confidence and international competitiveness. This is an act that kills one thousand enemies but only damages eight hundred. Especially when the debt crisis is approaching, such a move will only accelerate the collapse of the economy.

Secondly, after years of operation, the Jewish consortium is gradually strengthening its influence on politics. For example, the proportion of Jews in Biden’s team is relatively high, and the core members of the cabinet were particularly stable during his administration. Unlike other administration periods, this may indicate that Jewish consortiums intend to move from behind the scenes to taking power in front of the curtain. In the future, it is foreseeable that the Jewish consortium will also actively operate political power to fight against the US government. It will not be easy to take action against the Jewish consortium.

Impact of a Debt Crisis on International Settlement Units

If the U.S. debt becomes unpayable and rising tariffs lead to imported inflation, the situation could worsen when combined with the ongoing U.S. commercial real estate debt crisis. The compounded effects would drive inflation higher at an accelerated rate. A financial crisis would become imminent, causing Bitcoin to experience a short-term decline alongside traditional financial markets but to rise significantly in the long run.

Short-Term Decline of Bitcoin

According to Exter’s Pyramid, a framework developed by the late Vice President of the New York Federal Reserve, John Exter, Bitcoin currently behaves more like a leveraged asset at the top of the pyramid rather than a safe-haven asset at the bottom. As a high-risk asset, Bitcoin’s demand would decline in the event of a financial crisis, leading to a short-term price drop.

Bitcoin as the “Noah’s Ark” of Finance

In the long run, Bitcoin could become the “Noah’s Ark” during financial crises and an essential pillar of the future international settlement system.

First, Bitcoin is a strictly scarce liquid asset. Under the sharp depreciation of the US dollar, Bitcoin can maintain scarcity and has wide applicability around the world, and people are more willing to hold it as a long-term store of value. In other words, Bitcoin will be closer to the bottom of Exter’s Pyramid, and its safe-haven properties will be highlighted. Despite the disruption of short-term market sentiment, the precious nature of Bitcoin’s store of value will still be explored by the market.

Second, investor and consumer behavior will also change after the crisis. The collapse of the U.S. debt was an epic shock. After the financial crisis swept across the world, it was a mess. Trust in financial institutions and sovereign countries/governments and monetary authorities will be destroyed and reconstructed. Bitcoin, as a relatively independent asset that is not controlled by the country/government, will become the best choice for future investment.

Therefore, given the unsustainability of the debt-driven economic model, a U.S. debt collapse is only a matter of time. This would severely damage the international standing of the U.S. dollar, ushering in a new wave of Bitcoin adoption.

Could Bitcoin Become the International Currency of the Future?

If the dollar-based financial system collapses, what will take its place as the next-generation global settlement currency?

Looking at monetary history, the three fundamental functions of currency are: a unit of account, a medium of exchange, and a store of value. The most crucial function is its ability to serve as a medium of exchange. At this point, Bitcoin is available around the clock, regardless of location, and can avoid transactions involving sovereign states, capturing global liquidity and completing transactions more effectively than traditional finance. In terms of value scale, the application scenarios of Bitcoin are constantly expanding and can effectively measure the value of many goods and services. In terms of the value storage function, as Bitcoin mining gradually proceeds and the supply margin decreases, the value storage function will be further strengthened.

Is it possible for other legal currencies to replace the US dollar as an international settlement currency? At present, no other fiat currency has the global reach and dominance of the U.S. dollar. Furthermore, once the U.S. debt crisis erupts and destroys confidence in the traditional financial system, people will likely grow more skeptical of fiat currencies altogether. The real question then arises: Could a truly decentralized and independent currency lead humanity toward economic freedom, breaking free from the constraints of sovereign monetary policies?

Some may argue that other cryptocurrencies are technologically superior to Bitcoin and offer smoother transaction capabilities. So why couldn’t another cryptocurrency serve as the global settlement unit instead of Bitcoin? The answer lies in consensus—value is derived from collective agreement. Among all cryptocurrencies, Bitcoin has the highest level of global consensus, the strongest brand recognition, and the most widespread adoption and influence.

Considering all these factors, Bitcoin already possesses the potential to become the next international settlement unit. The only question is whether the tides of history will grant it the opportunity to fulfill this role.

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