Bitcoin's Meteoric Rise: Risks and Games in the American Financial Ecosystem

Bitcoin's Meteoric Rise: Risks and Games in the American Financial EcosystemBitcoin's recent surge past $100,000 has garnered significant attention in global capital markets. This "meteoric rise" is intricately linked to the US political cycle, regulatory policies, and capital games, reflecting deeper issues of the US economy's shift away from the real economy towards a speculative one

Bitcoin's Meteoric Rise: Risks and Games in the American Financial Ecosystem

Bitcoin's recent surge past $100,000 has garnered significant attention in global capital markets. This "meteoric rise" is intricately linked to the US political cycle, regulatory policies, and capital games, reflecting deeper issues of the US economy's shift away from the real economy towards a speculative one. This article delves into the American financial ecosystem underlying Bitcoin's price escalation and its potential risks, exploring the US government's difficult choice between regulation and fostering inclusive finance.

Trump's Policy Shift and Bitcoin's Political Influence

Former US President Trump's stance on cryptocurrencies has undergone a dramatic 180-degree turn. In 2019, he publicly criticized Bitcoin and other cryptocurrencies, deeming them worthless and prone to illicit activities. However, at a Bitcoin conference this year, he declared himself the first major party presidential candidate to accept Bitcoin and cryptocurrency donations, advocating for a "national strategic Bitcoin reserve" and even aiming to make the US the "global crypto capital and the world's Bitcoin superpower."

This shift is not coincidental. Observers point to the growing political influence of institutions and capital involved in or supporting Bitcoin and other cryptocurrencies. Political action committees (PACs) supporting cryptocurrencies, such as "Fair Treatment," have raised more funds than PACs representing other industry groups, significantly impacting the US electoral landscape. These PACs actively fund pro-cryptocurrency candidates and attempt to influence legislation and regulation.

Trump's potential cabinet appointments, particularly the recent nomination of cryptocurrency supporter Paul Atkins as chairman of the Securities and Exchange Commission, directly fueled Bitcoin's price surge. These actions underscore the increasingly significant role of institutions holding or trading Bitcoin and cryptocurrencies in US politics.

Pew Research Center data reveals that 17% of US respondents have invested in, traded, or used Bitcoin or other cryptocurrencies, rising to 23% among high-income groups and a staggering 41% among adults under 30. This expanding potential voter base incentivizes US political forces to adopt a non-oppositional, accommodating, or even supportive stance towards Bitcoin. This means Bitcoin's price surge is inextricably linked to shifts in the US political landscape, reflecting the projection of socioeconomic power onto the political arena.

Bitcoin: Speculative Asset or Medium of Exchange?

However, Bitcoin's practical value remains highly contested. Eswar Prasad, a Cornell University economist and Brookings Institution fellow, attempted to buy coffee with Bitcoin but failed due to slow verification times, missing the optimal drinking window. He argues that Bitcoin is expensive and slow, unsuitable as a medium of exchange and purely a speculative financial asset.

Pew Research Center surveys also reveal contradictory American attitudes towards cryptocurrencies. While many participate in cryptocurrency investment and trading, most distrust their security and reliability. This "knowing the risks but taking them anyway" phenomenon reflects the coexistence of greed and ignorance within the US financial system.

Ailing US Financial System and Bitcoin's "Safe Haven" Function

Bitcoin and other cryptocurrencies are highly volatile, susceptible to manipulation by large capital, lack liquidity and utility, and are vulnerable to market sentiment, regulatory adjustments, hacking attacks, and market manipulation, leading to frequent price swings. Large capital and institutions can more easily manipulate prices in lax regulatory environments, "harvesting" retail investors.

Conversely, the US federal government's ongoing "quantitative easing" policies have fueled inflation, reducing the purchasing power of average Americans and forcing them to seek wealth preservation and appreciation. With declining returns in traditional investment channels, more Americans are turning to relatively "new" investment vehicles like Bitcoin.

Hillary Allen, a professor at American University Washington College of Law, argues that Bitcoin's enduring popularity stems not from its convenience or immense investment potential, but from flaws in the US financial system, particularly its poor service to ordinary financial consumers, especially the lack of inclusive financial products and robust financial regulation. Bitcoin's surge reflects, to some extent, the shortcomings of the American financial system.

Accumulating Risks and Potential Financial Crises

Historically, the combination of voracious capital and blind investors has fueled massive financial scams, inflicting severe damage on ordinary investors. FBI data shows that cryptocurrency-related fraud in 2023 resulted in losses exceeding $5.6 billion, a 45% year-over-year increase.

Dennis Kelleher, CEO of the non-profit Better Markets, warns that Bitcoin's surge may trigger blind imitation among ordinary investors, making them victims of financial scams. He stresses that billionaires who amass fortunes through cryptocurrencies often do so through "gambling-style speculation," including instances of money laundering.

Data reveals a Gini coefficient of 0.5 for US labor income and a staggering 0.8 for wealth, illustrating the Matthew effect in the US capital marketthe rich get richer, the poor get poorer. The financial market serves the interests of large capital, hindering small and medium-sized enterprises from accessing necessary funds and exacerbating wealth inequality.

If the US government continues to relax regulation and permit Bitcoin's "meteoric rise," it won't improve financial governance; instead, it will worsen the chronic ailments of financialization and hollowing-out of the US economy. This will not only harm ordinary investors but also hinder capital flow to the real economy, exacerbating bottlenecks and ultimately negatively impacting the global economy. As the world's largest economy and a major player in global financial activities, the US government has a responsibility to approach financial regulation responsibly and maintain the stable and healthy development of the global economy.