The idea of countries holding bitcoin reserves is transitioning from being a theoretical topic to becoming a significant aspect of geopolitics.
A Russian lawmaker has urged the country’s central bank to explore the possibility of adding bitcoin to its reserve holdings, according to recent reports. Meanwhile, a study by crypto currency exchange into their reserve assets.
The suggestion put forth by Russia, along with the rumors that Gulf Cooperation Council (GCC) countries are discreetly considering comparable approaches, imply a growing significance of bitcoin, particularly with Donald Trump serving a second term as the President of the United States.
Grant McCarty, who is a co-executive director of the Bitcoin Policy Institute in Washington, stated at the Bitcoin Mena conference in Abu Dhabi that the competition in the world of bitcoin is currently underway. “Several their investments.”
Trump is given credit for sparking a surge in worldwide attention towards bitcoin, which broke the $100,000 mark after the president-elect chose Paul Atkins, a prominent crypto currency supporter, to head the US Securities and Exchange Commission.
Matthew Pines, the decentralized and global characteristics of the currency make it appealing as a reserve asset. He expressed his belief that all countries are considering the potential of bitcoin as an asset class with geopolitical significance emerging on the horizon.
Countries are also looking into possibilities in the field of bitcoin mining. The majority of bitcoin’s computing power, known as hash rate, is currently located in North America, with over 60 percent. However, the UAE, Saudi Arabia, and various other countries in the Middle East are making efforts to grow their mining activities.
“Nations will likely strive to accumulate the largest possible reserves of bitcoin,” McCarty noted. “They will also aim to attract a high concentration of bitcoin mining operations within their borders.”
Colin Harper, an individual who writes and hosts podcasts about bitcoin, proposed that nations such as the UAE possess the necessary infrastructure and regulatory conditions to appeal to mining companies.
Miners in the area believe that the UAE has the capacity to mine between 800 and 1,000 megawatts, according to Harper. In contrast, Oman’s mining capacity is estimated to be around 100MW. On the other hand, the US Information Administration states that the US crypto mining capacity is slightly above 10,000MW.
The process of mining one bitcoin currently requires around 155,000 kilowatts of electricity using the latest technology. There are already initiatives in progress to expand cryptocurrency mining capabilities in the United technology funding platform, and Hearst, a blockchain company, have revealed plans for a collaboration to construct a $1 billion solar farm in Abu Dhabi specifically for crypto mining. The initial stage of the project is targeting to produce between 50MW to 100MW.
Virtual currency:
According to experts at the Bitcoin Mena conference in Abu Dhabi, countries looking to diversify their reserves may find numerous benefits in adopting Bitcoin.
Its lack of central control makes it immune to external influence, unlike conventional reserve currencies like the dollar. Moreover, its limited availability serves as a protection against inflation, making it attractive to nations with substantial fiscal reserves.
The GCC may find these especially appealing. Given that oil revenues heavily influence the economies of the region, bitcoin could offer a means to maintain budget stability amidst fluctuations in oil prices.
Russia’s desire to acquire bitcoin reserves is in line with its overall plan to reduce reliance on the US dollar. Following the conflict in Ukraine and resulting penalties, the Russian government has been exploring different currencies to safeguard its economy. Utilizing bitcoin may assist Russia in lessening the effects of sanctions imposed by Western nations.
Experts highlighted bitcoin’s ability to facilitate seamless transactions across borders and its high liquidity as key advantages for economies looking to transcend conventional the US Treasury in October also drew parallels between bitcoin and gold, noting that its main application appears to be as a digital store of value, akin gold, within the realm of decentralized finance.
During a recent New York Times conference, US Federal Reserve chair Jerome Powell expressed similar sentiments by stating that virtual currency is akin to gold.
“Bitcoin is not being utilized as a means of exchange or a way to hold wealth, largely due to its unpredictable fluctuations in value. Rather than posing a threat to the US dollar, it’s more accurately seen as a rival to gold as a valuable commodity.”
Pines mentioned that while some governments are considering including bitcoin in their reserves, there are challenges in terms of both infrastructure and internal discussions needed to evaluate it as a policy option. However, he noted that these discussions are beginning to happen. He expressed hope that the upcoming Trump administration would lead other governments in this direction.
Pines mentioned that they appear ready to adopt a proactive and favorable approach towards bitcoin, which may influence other countries to follow suit.
Vijay Valiha, the chief investment officer at Century Financial in Dubai, expressed caution in response to Trump’s excitement, stating that it was too early to anticipate the US and Russia establishing bitcoin national reserves. Valiha believes that gold and the dollar are still considered the most secure choices.
The primary factor contributing to this is the erratic nature According to Valecha, bitcoin’s average annual price fluctuations fall within a range of 45 to 65 percent. In contrast, more traditional assets such as gold and the US S&P 500 Index have exhibited relatively stable annual volatility rates of 14 percent and 16 percent, respectively.
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“According to Valecha, the drawbacks of owning a highly unpredictable investment outweigh any potential short-term benefits that come with simply holding onto it.”
Eric Trump, son of the former US President, addressed the gathering, expressing his optimism that the value of bitcoin would surge to $1 million, a prediction that could potentially encourage GCC for establishing a national bitcoin reserve.
