Coinbase's latest monthly outlook: The global monetary system is shifting, and Bitcoin is starting to take the stage.

Author: David Duong, CFA - Global Head of Research

Compilation: Daisy, ChainCatcher

Editor’s Note:

This article is compiled from Coinbase's latest monthly outlook research report. The report points out that as the "twin deficits" in the United States continue to expand and trade protectionism intensifies, market confidence in the dollar is gradually weakening, and the world may face a large-scale restructuring of asset portfolios. In this context, Bitcoin, due to its characteristics of sovereign neutrality and being free from capital controls, is increasingly being regarded by more countries as a potential supranational reserve asset. According to the report's conservative estimates, if the global reserve system gradually incorporates Bitcoin, its total market value is expected to increase by about $1.2 trillion.

The following is a compilation of the main points of the report.

Summary

Global capital flows are being reshaped due to the intensification of trade protectionism, and the dominant position of the dollar as the global reserve currency is being challenged. As the U.S. fiscal deficit and trade deficit continue to widen, the level of debt is on an unsustainable path, and market confidence in the dollar as a safe-haven asset is wavering. This trend could lead to a reversal of dollar inflows, prompting global large institutions to reallocate their asset allocations. In the long term, the dollar may face sustained and significant selling pressure.

Notably, in our view, the turmoil of the past few months has further exacerbated the decade-long downward trend in USD dominance. The next change could become a key turning point for Bitcoin and the entire crypto market. The current changes in the US dollar system make stored assets such as gold and bitcoin a more attractive alternative to the emerging monetary landscape. Gold's upgrade from Tier 3 to Tier 1 under Basel III is a case in point. Bitcoin, in particular, is expected to become a viable supranational unit of account in international trade due to its sovereign neutrality and immunity to sanctions and capital controls.

We believe that the decline in demand for the US dollar may prompt more countries to pursue diversification of their international reserves. According to conservative estimates, this trend is expected to bring an incremental value of around $1.2 trillion to the market capitalization of Bitcoin. This also partly explains why an increasing number of countries are starting to pay attention to strategic Bitcoin reserves, further highlighting the growing importance of Bitcoin in geopolitics.

Continuation of the Dangerous Era

In the past half century, the economic management model in the United States has undergone profound changes. Since the stagflation crisis of the 1970s, economists like Milton Friedman have questioned the demand management theory of Keynesianism, promoting the formation of the modern central banking system—this system is based on the core foundations of stabilizing inflation targets and the "natural rate of unemployment" theory. Subsequently, this framework was institutionalized through the political independence of central banks, which mainly rely on interest rate policies (and later some macroprudential tools) to regulate the money supply and achieve economic stability.

For years, the framework has faced sustained pressure from fiscal activism, including massive deficit spending and trillion-dollar stimulus packages. While it is true that some of the spending was necessary to meet challenges such as the global financial crisis and the pandemic, the US debt-to-GDP ratio, which has soared from 63% in 2008 to about 122% today, is clearly on an unsustainable trajectory. In addition, the Federal Reserve's aggressive interest rate hikes in 2022-2023 have significantly increased the U.S. government's borrowing costs, and the associated surge in interest expenses has further exacerbated the fiscal deficit problem. See Figure 1.

In this context, the rise of trade protectionism may reshape the global capital flow landscape. The status of the dollar as a safe-haven asset is being challenged, which means that some large institutions (such as non-U.S. pension funds, life insurance companies, and sovereign wealth funds) may change their previous investment strategies. Over the past two decades, these institutions have had approximately $33 trillion in dollar asset exposure (including $14.6 trillion in bonds and $18.4 trillion in stocks), with about half not being systematically hedged (source: Reuters). We believe that in the coming months and even years, a new round of large-scale portfolio adjustments may emerge globally. See Figure 2.

This is not the first time the United States has experienced a reversal of dollar inflows due to the "twin deficits" (i.e., the simultaneous expansion of fiscal and trade deficits), but this occurrence coincides with profound changes in the global economic landscape. We believe that the world is currently undergoing a significant transformation of the dollar system, and this trend may trigger a new wave of large-scale dollar selling pressure.

Even if retaliatory tariffs are eventually lifted, we still believe that this trend will be difficult to reverse. The reasons are: (1) the impact of the confidence shock has left a deep impression on the minds of many investors; (2) Tariff cuts and reductions will weaken government revenues and further increase deficit pressure. Of course, a weaker dollar can help to some extent reduce the debt burden in an "inflationary" way by lowering interest costs, while potentially boosting US exports. However, this process has come at the cost of undermining the dollar's credibility as a store of value and a global reserve currency, accelerating the market's search for alternative assets.

When we discussed the topic of "de-dollarization" in December 2023, it was pointed out that the dollar was at a critical turning point, but it was believed at that time that this process could take "many generations" to truly realize. However, a series of events in recent months seem to have significantly accelerated this process. In fact, the decline of the dollar's influence has long been traceable—Harvard economist and cryptocurrency critic Kenneth Rogoff has pointed out that the peak of dollar hegemony occurred around 2015, and since the outbreak of the Russia-Ukraine war, this trend has further accelerated due to sanctions against Russia.

The next big opportunity

But the question is, where is the alternative? When the monetary system undergoes a fundamental change and the basis of monetary value is redefined, stored value assets such as gold, as well as bitcoin, which has received a lot of attention in recent years, often become particularly important. In fact, in recent weeks, Bitcoin's positioning as "digital gold" has become increasingly clear, especially in the context of risk-adjusted outperformance of U.S. stocks, and its value advantage has become more prominent. According to a new report from Coinbase Asset Management, the global stored value asset market could grow from $20 trillion today to $53 trillion over the next decade, with an average annual real return of 6% (adjusted for inflation).

The logic is that incorporating assets like Bitcoin and gold into an investment portfolio helps achieve risk diversification (we have previously conducted relevant analysis) and enhances the stability of returns during the transition of the economic system. Although Bitcoin's volatility is higher than that of gold, its higher potential returns can complement the stability of gold, thereby creating a more balanced wealth preservation strategy.

In addition, we believe that Bitcoin is significantly different from gold in that it is not subject to arbitrary confiscation by the government and capital controls. A typical case is the Gold Reserve Act signed by Roosevelt in 1934, which prohibited private ownership of gold and mandated its surrender to the U.S. Treasury. At the international level, gold is subject to sanctions risk during large-scale holdings due to its reliance on traditional financial infrastructure and physical custody (such as banks and vaults); whereas Bitcoin has the capability for various income groups to achieve digital self-management. For example, in 2022, over 2,000 tons of gold stored in friendly countries by Russia were frozen and could not be liquidated. As for capital controls, previous administrations in Argentina not only restricted citizens from obtaining U.S. dollars but also prohibited the sale of gold to prevent capital flight.

For this reason, we see Bitcoin as a supranational store of value and believe that it has a unique advantage in building monetary credit in international trade. Currently, more than 80% of the world's international trade is still settled in US dollars (see Figure 4), but as the world moves towards a multipolar system, more and more countries are uneasy about their continued reliance on the US dollar as an intermediary in their balance of payments. However, in reality, the alternatives available are still very limited.

! Coinbase's Latest Monthly Outlook: Global Monetary System Turns, Bitcoin Begins to Perform on Stage

For example, the currencies of countries with current account surpluses may be under-circulated globally (this is precisely what economist Robert Triffin called the "Triffin problem", which he has suggested by creating new reserve currency units). At the same time, due to the highly fragmented fiscal policy in the eurozone and the ECB's institutional constraints, the euro is still far less influential than the dollar, even though it is the world's second-largest reserve currency.

We believe that for politically sensitive trade relations, especially for countries with a current account surplus, assets that possess censorship resistance and sovereign neutrality (i.e., supranational assets) will be more attractive. Of course, the selection of such assets is quite limited, so Bitcoin may be the most promising competitor at present. In the long term, this could bring significant asymmetrical upside potential for Bitcoin. However, it should be noted that its widespread adoption may still be restricted due to many countries' unwillingness to relinquish control over their national monetary policies. Of course, given that most commodities are still priced in US dollars, from a practical operational perspective, the Federal Reserve has effectively influenced the policy direction of the majority of central banks globally.

Why is it now ###?

This is precisely why we emphasize not to confuse "store of value assets" with "inflation hedging assets," despite the close relationship between the two. We define "store of value assets" as assets that can maintain their value over a long-term investment cycle, while "inflation hedging assets" are tools used to cope with price shocks and protect purchasing power in the short term. An asset, even if it is a high-quality store of value tool, may not necessarily be an effective inflation hedging measure, and vice versa.

From this perspective, we believe that the potential capital inflow into Bitcoin could be quite substantial, especially in 2025, when cryptocurrencies are expected to truly enter the mainstream market. The surge in Bitcoin holdings (see Figure 5) is primarily attributed to the launch of investment tools such as spot Bitcoin ETFs, which have significantly lowered the investment threshold; at the same time, the market's liquidity and depth have also improved significantly over the past five years. In addition to Bitcoin, the field of crypto payments is also beginning to accelerate, with more and more institutional participants gradually recognizing the unique advantages of blockchain infrastructure in enhancing efficiency and controlling costs.

The expanding base of Bitcoin investors is advancing in parallel with the initiatives of multiple countries (as well as some states in the U.S.) to establish strategic Bitcoin reserves (or digital asset reserves). In March 2025, the White House officially established a strategic Bitcoin reserve through an executive order, utilizing Bitcoin seized by the U.S. government, totaling approximately 198,000 BTC. Notably, China may be the world's second-largest national holder of Bitcoin, estimated to possess around 190,000 BTC, primarily also from seized assets, although the Bitcoin reserve program has not yet been officially launched. Meanwhile, countries such as the Czech Republic, Finland, Germany, Japan, Poland, and Switzerland are also exploring the feasibility of incorporating Bitcoin into their national reserve systems.

In contrast, according to data from the International Monetary Fund (IMF) and the World Gold Council, by the end of 2024, the global above-ground gold reserves have exceeded 216,000 tons, of which central banks and sovereign financial departments hold about 17% (approximately $3.6 trillion) as reserves. On the other hand, affected by exchange rate fluctuations in 2024, global foreign exchange reserves fell from $12.75 trillion to $12.36 trillion in the fourth quarter of 2024. This means that gold holdings (excluding foreign exchange reserve statistics) currently account for about 23% of the global comprehensive international reserves, compared to only 10% ten years ago. Additionally, the Basel III Accord will officially take effect on July 1, 2025, at which point gold will be reclassified from a Level 3 asset to a Level 1 "high-quality liquid asset", which may further promote the global process of de-dollarization in asset allocation.

As demand for the US dollar weakens, we believe that more countries will seek to diversify their foreign exchange reserves in the future. Conservatively estimating, if only 10% of the total global international reserves were allocated to Bitcoin, the total market capitalization of Bitcoin is expected to increase by approximately $1.2 trillion in the long run.

Conclusion

The global monetary system is undergoing a significant transformation, characterized by increased concerns over U.S. fiscal and trade policies, as well as the gradual weakening of the dollar's dominance, which creates unique development opportunities for alternative store-of-value assets. We believe that Bitcoin, due to its sovereign neutrality and immunity from international sanctions, is increasingly being viewed by more and more countries as a potential strategic reserve asset, and is expected to benefit significantly from this trend in the future. At the same time, the reclassification of gold assets under Basel III and the slowdown in some central banks' gold accumulation further confirm this structural change. Overall, we believe the world is accelerating its departure from traditional reliance on the dollar, and Bitcoin has the potential to become a key component of the future global financial system.