Multiple industry reports suggest that China’s CBDC Developments over the long term can eclipse the USD dominance in global trade. It is true that China is developing its Digital Yuan to reduce the dependence on the USD, however, thinking that it will dominate over USD could be an overstatement.
Bloomberg’s Senior Commodity Strategist Mike McGlone writes that Bitcoin’s mainstream adoption and growth is indirectly fueling the USD dominance in the digital economy. The logic here is simple! Tether’s USDT stablecoin, a USD-pegged digital currency, is the most widely traded digital asset currently in the market.
Since the total supply of USDT is backed by real physical U.S. dollars, it ultimately boosts the organic adoption of the world’s reserve currency in the quickly exploding digital ecosystem. Hence, McGlone thinks that USD’s Digital Dominance is actually eclipsing the Digital Yuan and not the other way round. In one of his latest tweets. McGlone writes:
“Despite concerns about China’s development of a digital yuan, Bitcoin is enhancing the dollar’s dominance and is a risk to gold. Bitcoin may be accentuating the drawbacks of a lack of free markets & discourse”.
#Bitcoin May Enhance #Dollar Dominance, Highlight #China Drawbacks –
Despite concerns about China's development of a digital yuan, Bitcoin is enhancing the dollar's dominance and is a risk to gold. Bitcoin may be accentuating the drawbacks of a lack of free markets & discourse pic.twitter.com/zLyTDCiqfp
— Mike McGlone (@mikemcglone11) April 9, 2021
Bitcoin’s Rising Dominance Over Gold and Its Relation to Bond Yields
In a recently published Bloomberg report, senior markets editor John Authers speaks about Bitcoin’s growing popularity as an inflation hedge asset. Historically, Gold has emerged as an inflation hedge for people to protect their wealth against inflation fears. But looking at the current economic macros, Authers writes:
“Treasuries beat gold when people aren’t too worried about inflation, while gold wins when there are inflationary concerns. Except at present, both are falling”.
Below is a chart demonstrating how gold is losing its popularity over the last few months. The cash inflows in Gold are on a decline since Q4 2020 while that in Bitcoin is increasing.
Thanks to the institutional inflows in Bitcoin (BTC) and its derivative products that have further brought legitimacy to the world’s largest cryptocurrency. Interestingly, the author further points out how the BTC performance has been in alignment with the bond yields. He writes:
“Bitcoin’s performance over the last year is directly aligned with movements in bond yields. When yields rise, so does bitcoin. This implies that the digital currency benefits directly from the “reflation trade” — or the belief that inflation is coming”.
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