One of the major trends that'll be driving the crypto sector's growth over the next 10 years and beyond is governments and corporations adopting cryptocurrencies and competing with each other for financial dominance. Especially for capstone cryptocurrencies like Bitcoin, the conflict cuts across a handful of different vectors:
Mining hardware production
Regulations
National stockpile policies,
Investor population behaviors
The degree of integration with the traditional financial sector.
The competitive landscape is still forming. So far, only a few governments have policies that can be directly expected to increase the pace of crypto market growth, and even fewer seem to grasp the importance of the domain as it pertains to their future prosperity.
Crypto Market Growth: Crypto Market Cap 2018-2025
That will soon change, and early leaders will be well-positioned to capture the spoils. The victors of the battle will have substantially more influence on the flow of the world's wealth as well as more assets to be used for consumption and investment. So far, the US is the world's obvious leader in cryptocurrency, though there are numerous factors that threaten its position, particularly stemming from more industrially advanced nations like China.
Government Adoption of Bitcoin And Crypto Is Accelerating
Adopting cryptocurrencies is favorable for governments for several reasons:
Cryptocurrencies are not tied to any single national economy, making them useful as uncorrelated assets.
During economic booms, crypto holdings may outperform domestic growth, creating opportunities to liquidate gains and fund national projects.
During recessions, crypto holdings may retain value even as domestic assets decline due to their inherent resistance to inflation and external monetary influence, helping preserve purchasing power, financial independence, and creditworthiness.
Finally, leaders of governments may want to portray themselves as advancing their country's reputation for being on the cutting edge of technology. And while blockchain tech isn't exactly rocket science, it does have a lot of utility in making the plumbing of financial systems more efficient.
This means that keeping a portion of a nation's wealth in cryptocurrency can somewhat protect against the ability of foreign issuers to influence the country's balance sheet as well as its access to goods and services. In the same vein, cryptocurrencies can mitigate some of the impacts of inflation of its own currency. In this context, the cryptocurrency acts as backing for the currency's value, much like how dollars were formerly backed by the ability to exchange them for gold.
Key Policies
In terms of the most important set of government policies pertaining to cryptocurrency adoption, there are four in particular to be aware of:
The US Strategic Bitcoin Reserve and National Cryptocurrency Stockpile, a pair of repositories where the government aims to retain seized crypto assets
Decisions by El Salvador and the Central African Republic to adopt Bitcoin as legal tender
The EU's Markets in Crypto-Assets Regulation (MiCA), which is actively in the process of being implemented
China's ban of cryptocurrencies in 2021, and its backpedaling in recent months
All of these countries are still in the process of shifting and reforming their cryptocurrency regulations. The direction of the trend is very much towards supporting crypto market growth with escalating adoption rather than trying to stem it. For the record, that's a significant shift in the average disposition of policymakers, as for most of the cryptocurrency industry's existence it faced considerable outrage and skepticism than support.
Could Crypto Market Growth Challenge The Petrodollar?
For the uninitiated, the US dollar is by far the most common currency used to purchase oil, which is due to the Petrodollar Agreement of 1973. That international accord between the US and Saudi Arabia specified that the US would protect the country with its military, in exchange for Saudi Arabia pricing its oil in dollars and investing its oil profits into US treasury bonds. Thus, the value of the US dollar, which had intentionally been unlinked from the value of gold as of 1971, would henceforth be backed by the value of oil.
Such an arrangement is highly favorable for the US, as the global demand it creates centralizes its currency as the global standard when paying for oil. But aspiring powers, particularly China, are disadvantaged by the need to predominantly use their chief adversary's currency to buy a critical resource. In China's case, the yuan-denominated oil market is increasing in size over time, but it's still nowhere near the depth needed for all of the country's purchasing needs. So there's a large incentive for them to create and expand their alternative options for purchasing oil — cryptocurrency may be one of those options.
Due to the ongoing workarounds to its power implemented by China and other countries, the US dollar is weaker today than in the past. But, if the US government adopts stablecoins as part of a national cryptocurrency dominance policy, it could stem the outflow of its purchasing power. For instance, if a US dollar stablecoin were to become the most-used cryptocurrency for purchasing digital services, it could retain some of the value it derived from being backed by its ability to be exchanged for oil.
Stablecoins Are The New Tool For Reserve Currency Status
Reserve currencies are generally those that are widely held and widely interchangeable for the most important commodities in the world economy. Reserve currencies are also widely exchangeable for services, though most commonly only for services originating from the issuing country. That makes it somewhat more difficult to retain reserve currency status solely on the basis of providing services, unless the country in question is primarily services-oriented, like the US.
Within the digital services sector, US dollar-backed stablecoins could thus be particularly useful within the decentralized finance (DeFi) industry, where they're used as:
A medium of exchange for payments
Collateral for borrowing
Generating a yield like a bond
While currencies used by Russia and China are moving towards being backed by gold, if the US digital dollar were used by DeFi services, it could remain relevant as a reserve currency. Neither the Russian ruble nor the Chinese yuan are currently present in the DeFi space in a widely backed stablecoin format, though there are nascent stablecoin projects for each.
This combined with the Trump administrations pledge to “end the war on crypto,” it is likely that some of the future crypto market growth will originate from the US jockeying to retain the dollar's reserve currency status by offering services while its competitors offer interchangeability to commodities like gold and other hard assets.
Over the long term, it's likely that those reserve currencies will stake claims to portions of the services sector as well, particularly digital services that are easy to offer across international borders. More stablecoin adoption is therefore practically guaranteed among major governments, as stablecoins will be a key part of the financial infrastructure for any currency that's intended to be in wide use.
The Macro Perspective
As far as the early leaders go:
Country | Position in Crypto | Constraints / Risks |
|---|---|---|
United States | Most advanced in long-term crypto stockpiling strategy Major hub for global crypto mining and industry | Faces pressure from early-stage global de-dollarization Resource competition may limit dominance |
China | Former global leader in crypto mining Still dominates mining hardware production for export | Regulatory ban on crypto Could re-enter competitively if policy shifts, but risks low-trust |
UAE | Recently began using XRP Ledger and stablecoins for part of its payment infrastructure Developing Dubai as a crypto nexus | Early-stage adoption Potential geopolitical friction |
Brazil | Uses XRP network for significant portion of trade payments to reduce costs Potential to interlink with other South American financial systems for regional dominance | Relies on external networks like XRP, may face future dependency or regulatory challenges Less-preferred regulatory environment for investors due to historical baggage |
The geopolitics of cryptocurrency mining, distribution, and foreign exchange are only starting to be fleshed out, and the coming decade will be transformative for crypto market growth even under a conservative set of assumptions. This trend is just getting started.
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