Could Bitcoin Replace the Dollar and Become the Global Reserve Currency?

Given the concerns over tariffs and a potential global trade war, a growing number of investors have suggested that Bitcoin (CRYPTO: BTC) might eventually replace the U.S. dollar and become the global reserve currency. Is this likely to happen? The answer, of course, is no.

Does Bitcoin meet the criteria of a reserve currency?

First of all, it's debatable whether Bitcoin has the right characteristics to be a true reserve currency. According to the Federal Reserve, money must serve three critical functions. It must be a store of value. It must be a medium of exchange. And it must be a unit of account. Bitcoin does not yet meet all three of these essential criteria.

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While Bitcoin is a store of value, it is not yet a popular medium of exchange for making everyday transactions. When was the last time that you used Bitcoin to pay for anything?

Moreover, Bitcoin is not yet used as a unit of account. In other words, companies don't price their goods or services in Bitcoin. When you walk into a supermarket, for example, the goods on the shelves are priced in dollars, not Bitcoin. When you pump gas at the gas station, you see a price displayed in dollars, not Bitcoin.

Even though Satoshi Nakamoto created Bitcoin to be a digital currency, it really trades more like a global commodity these days. People buy and hold Bitcoin, they don't spend it. For that reason, it has become fashionable to refer to Bitcoin as digital gold. Gold, too, started off as a currency, with people making gold coins to trade for things of value.

Impact of tariffs

It is, however, possible to imagine a future scenario in which Bitcoin finally becomes a true medium of exchange or a unit of account. However, it is highly unlikely, to say the least. It would require a tectonic readjustment of the global financial system, such as occurred in the 1920s (when the dollar replaced the pound as the global reserve currency), or in the 1970s, when the U.S. officially moved off the gold standard.

In 2025, discussion is building about Bitcoin replacing the dollar. The prospect of a global trade war, combined with an out-of-control U.S. debt load of $37 trillion, has some investors thinking that nations around the world will eventually turn their back on the U.S. dollar. A natural replacement might be Bitcoin, given its global appeal and its non-sovereign status.

However, even if foreign investors decide to flee the U.S. dollar and all dollar-denominated assets, it would likely require an epic agreement among all the major trading nations of the world to replace the dollar with Bitcoin. A good example is the Bretton Woods Agreement of 1944. This is when the major trading nations of the world met in the final days of WWII to discuss a reordering of the international financial system led by the U.S.

The problems caused by Bitcoin hoarding

Let's say, for the sake of argument, that the tariff situation gets out of hand, there is a major trade war, and top trading nations decide to meet in some far-flung foreign capital to discuss moving away from a dollar-based international financial system.

Even then, it's unlikely that they would decide on Bitcoin as the new global reserve currency. That's due to one key factor: People, companies, and governments are hoarding their Bitcoin. They are pledging never to sell their Bitcoin, and that is leading to a situation where it is increasingly difficult to find new Bitcoin for sale. Even cryptocurrency exchanges are now complaining that they are running out of Bitcoin.

A new report from digital asset bank Sygnum highlights the problems caused by Bitcoin hoarding. The report focuses on Strategy (NASDAQ: MSTR), which has become the largest corporate holder of Bitcoin in the world. It now holds close to 3% of all Bitcoin.

The more Bitcoin that Strategy hoards for its corporate treasury, the more unlikely it is that Bitcoin can ever become the global reserve currency. According to Sygnum, once Strategy holds 5% of all Bitcoin worldwide, it will become impossible for Bitcoin to ever become a global reserve currency.

Similarly, a new report from Gemini and Glassnode highlights that 30% of all Bitcoin in the world is now held by just 216 centralized entities. These include corporations, cryptocurrency exchanges, Wall Street banks, ETF investment firms, asset management firms, hedge funds, and sovereign wealth funds. So, a digital currency that was originally designed to be as decentralized as possible, embraced by billions of people around the world, is becoming highly centralized at a rapid pace.

The future upside potential of Bitcoin

The good news, if you're a Bitcoin investor, is that it probably does not matter if Bitcoin ever becomes the global reserve currency. People will continue to buy Bitcoin, just as people continue to buy gold.

Demand for Bitcoin continues to soar. It's not just crypto enthusiasts who have embraced Bitcoin. It's now corporations, Wall Street banks, and even sovereign governments. It's hard not to be bullish on Bitcoin, even if the original vision of early crypto pioneers to replace the U.S. dollar with Bitcoin never materializes.

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Dominic Basulto has positions in Bitcoin. The Motley Fool has positions in and recommends Bitcoin. The Motley Fool has a disclosure policy.