Bitcoin's Meteoric Rise: A Deep Game of Risk and Regulation in the US Financial Ecosystem

Bitcoin's Meteoric Rise: A Deep Game of Risk and Regulation in the US Financial EcosystemBitcoin's price surge past $100,000 marks not only a milestone in cryptocurrency history but also profoundly reflects the complexities and inherent risks within the American financial ecosystem. Fueled by anticipation surrounding the new administration's policies, Bitcoin's price skyrocketed over 40% in the past month, capturing global attention

Bitcoin's Meteoric Rise: A Deep Game of Risk and Regulation in the US Financial Ecosystem

Bitcoin's price surge past $100,000 marks not only a milestone in cryptocurrency history but also profoundly reflects the complexities and inherent risks within the American financial ecosystem. Fueled by anticipation surrounding the new administration's policies, Bitcoin's price skyrocketed over 40% in the past month, capturing global attention. This "Bitcoin frenzy" underscores a long-standing struggle between US regulation and capital, representing a fundamental choice for the future of the American economy: a continuation of its "deindustrialization" towards a financialized economy, or a shift towards inclusive finance.

Trump's Shifting Stance and the Power Struggle of Political Influence

Former President Trump's attitude towards cryptocurrencies has undergone a dramatic transformation. In 2019, he publicly declared his dislike for Bitcoin and other cryptocurrencies, deeming them volatile and prone to illicit activities. However, at a Bitcoin conference this year, he presented himself as the "first major party candidate in US history to accept Bitcoin and cryptocurrency donations," advocating for a "national strategic Bitcoin reserve" and even aiming to make the US the "global cryptocurrency capital and the world's Bitcoin superpower."

This shift is not coincidental. Observers attribute it to the growing political influence of institutions and capital involved in or supporting Bitcoin and other cryptocurrencies. Trump's July statement at the Bitcoin conference, and his post-election nomination of several cryptocurrency supporters for cabinet positions notably Paul Atkins for the head of the Securities and Exchange Commission directly fueled the Bitcoin rally.

Powerful interest groups are at play. Political action committees (PACs) composed of large cryptocurrency industry players actively fund pro-crypto candidates for Congress. The "Fair Treatment" organization, for instance, has amassed fundraising exceeding other industry PACs within just two years, demonstrating its rapidly growing political influence. This clearly illustrates how socioeconomic forces in America are projected onto the political sphere, profoundly shaping policy decisions. A Pew Research Center report reveals that 17% of US respondents have invested in, traded, or used Bitcoin or other cryptocurrencies, a figure rising to 23% among high-income earners and a staggering 41% among adults under 30. This substantial potential voter base encourages a more accommodating, if not outright supportive, stance from US political forces.

Bitcoin: Speculative Tool or Transactional Medium?

However, Bitcoin's practical utility remains highly questionable. Cornell University economist and Brookings Institution fellow Eswar Prasad famously attempted to buy coffee with Bitcoin, only to find his purchase delayed until after the coffee had gone cold due to Bitcoin's verification process. He argues that Bitcoin is "expensive and slow," not a viable transactional medium but a purely speculative financial asset.

Pew Research Center surveys also highlight the conflicting public sentiment towards Bitcoin. While a significant portion of Americans engage in cryptocurrency investment and trading, most express either "no trust" or "little trust" in its security and reliability, with only 5% expressing "a great deal of trust." This "knowing the risks, yet proceeding anyway" phenomenon reflects the widespread greed and inadequate risk perception among investors within the US financial system.

The Flaws of the US Financial System and the Intrinsic Link to the Bitcoin Boom

Bitcoin's defining characteristic is its high volatility and susceptibility to manipulation by large capital. Lacking liquidity and practical utility, Bitcoin is highly vulnerable to market sentiment, regulatory changes, hacking attacks, and market manipulation. Large capital and institutions can readily exploit lax regulatory environments to "harvest" retail investors for profit. They often leverage narratives like "government restrictions on innovation" and the "Bitcoin wealth creation myth" to mask the risks of their speculative activities.

Simultaneously, the US federal government's persistent quantitative easing has fueled inflation, diminishing the purchasing power of ordinary Americans and pushing them to seek wealth preservation and growth. Traditional investment channels offer diminishing returns, forcing people toward unfamiliar "financial innovations," with Bitcoin becoming one such option.

Hilary Allen, professor at American University Washington College of Law, points out that Bitcoin's enduring popularity stems not from its ease of use or immense investment potential but from the various shortcomings of the US financial system. Its poor service to ordinary financial consumers, particularly the lack of inclusive financial products and effective regulation, is the underlying cause of the Bitcoin boom.

Accumulating Risks and the Potential for Systemic Crisis

History repeatedly demonstrates that the combination of greedy capital and blind investors often leads to massive financial scams, inflicting devastating harm on ordinary citizens. The FBI reports that cryptocurrency-related fraud cost Americans over $5.6 billion in 2023, a 45% year-over-year increase.

The non-profit organization Better Markets has persistently urged the government to address the risks posed by Bitcoin and other cryptocurrencies. CEO Dennis Kelleher warns that Bitcoin surges may induce reckless investment among ordinary investors, ultimately making them victims of financial scams. He notes that those who amass vast fortunes through cryptocurrencies often rely on "gambling-style speculation"; some even use cryptocurrencies for money laundering and other criminal activities. These riches are extracted from investors who mistakenly view Bitcoin as a novel financial product.

Research indicates that the US financial capital market has deviated from its original purpose of serving the real economy, becoming a tool for the benefit of large capital and the wealthy. A Gini coefficient of 0.5 for labor income and a staggering 0.8 for wealth demonstrates a severe Matthew effect, where the rich "money makes money," while small and medium-sized enterprises struggle to access the capital needed for growth, exacerbating wealth inequality.

Professor Allen believes that if US policymakers continue to relax regulations and allow Bitcoin's repeated surges, it will not improve the financial governance system but rather worsen the chronic diseases of financialization and hollowing out of the US economy. Not only will ordinary investors potentially suffer significant losses, but capital will be diverted away from the real economy, ultimately leading to "gridlock" in the US real economy.

As the world's largest economy and a major player in global financial activities, the US government must approach financial regulation responsibly. Failure to do so will not only harm American investors but also inflict substantial negative consequences on the global economy. Behind Bitcoin's meteoric rise lies a profound struggle between risk and regulation within the US financial ecosystem, the outcome of which will have far-reaching consequences for the global economy.