• The recent banking crisis dissipated the trust in USD, further fueling the long ongoing dedollarization discourse.
  • BRICS looking into potentially developing their own rare earth metal-backed currency could decrease global economic dependency on the Dollar.
  • Bitcoin has been regaining its “safe haven” status, and dedollarization could escalate this narrative.

Dedollarization is a concept that has been around for a long time now but has only begun taking shape over the last few years. While Crypto was built to be a global currency, independent from other currencies, the devaluation of the US Dollar (USD) might play in its favor, making its aim a reality.

Dedollarization: What it is and how it matters

Dedollarization is the devaluation faced by the USD due to other currencies taking its place as the world’s reserve currency used for trading Oil and other commodities. The eroding trust in banks and the Federal Reserve is driving countries away from the US Dollar, pushing them to use their own currencies instead. This discussion is heating up more at the moment due to the recent macroeconomic developments.

USD is becoming weaker by the day as rising inflation and declining geopolitical relations have sent people looking into other options. Many countries, for the same reason, have pulled away from using the Dollar for bilateral trades and have shifted towards their own currencies. China is the biggest country when it comes to using its national currency for trade, as it already has agreements with Australia, Russia, Japan, Brazil, and Iran.

Recently BRICS member Russia’s Deputy Chairman of the State Duma Alexander Babakov also stated that the member countries could create their own currency backed not by gold but land and rare earth metals. Adding to the possibility, Babakov said,

“Most likely, this will be done…Neither the Euro nor the Dollar is backed by anything, and our countries can do what was destroyed by the Bretton Woods system.”

This could result in USD losing its presence from a major chunk of the global economic activity, further weakening its strength as the use of the likes of the Chinese Yuan could see an increase in settling transactions between countries.

However, apart from the Yuan, the weakening of the USD could also act as a boost for cryptocurrencies.

How Crypto stands to benefit from dedollarization

At the moment, the USD is the world’s major currency and dedollarization would lead to a reduced circulation of the currency, resulting in lower liquidity. Consequently, the stock market could note a bearish period which usually also impacts the crypto market.

This is because following the Covid-19 crash, Bitcoin and Crypto’s correlation with the stock market increased. The Nasdaq100 and S&P 500 dictated the digital asset’s path, which took away BTC’s inflation hedge status until the recent banking crisis.

With the Silicon Valley Bank, Silvergate bank and Signature bank failing, Bitcoin decoupled itself from the stock markets and rallied to its current trading price of $28,200. With faith in banks decreasing and the Federal Reserve suggesting higher interest rate hikes going forward the TradFi market could see some bearish effects.

Additionally, Bitcoin’s rising correlation with Gold is also rising by the day reaching 0.92 on April 3. Throughout 2022 this correlation stood far lower due to the volatility, but the current conditions strengthen the asset’s safe-haven status, which could drive hyperbitcoinization.

Beginning of hyperbitcoinization?

Hyperbitcoinization is known as the transition of Bitcoin into the world’s most dominant form of currency, which many predict is not too far. One of Bitcoin’s biggest supporters, former Coinbase Chief Technical Officer (CTO) Balaji Srinivasan, even went on to make a $1 million bet with pseudonymous Twitter speaker James Medlock on March 17 that BTC would be worth $1 million within the next 90 days.

Explaining this bet, Srinivasan noted that this million-Dollar bet was not about winning or rallying Bitcoin price but about settling the ideological discussion surrounding USD inflation. He explained his statement by saying,

“I believe Medlock will agree that this is an ideological bet, like the Simon-Ehrlich bet, which resolved a famous difference of opinion between libertarians and progressives.”

While many consider this to be just a publicity stunt, Balaji himself stated that his declining faith in banks and belief in Bitcoin is what drove him to make the bet in the first place. 

Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.

If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.

FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.

The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.

Join Telegram

Recommended content

Recommended Content

Editors’ Picks

Bitcoin may be set for a price rebound amid alleged Trump's plan to speak at Bitcoin convention

Bitcoin may be set for a price rebound amid alleged Trump's plan to speak at Bitcoin convention

Bitcoin's price dropped below the $60K level briefly on Monday following news of defunct exchange Mt Gox beginning to pay its creditors in July. However, Santiment data reveals that the recent spike in social volume of the phrase "bottom" could signal a potential price rebound for Bitcoin based on historical trends.

More Bitcoin News

Solana down 15% in past seven days amid claims of alleged SOL investigation

Solana down 15% in past seven days amid claims of alleged SOL investigation

Solana holders and crypto analysts on X slammed influencer Crypto Bitlord behind the X handle @crypto_bitlord7 for his hot take on Solana and an alleged investigation. The analyst said that the alleged investigation has been brewing for “some weeks now,” and the crypto community on X heavily critiqued the influencer.

More Solana News

Ethereum whales increase their holdings following recent price decline

Ethereum whales increase their holdings following recent price decline

Ethereum's price (ETH) is down nearly 6% on Monday after Mt. Gox announced it would begin repaying creditors their Bitcoin and Bitcoin Cash. However, ETH whales have pounced on the price decline as an opportunity to purchase ETH before the arrival of spot Ethereum ETFs.

More Ethereum News

SHIB whale sells amid controversy surrounding WATER meme coin and singer Jason Derulo

SHIB whale sells amid controversy surrounding WATER meme coin and singer Jason Derulo

SHIB whales could be selling as the Dogecoin competitor has not seen sustained price growth in the past three months. WATER token might be facing selling pressure from increased insider activity. Jason Derulo accused of promoting crypto pump-and-dump scams by analyst.

More Shiba News

Bitcoin: Is BTC out of the woods?

Bitcoin: Is BTC out of the woods?

Bitcoin appears poised for a slight decline this week, influenced by factors such as the German Government's deposit of over 1,700 BTC in exchanges, decreasing outflows in US spot ETFs, and on-chain data indicating no signs of BTC DeFi liquidation. 

Read full analysis