It’s been a banner year for cryptocurrencies (or should we say a crypto summer?) with Bitcoin stealing the show. Up over 100% year-to-date—and surging nearly 30% in just the past month—Bitcoin has solidified its position as one of the hottest asset classes of the year.

What’s driving this meteoric rally and can it keep going? 

A friendlier regulatory environment and growing frustration with the seemingly insatiable appetite for debt on the part of governments around the world are at the top of the list.

Regulatory optimism To start, an estimated $130 million was spent during the election to support crypto-friendly candidates. President-elect Donald Trump clearly stated he wants the US to lead the way in the crypto industry. And with a Republican-controlled Congress, investors are anticipating a comprehensive overhaul that could add much-needed regulatory clarity and reduce SEC enforcement risks.

Remember rule number one of investing: investors like clarity. Regulatory certainty could pave the way for more adoption and institutional investment in Bitcoin and other cryptocurrencies.

Potential answer to a problem

Growing government debt is something we’ve already spent a lot of time and words on–-so we won’t do it here. But suffice to say that the ability for the government to print unlimited money and grow our deficit makes a limited production asset like Bitcoin look like a decent option (see chart below for the growth of the US money supply). The most recent piece on government debt is here. 

Bitcoin’s blockchain technology is secure, decentralized and, unlike fiat money, can’t be just created by central governments. This structure and limited supply makes it more resistant to inflation—a quality that sets it apart in a world of endless money printing.

But it’s not just about inflation protection. Bitcoin’s security could serve as a potential safe-haven asset. Much like gold and Treasuries, Bitcoin is increasingly seen as a refuge for investors during times of global conflict and uncertainty. We’ve already caught glimpses of this dynamic, with Bitcoin climbing alongside gold as tensions in the Middle East flared.

The Bitcoin Act: Potential Strategic Reserve Asset The excitement doesn’t stop with regulatory clarity. A particular proposal is gaining interest, too—the potential Bitcoin Act, which would establish Bitcoin as a strategic reserve asset. Under this proposal, the US government would acquire up to 5% of Bitcoin’s total supply. To put that in context, gold currently accounts for over 75% of the US foreign reserves. At 8,133 tons of gold, the US owns about 3.6% of the world’s gold supply. But in contrast, with 21 million Bitcoins to ever exist—and 19.6 million (93.6%) already mined—acquiring 5% of Bitcoin would represent a more significant move.

Backing Bitcoin with US government support would likely improve investor sentiment, boosting prices as institutional investors and others jump in but, the practical benefits of the government holding Bitcoin are less clear. Is it possible to use it to back the US dollar, the same way gold did until 1971? 

Some suggest the reserves could also help pay down US debt, but the numbers don’t add up (at least not now). The Bitcoin market is currently valued at $1.8 trillion, which equates to the current US deficit. While US outstanding debt is at a staggering $31.5 trillion, with a $1 trillion or so in interest payments this year alone. For Bitcoin to serve this role, we’d need to see a significant price appreciation. 

Reserve Currency Status? Finally, there’s also growing concern about the US losing its position as the world’s reserve currency (more about that here). Today, the US dollar dominates global financial markets:

For Bitcoin to truly rival the dollar’s dominance as a global reserve currency, it would need deeper integration into capital markets. Its current volatility and limited use in large-scale financial transactions makes for a decent hurdle.

Looking ahead Bitcoin’s resurgence reflects growing dissatisfaction with traditional financial systems and optimism around regulatory change. Proposals like the Bitcoin Act and a crypto-friendly administration could pave the way for broader adoption and higher prices. However, for Bitcoin to truly compete with established currencies like the US dollar, it will need to overcome hurdles—most notably its volatility and limited integration into global financial markets.

Investor’s Guild is going to take a break next week. We’ll be back on December 4th.