Following US President Donald Trump’s 2025 executive order establishing a strategic bitcoin reserve, private companies, investment banks, and scholars have begun urging major central banks to consider doing the same. Trump’s nominee for US Federal Reserve chair, Kevin Warsh, echoed this sentiment in an interview last year, describing bitcoin as the “new gold”.

China and many large emerging markets have long recognized the risks of excessive reliance on the US dollar. Efforts to reduce that dependence have helped drive the recent surge in gold prices, which have risen by roughly 65% over the past year. If diversification away from the dollar is already underway through gold accumulation, the argument goes, why not add bitcoin to central bank reserves as well? Doing so, after all, could strengthen reserve portfolios and build resilience against US financial sanctions.

This idea is not quite as far-fetched as it may seem. As the risk of a great-power conflict increases, and as China and Europe struggle to build more liquid, independent payment systems for the renminbi and the euro, bitcoin’s appeal as a politically neutral reserve asset could grow.

In many ways, bitcoin is the ideal currency for a more fragmented and uncertain global landscape. But the US government itself is fast becoming one of its most prominent champions, thanks in no small part to the crypto lobby’s massive political spending. Few stand to gain more from this shift than the Trump family, which is poised to reap billions of dollars from the administration’s pro-crypto policies.

To be sure, bitcoin remains highly volatile. Its price has fallen sharply, from over US$124,000 in October 2025 to under US$65,000 today, even as gold has continued to climb, underscoring the uncertainty surrounding its near-term outlook. Some analysts believe that, based on long-term trends, bitcoin’s floor price could eventually settle above US$100,000. But bitcoin has not even been around for two decades, and long-run extrapolations typically require at least a century of data. Gold, by contrast, has served as a monetary asset for thousands of years, dating back to ancient Lydia.

The most bullish projections suggest that bitcoin’s total market capitalization could eventually rival that of gold, which is currently estimated at US$30 trillion to US$35 trillion. Because bitcoin’s supply is algorithmically capped at 21 million coins, roughly 93% of which have already been mined, its price would need to exceed US$1.5 million per coin to reach that valuation.

On the other hand, many Nobel laureate economists and prominent financial commentators maintain that bitcoin’s current valuation is purely speculative. In their view, because it lacks intrinsic value or fundamental use, its only long-run equilibrium price is zero.

That argument might hold if bitcoin were valued solely for its novelty, as a form of blockchain art. Yet a medium-term collapse to zero seems highly unlikely, given cryptocurrencies’ role in the global underground economy. That economy, which encompasses illegal activities ranging from money laundering and narcotics trafficking to tax evasion, is widely estimated to exceed US$20 trillion, putting it in the same league as major credit card networks.

Suppose that bitcoin were to capture one-quarter of this massive underground market, and that its value to users was equivalent to the 2% fee typically paid on credit-card transactions. That would imply approximately US$100 billion in transactional value per year. Capitalized appropriately, such usage could easily justify a market cap of US$1 trillion, or roughly US$50,000 per coin.

Admittedly, stablecoins – cryptocurrencies pegged to an official currency, usually the US dollar – currently account for the bulk of crypto transactions. Over time, however, dollar-pegged stablecoins will likely be regulated similarly to traditional banking instruments such as debit cards, making transactions easily traceable to identifiable individuals even after multiple transfers.

Once that happens, underground users may be forced to return to bitcoin. While thousands of alternative cryptocurrencies exist, most have faded in recent years, as bitcoin’s first-mover advantage, large network and proven resilience have kept it well ahead of competitors.

If bitcoin is likely to retain some durable transactional role, why shouldn’t emerging-market central banks diversify into it? There are, of course, significant downsides. For starters, widespread cryptocurrency adoption could undermine governments’ ability to collect taxes, an issue that policymakers – even US politicians awash in campaign contributions – will eventually have to confront.

Indeed, if policymakers in all the major economies were ever to follow China and shut down crypto-related activities, even a US$50,000 value for bitcoin might be difficult to sustain. So-called crypto “exchanges” such as Coinbase make it much easier for ordinary people to hold bitcoin and provide an off-ramp into cash. Without them, the network effects that greatly magnify bitcoin’s value would sharply shrink.

But that isn’t going to happen anytime soon. The Trump administration’s strong support for cryptocurrencies, together with the United States’ long-standing weaponization of the dollar through financial sanctions, could prompt some central banks to experiment with bitcoin diversification. Even so, displacing the ultimate safe haven won’t be easy. In the end, the “new gold” may simply be gold.

Kenneth Rogoff is a professor of economics and public policy at Harvard University and a former chief economist of the International Monetary Fund.

Copyright: Project Syndicate