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Dubai: For decades, the US dollar has been the backbone of the global financial system. It anchors trade, financial markets, and central bank reserves.

Yet a persistent question is now gaining traction: could Bitcoin, the world’s leading cryptocurrency, one day replace the dollar as the dominant reserve currency?

Supporters highlight Bitcoin’s fixed supply and independence from governments as strengths. Critics argue it is too volatile and impractical for daily use. The reality lies between the two — and with governments beginning to build Bitcoin reserves, the debate is intensifying.

What makes a reserve currency?

To function as a reserve, money must serve as a store of value, a medium of exchange, and a unit of account. The dollar meets all three.

Bitcoin is seen as a store of value — often called “digital gold” — but it is rarely used for payments, and prices remain set in fiat currencies. Until Bitcoin consistently fulfills all roles, it cannot realistically replace the dollar.

Bitcoin more commodity than currency

In practice, Bitcoin behaves less like money and more like a commodity. Investors hold it in expectation of future gains, much like gold. While this supports its role as a store of value, it limits its potential to displace the dollar in trade and finance.

US dollar’s dominance under question

Rising U.S. debt — now above $37 trillion — and the use of sanctions in geopolitical disputes have driven some countries to explore alternatives. Historical shifts, such as the dollar overtaking the British pound in the 1920s, show reserve currencies are not permanent.

Rise of Bitcoin reserves worldwide

Nations are increasingly treating Bitcoin like a reserve asset. El Salvador made it legal tender in 2021 and continues to buy it. The US and China both hold large amounts, mainly from seizures, while Bhutan and Ukraine have built reserves through mining and donations. The Philippines is even debating a Strategic Bitcoin Reserve Act.

Governments see several advantages: inflation resistance, diversification from the dollar, geopolitical neutrality, and portability. But supply is concentrated — companies like MicroStrategy alone hold nearly 3% of all Bitcoin, while just over 200 entities control about 30%.

Factoring the risks and limits

Bitcoin’s extreme volatility, lack of global regulation, and speculative nature remain major hurdles. For now, it behaves more like a risky asset than a reliable reserve currency.

Verdict?

Bitcoin is unlikely to dethrone the U.S. dollar soon. But its growing role as a parallel reserve asset — similar to gold — suggests it will become an increasingly important part of the global financial order.