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■ Presidentelect Donald Trump’s embrace of cryptocurrencies marks a pivotal moment
■ Analysts projecting Bitcoin to reach US$200,000 by end-2025
■ The outlook for Bitcoin and the broader crypto market is overwhelmingly positive, but risks remain
THE cryptocurrency world is buzzing with speculation that bitcoin could reach an unprecedented US$200,000 by 2025. While bitcoin has yet to stabilise around the US$100,000 mark, its meteoric rise in 2024 has emboldened investors and analysts to project a bullish future for the world’s leading digital asset.
Bitwise Asset Management, a prominent voice in the crypto sphere, has described the upcoming year as the Golden Age of Crypto.
According to the firm, the regulatory landscape in the United States has significantly improved following the 2024 US elections. President-elect Donald Trump’s embrace of cryptocurrencies marks a pivotal moment.
“We believe we are entering the Golden Age of Crypto,” Bitwise analysts, led by chief investment officer Matt Hougan and head of research Ryan Rasmussen, state in the group’s report.
Bitwise expects Crypto’s magnificent three – Bitcoin, Ethereum and Solanato – to hit new all-time highs in 2025, with bitcoin leading the rise to trade above US$200,000.
In addition to Bitwise, other analysts projecting bitcoin to reach US$200,000 include Geoff Kendrick, head of crypto research at Standard Chartered, and analysts at Bernstein, led by Gautam Chhugani.
Kendrick forecasts that bitcoin could hit this milestone by the end of 2025, driven by institutional investments in bitcoin exchange-traded funds (ETFS).
In a recent note, he stated that Standard Chartered’s target of US$200,000 by 2025 is “achievable”, adding: “We would become even more bullish if bitcoin experienced accelerated adoption by US retirement funds, global sovereign wealth funds, or the establishment of a potential US strategic reserve fund.
“We anticipate institutional flows to continue at or exceed the pace set in 2024. Microstrategy, for instance, is ahead of its Us$42bil threeyear plan, suggesting its purchases in 2025 will likely match or surpass those of 2024.”
Meanwhile, Bernstein’s analysts attribute their bitcoin price target of US$200,000 by end-2025 to unprecedented demand stemming from spot bitcoin ETFS managed by leading asset managers, according to media reports.
Trump effect
Essentially, crypto has emerged as a clear winner in the 2024 US elections, giving it a brighter regulatory outlook in the United States, Bitwise notes.
For one thing, Trump has announced plans to create a strategic bitcoin reserve and nominated Scott Bessent as Treasury Secretary. Bessent’s earlier comment that “crypto is about freedom and the crypto economy is here to stay” reflects the administration’s pro-crypto stance. The reshuffling of the Securities and Exchange Commission (SEC), which has historically taken a sceptical view of digital assets, adds another layer of optimism.
Similarly, Bernstein analysts attribute bitcoin’s rise to Trump’s support for cryptocurrencies. They point out that his plan to position the United States as a global leader in the crypto space and his choice of Paul Atkins, a known crypto advocate, to lead the SEC have bolstered market confidence.
Record highs
Bitcoin has since cooled to below US$95,000 at the time of writing, after reaching an alltime high of US$103,992 earlier this month.
This marks a 141.72% increase year-to-date as of Dec 6, 2024. According to Bitwise, the surge was largely driven by the US launch of spot bitcoin ETFS, which set records with Us$33.6bil in inflows within their first year.
Other crypto assets, including Ethereum and Solana, also posted substantial year-to-date gains of 75.77% and 127.71%, respectively. This performance highlights how cryptocurrencies, led by bitcoin, ethereum and solana, have outpaced all major asset classes in 2024.
Crypto equities mirrored this bullish trend. Companies like Microstrategy and Coinbase saw their shares skyrocket by 525.39% and 97.57%, respectively. In comparison, traditional assets such as the S&P 500 and gold returned 28.07% and 27.65% over the same period, highlighting crypto’s dominance.
Catalysts for next milestone
The factors driving bitcoin’s trajectory towards US$200,000 are multifaceted, Bitwise highlights. The launch of bitcoin
ETFS in 2024 shattered expectations, and Bitwise believes 2025 will see even greater inflows.
“When US spot bitcoin ETFS launched in January 2024, ETF experts forecast the group to see Us$5bil to Us$15bil of inflows in their first year. They passed the higher end of that range within the first six months.
“Since launching, the record-setting ETFS have gathered Us$33.6bil in inflows. We expect 2025’s inflows to top that,” Bitwise says.
Drawing a parallel with gold ETFS launched in 2004, Bitwise notes that ETF inflows typically accelerate in subsequent years.
“The best historical analogy we have for the bitcoin ETF launch is the launch of gold ETFS in 2004. Flows petering out would be unusual,” it explains.
At present, major financial institutions such as Morgan Stanley, Merrill Lynch, and Bank of America have yet to fully embrace bitcoin ETFS.
Bitwise anticipates this to change in 2025, unlocking a wave of institutional investments. “The trillions of dollars these firms manage will start flowing into bitcoin ETFS,” Bitwise predicts.
Risk tolerance
While bitcoin remains the focal point, other cryptocurrencies like Ethereum and Solana are also poised for substantial gains in 2025. Bitwise’s price targets for Ethereum and Solana are US$7,000 and US$750, respectively.
Ethereum, despite its impressive 2024 performance, has faced competition from fastergrowing programmable blockchains.
However, Bitwise anticipates a “narrative shift” as activity on
Layer 2 blockchains and spot Ethereum ETFS gain traction.
Solana’s resurgence, driven by memecoin mania in 2024, is also expected to continue as serious projects migrate to its network, it says.
Meanwhile, JP Morgan points out that the role of crypto in portfolio construction is mostly a function of risk tolerance.
“Cryptocurrencies are inherently unpredictable: there is little visibility into future price movements and blockchain technology, while exciting, also has few barriers to entry, meaning tokens can become obsolete (and therefore worthless) as new ones enter the market with improved functionality,” the US asset management company cautions.
“As a result, for most investors, any allocation to crypto in a portfolio should be kept both small enough to ensure that even in the event of a significant sell-off it does not derail overall portfolio objectives and well diversified,” it adds.
While the outlook for bitcoin and the broader crypto market is overwhelmingly positive, risks remain.
Regulatory clarity, though improving, is still a work in progress.
The global economic environment, including interest-rate policies and geopolitical tensions, could also impact investor sentiment.
However, the convergence of favourable regulatory developments, institutional adoption and technological advancements positions bitcoin as a strong contender to achieve new heights, potentially reshaping the global financial landscape.
Dedollarise move: a file picture of us banknotes. Economists say there are incentives to move away from using the greenback as the primary currency for trade settlement and reserves.
— afp
THE US-dollar dominance as the anchor of the international financial system is being challenged on several fronts simultaneously – and ever more intensely – in recent months.
From several countries opting to conduct trade in their local currencies, instead of using the US dollars to the BRICS nations of Brazil, Russia, India, China, South Africa seeking to develop a new common currency for the economic bloc, the risk of the mighty greenback being dethroned appears serious.
As some economists say, it is no longer a question of “if” the US dollar’s dominance will crack, but “when”. Is this a good thing for small and open economies like Malaysia?
According to economists, there are incentives to move away from using the US dollar as the primary currency for trade settlement and reserves.
Bank Muamalat Malaysia Bhd chief economist and social finance head Mohd Afzanizam Abdul Rashid points out that the high dependence on the US dollar will make the global economy highly susceptible to changes in the US monetary policy.
The move to dedollarise will not only reduce financial-market volatility caused by US monetary conditions, but it can also help reduce costs, he says.
Afzanizam explains: “Any change in the US monetary policy will affect the global financial market. This is a problem, as it can sometimes create excessive volatility in foreign-exchange markets.”
“Because of this, companies and investors have to hedge their exposure to mitigate currency risks. Hedging is cost to businesses and investors. Therefore, the incentives to do away with the US dollar is high,” he says.
Afzanizam tells Starbizweek if there were currencies that could provide better alternatives in terms of stability and predictability, dedollarisation would certainly gain further traction.
According to Sunway University economics professor Yeah Kim Leng, dedollarisation, that results in improved global economic and financial stability leading to increased trade and investment flows, will be beneficial to small and open economies like Malaysia.
“As a trading nation, pragmatic and nimble government and company-level policies and strategies are vital to cope with the potential fallouts and opportunities arising from dedollarisation that may or may not lead to a more stable and progressive global economic order,” he explains.
Cost and benefit
Malaysia is seen to be moving towards dedollarisation. Early this month, the country reached a deal with India, one of its major trading partners, to settle trade in Indian rupees instead of the US dollar.
In addition, Malaysia revived the idea of setting up an Asian Monetary Fund (AMF), proposing to initiate discussions on the matter with China, which is reportedly open to the idea.
These small steps are part of an ongoing global shift away from US dollar dependence.
Socio-economic Research Centre executive director Lee Heng Guie says there are potential costs and challenges during the transition process.
“Malaysia may face heightened exchange rate volatility if the dedollarisation is disorderly and abrupt, causing a plunge in the US dollar against major foreign currencies. The wide and deep US dollar fluctuations could impact trade, investment and capital flows,” the economist explains.
For example, a sharp appreciation of the ringgit against the US dollar could lower the cost of servicing Malaysia’s Us-dollardenominated debt, but it could dampen the country’s export competitiveness and lower exchange rate translation gains in domestic currency for the export-oriented industries such as palm oil, rubber products and crude petroleum.
“Portfolio investors may undertake portfolio adjustment in anticipation of the dedollarisation. This could induce assets price fluctuations in the debt and equities markets as investors stay on the sidelines, while assessing the potential risks and costs associated with a disorderly transition of the dedollarisation,” Lee says.
Lee: the wide and deep us dollar fluctuations could impact trade, investment and capital flows.
Regardless of the transition costs and risks, Malaysia has to continue strengthen its domestic financial markets, enhance policy credibility, and foster regional and multilateral cooperation in the provision of liquidity arrangement.
“The development of deep and liquid domestic financial markets is a prerequisite for buffering against the impact of dedollarisation,” he says.
Meanwhile, Malaysia University of Science and Technology economics professor Geoffrey Williams sees two basic scenarios pertaining to dedollarisation.
Williams: the use of the us dollar will slowly decrease.
“The first is that the use of the US dollar will slowly decrease, as more countries settle trade and investment in bilateral currencies. This will continue as BRICS and smaller countries get onboard.
“The second scenario is that there will be a tipping point where the US dollar will quickly lose reserve currency status as happened to pound sterling after World War II. There are many possible triggers of this, but they are very speculative and involve a major crisis,” he adds.
Williams says the United States will defend the dollar and so long as the dollar is used for oil, metals and commodity trades as well as intergovernmental settlement of debt, it will retain its role.
Gradual transition for stability
It is estimated that the US dollar accounts for 88% of global trades, based on Bureau for International Settlements’ triennial central bank survey 2022.
As it stands, central banks around the world still hold significant amounts of US dollars in their reserves. An estimate by the International Monetary Fund implied that the greenback accounted for about 60% of global foreign exchange reserves as at end2022.
Nevertheless, economists expect the numbers to be on a declining trend, as countries are diversifying away from the US dollar. The dedollarisation process, however, will likely be gradual to minimise disruption to global financial systems and markets.
As Afzanizam puts it, any abrupt transition to other currencies can create uneasiness and uncertainties among businesses and investors.
Therefore, allowing ample time would facilitate the changes and reduce the inevitable market volatility, he says.
The enormous and deep US debt markets have been touted as a major factor for the continuing dominance of the US dollar in global financial markets, according to Yeah.
Yeah: the yuan is expected to see a rising role as one of several alternatives.
Therefore, as countries diversify their reserve currencies and reduce dependence on the US dollar, one could expect global financial markets to face higher volatility and uncertainty, he says.
On Malaysia’s effort to wean off US dollar dependence, Yeah points out that it will be a gradual process.
“This will be in line with global shifts in international trade, capital flows and financial markets, whereby the process is driven by market forces and factors such as transaction costs, riskiness, accessibility and convenience,” he says.
As a start, Malaysia can consider trading its oil and other natural resources in local currencies with countries with which it has bilateral agreements, says HELP University economist Paolo Casadio.
Further, he notes, Malaysia can have a meaningful and impactful transition towards less reliance on US dollar by coordinating its effort with other economic blocs, such as BRICS, to set up a new system.
“There are long-term benefits for Malaysia as well as for all the other developing countries in eliminating the (US dollar) monopoly,” Casadio says, pointing to a more stable and equitable exchange rate as an example.
Asian fund proposal
On the setting up of the AMF, Williams says while it is a feasible strategy to reduce reliance on the US dollar, such a move will require “buy-in” across many countries in the region. In particular, pertinent issues such as who will to provide the finance, and securing consensus on the terms on which access to that finance is made available, have to be ironed out.
“It is not just a financial issue, but geopolitical too,” he stresses.
“The main issue is who will fund it, and what will be the contribution rates for each member. It is likely that most will come from China, unless Japan and South Korea join in. Otherwise, most Asian countries are too small to contribute much,” he adds.
Williams says new arrangements, such as the 12-member Comprehensive and Progressive Agreement for Trans-pacific Partnership, of which Malaysia is a part, are indications of ongoing shifts in global economic arrangements away from dominance of the United States and other developed economies such as the European Union (EU).
“Moving to bilateral currencies for trade and investment is feasible, but more at risk to exchange fluctuations and liquidity issues. So, it would be a move to multiple currency options, not just one,” he says.
He notes before US or Eu-based systems such as the Society for Worldwide Interbank Financial Telecommunication, or SWIFT, could be replaced, there has to be a viable and reliable alternative for interbank transfers and e-payments.
“Although the systems are contestable and replaceable by new and local providers, the truth is that only stable, reliable and secure financial systems will survive. The US dollar still provides this,” Williams argues.
Importantly, for Malaysia as a small country, it should go with the flow and remain neutral in the shifting geopolitical dynamics, while trade and debt, in whatever currency is best, he says.
Potential alternatives
Amid the ongoing currency shift, China’s yuan, is increasingly seen a potential alternative to the US dollar. This is by virtue of China being the second-largest economy in the world after the United States. However, the country’s strict capital controls are a hindrance.
“As the world’s second-largest economy, China’s yuan is expected to see a rising role as one of several alternatives, including the euro, to the US dollar. Countries trading with China are already increasingly using yuan for payments and settlements,” Yeah says.
“Its internationalisation, however, is being constrained by strict capital controls and lack of liquidity for international transactions outside of China,” he adds.
Concurring with Yeah, Afzanizam says, for the yuan to play an even greater role as an alternative international currency, China’s capital account has to be more open, allowing free flow of funds to allow greater flexibility, especially in terms of the supply of yuan.
Casadio, on the other hand, argues there is no alternative to the US dollar in the prevailing system.
Rather, a “gold-backed system of currencies that constitutes an alternative” is a more viable option, this will provide an equitable system of exchange rates and a stable international financial system, he explains.
“There is a clear shift, at the international level, towards a system in which the dollar has no more monopolistic power as the international currency. The system that is going to emerge from this will limit monopolies and excess financing deficits, thanks to it being anchored to gold,” says Casadio.
Charles Schwab Corp says that there aren’t any viable reserve-currency alternatives to the US dollar.
“A reserve currency needs to be freely convertible and have deep and liquid bond markets to be considered safe for foreign central banks to hold. Central banks need to know that their money is easily and readily available when needed, particularly in times of stress.
“The United States, with a large, open, and liquid market for Treasury securities, fits that role,” the investment bank explains in its commentary.
“That’s why when the Covid crisis hit the global economy, the US Federal Reserve (Fed) expanded its swap lines with foreign central banks to enable access to dollars for countries that were struggling to access dollars for trade and debt payments. While other major countries’ markets have these qualities, the size and openness of the US market is difficult to match,” it adds.
Depreciating dollar
In the meantime, the US dollar is expected to weaken further against most currencies through the year on anticipation of slower interest rate hikes by the Fed.
The greenback has already been on a declining trend over the past few months. This is evidenced by the downtrend of the US dollar index - a gauge of its performance against a basket of major currencies - with the DXY falling to around 100 to 102 points from its multi-year high of 114 to 115 points in September 2022.
From the Malaysian perspective, the ringgit has been volatile against the greenback.
The local note is trading RM4.43 against the US dollar. This is an improvement from RM4.75 in early November last year, but a poorer position from RM4.24 at end-january this year.
With the expected weakening of the US dollar, the ringgit is forecast to strengthen to RM4.15-RM4.25 towards the second half of this year, says Dr Yeah.
“The US economy is anticipated to weaken significantly in the second half and that could warrant unwinding the high interest rates,” he explains.
Similarly bearish on the greenback, Afzanizam says he expects the ringgit to strengthen to RM4.20 against the US dollar by the end of 2023.
“The expectation of slower rate increase in the United States and the potential cut in the federal fund rate could lead to a weaker US dollar,” he explains.
Although on a decline, the US dollar’s dominance is expected to persist due to the absence of a viable alternative.
“The pace of its decline, however, could accelerate if US economic growth sputters, fiscal and debt woes mount and high inflation and interest rates destabilise its banking system.
“Continuing US economic instability coupled with the government’s penchant to apply sanctions for geopolitical reasons will also motivate the rest of the world to band together to find a viable alternative while reducing dependence on the dollar for trade, financing and foreign reserves,” he adds.
The United States' way of weaponising the dollar to control global trade is losing ground and more and more
countries are shying away from using the greenback. — Reuters
The US dollar system will be dominant for a while yet, but the more the dollar is weaponised in terms of sanctions, the more users will want to dedollarise. — Reuters
