Is Bitcoin the Final Check on Sovereign Debt and Central Bank Expansion?

On Monday, Bitcoin (BTC) hit a new all-time high price of $123,091, following the $100,000 milestone in late 2024. For those who have been tracking Bitcoin’s journey, this price level is not surprising. Over the last three years, it has become increasingly clear that Bitcoin lacks structural weaknesses.

Nearing the end of 2022, the entire crypto sector was in an existential crisis after the FTX collapse contagion. But once the overleveraged actors were cleared out and Bitcoin bottomed to $17k, Bitcoin’s fundamentals only grew stronger. To see the horizon from the current standpoint, let’s examine what role Bitcoin will play in the global economy as a $2.4 trillion asset.

Governments Will Continue to Fortify Bitcoin’s Fundamentals

The global economy runs on central banking, and central banking runs on debt. Specifically, governments indebt future generations by spending beyond their means to meet the demands of mass democracy. The U.S., with its world reserve currency, is the record-holder in this spending frenzy, having exited fiscal 2024 with a $1.83 trillion deficit.

Already for the first nine months of fiscal 2025, the Congressional Budget Office (CBO) estimated a budget deficit of $1.3 trillion. The Euro area is no better, with EU governments spending more than their revenues by 3.1% as a percentage of GDP.

In turn, central banks, such as the Federal Reserve and the European Central Bank (ECB), monetize this enormous debt by purchasing bonds. In effect, by crediting the reserve accounts of commercial banks electronically, central banks create money out of nothing.

But creating value out of nothing violates the fundamental laws of physics. Central banks don’t create real wealth but more claims on existing wealth. Accordingly, the measure of value – money – is no longer reliable. This manifests as inflation, wherein the same amount of money buys less each year.

This annual erosion of money by central banking is set to 2% target in the ideal scenario, although it is yet to be properly explained why that is the case. Bitcoin represents a hard cap on this system of violation and debt, as it is computationally limited to 21 million BTC.

For thousands of years, gold served a similar anchoring purpose as a precious scarce metal. However, gold has a pseudo supply cap as new veins are discovered. Moreover, gold is limited by its physicality – not only is the majority of gold in the hands of central banks, but most gold holders just own claims to it, which could be seized by governments.

This puts Bitcoin in a uniquely advantageous position as a sovereign asset detached from any governmental body or policy. Although governments can seize Bitcoin, they can do so only with access to private keys, just as a criminal would. And although Bitcoin is perceived as a digital asset, it is anchored in a distributed computing network – composed of hard assets and energy – that ensures Bitcoin’s security via the proof-of-work mechanism.

Bitcoin: Paving the Road to a New Economy

A debt-based system that generates currency devaluation incentivizes yield chasing in order to offset the eroded wealth through inflation. This is why stock trading has become so popular, but it requires constant attention to market dynamics and companies’ earnings.

Exposure to Bitcoin’s scarcity represents a more stable exit from the central banking effects. After the U.S. Securities and Exchange Commission (SEC) approved spot-traded Bitcoin ETFs in January 2024, Bitcoin became an institutionalized asset. This pivotal milestone granted Bitcoin a new patina of legitimacy.

For investors who just want exposure without the self-custodial responsibility, Bitcoin ETFs made it accessible to traditional investors, increasing BTC increased liquidity and price stability in the process. At present, the total market cap of BTC across Bitcoin ETFs is $143.2 billion, with $133.46 million inflows over the last month.

In effect, Bitcoin’s scarcity, secured in a decentralized manner, creates a supply of conversion opportunities. At scale, Michael Saylor’s MicroStrategy (NASDAQ:MSTR) (rebranded to Strategy) was the first company to take the full advantage of this conversion opportunity by buying scarce BTC with eroding fiat currency.

Although MSTR stocks are diluted as they are sold to buy new BTC, the Strategy effectively increases its Bitcoin holdings, reinforcing the company’s position as a de facto Bitcoin ETF, attracting investors in the process.

Yet, this is just the beginning. More and more companies are integrating Bitcoin into their balance sheets, forming Bitcoin treasuries. At press time, 194 companies have adopted this approach, of which 148 are publicly traded and hold 859,802 BTC.

As the buying pressure increases, so does the balance sheet of these companies. In turn, they have greater operational capacity. Case in point, Metaplanet Inc (TYO:3350) plans to collateralize its Bitcoin treasury for loans by 2027 in order to acquire positive cash flow enterprises.

Just as MicroStrategy led the way in BTC accumulation, businesses will now adopt this approach, in which the underlying asset is collateralized Bitcoin.

What About Market Volatility?

Whenever debt is involved, there is a risk that collateralized assets may be liquidated if the value of the underlying asset falls below a critical threshold—a key lesson from the crypto bankruptcies of 2022.

Yet, Bitcoin’s design is remarkably resilient. Its automatic network difficulty adjustment responds dynamically to changes in mining computing power. This means that if overcollateralized Bitcoin mining companies exit the market and reduce total hashrate, mining difficulty will decrease accordingly.

As a result, new or remaining miners can operate at lower costs, filling the void and preserving the network’s security. In other words, once the overcollateralization stress is resolved, Bitcoin’s fundamental mechanics reassert themselves, initiating a renewed cycle of stability and growth.

At present, the supply of Bitcoin on exchanges is hitting new lows. Even with whales locking in profits at this price level, it is likely that Bitcoin demand will exceed the supply as more companies hurry to fill Bitcoin treasuries and institutional investors seek more BTC exposure.

And with hostile and shadowy tactics of the Biden administration in the rearview mirror, the path is clearer than ever for Bitcoin’s mainstream adoption and for investors to embrace its role as a legitimate financial asset.

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