TBW - Study: Bitcoin and the global money spiral
The world's economic systems are mired in ever-increasing debt. In an attempt to cope, central banks are firing up their "printers" - or rather their fiat money generators -, fuelling growth on credit while trying to repay the ever-increasing maturities.
Since the end of the gold standard in 1971 and the introduction of floating exchange rates, the money supply has exploded in most countries, with the direct consequence of a steady decline in purchasing power.
In this landscape, the dollar has established itself as the world's reserve currency and a tool of international exchange. To protect themselves against currency erosion, governments have accumulated reserves in dollars or US Treasury bonds, believing them to be a safe haven. But this strategy is now showing its limits: the dollar is also depreciating sharply. Faced with this impasse, an alternative is emerging: so-called "hard" assets. Since 2009, a new rare asset has emerged, with supply limited to 21 million units: Bitcoin. And some governments are beginning to see it as a new monetary lifeline.
Increase in M2 money supply and depreciation
A sound currency is based on six characteristics: durability, portability, divisibility, fungibility, unit of account and store of value. While today's fiat currencies meet the first five criteria, they largely fail on the last. The reason for this is the ever-increasing number of currencies in circulation, which undermines their ability to retain their value over time.
The result is that while these currencies remain the most common means of payment, they are a very poor savings tool. Purchasing power melts away over the years, as more and more currency units are needed to buy the same goods and services. This dynamic is due to the fact that the money supply is growing faster than economic output.
The M2 indicator, which includes banknotes, sight deposits, savings accounts and money market funds, has grown by an average of 6.67% a year since 1996. This trend accelerates during crises: +3.84% during the bursting of the Internet bubble, +20.59% during the subprime crisis, +4.49% during the Covid-19 pandemic. Each time, central banks injected massive amounts of money to boost activity.
But this mechanism only works if economic growth keeps pace. Yet over the same period, global GDP grew by an annual average of just 4.34%. The difference of 2.33 points indicates that the economy is not producing enough value to absorb the excess money. In other words, money creation is outstripping wealth creation, leading to a continuing erosion of purchasing power.
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The global debt spiral is spiralling out of control
The explosion in global debt plays a central role in the continuing rise in the money supply. Every time governments borrow to support the economy, the result is injections of liquidity into the system. For years, low - or even negative - interest rates have made money readily available, encouraging governments and institutions to take on more debt to encourage consumption.
Financing comes mainly through the issue of bonds, which are massively purchased by central banks. In return, money is injected into the economy: this is the principle of Quantitative Easing (QE). Conversely, when a central bank reduces its balance sheet, this is known as Quantitative Tightening (QT).
Since 2003, the Federal Reserve's balance sheet has increased 12-fold, reaching an all-time high of $9 trillion. Most of this increase occurred during the two major recent crises - the subprime crisis and the Covid crisis. The stated aim was to support growth. But the consequence was rising inflation and widespread currency depreciation.
Today, the Fed has reversed the trend: its balance sheet is shrinking and its key rate has risen to 4.5%, helping to bring inflation down to around 1.9%, compared with almost 10% in the summer of 2022.
However, periods of intensive money creation always end up driving up prices: more money circulates for a stable quantity of goods, which drives up demand... and labels.
Another consequence of massive indebtedness: the cost of servicing the debt. With $36,878 billion of public debt, the United States is well above the threshold of 77% of GDP recommended by the World Bank, reaching 122%. At 4.5% interest, that amounts to $1,659 billion a year in interest payments alone - around a third of the country's tax revenues.
This spiral is not unique to the United States. The whole world is seeing its debt rise, and with it the money supply. The higher the interest rates, the higher the cost of repayment, the more governments have to borrow... and the more money they create to cope. The phenomenon is amplified by exogenous shocks - pandemics, the war in Ukraine - which deepen deficits and reduce revenues.
Developing countries are particularly hard hit, as they have to borrow in dollars, with higher rates and little room for manoeuvre. Their dependence on private creditors, who are often less inclined to restructure debts, exacerbates the situation.
In this context, where debt is piling up with no obvious return on investment, and currencies are losing stability, the question of a more robust alternative arises. This is where hard assets like Bitcoin come into their own.
Bitcoin, a rare asset in the face of systemic inflation
To protect their wealth, individuals must invest their surplus income. But their investments must yield more than the combined rate of currency devaluation (6.67% on average over 30 years) and inflation (2.5%), i.e. a minimum return of 9.17% a year. Most bonds are below this threshold. Even equities, such as those in the S&P 500 index, which have an average yield of around 10%, struggle to really preserve purchasing power when money creation goes into overdrive or companies dilute their shareholders by issuing new shares.
In this context, the economic system needs a monetary asset that is difficult to produce, with a fixed or decreasing supply. This is precisely where Bitcoin comes into its own.
Since its listing on exchange platforms in 2013, Bitcoin has posted an average annual return of 42.5%, well above the wealth preservation threshold. Its scarcity is exacerbated by losses of access to private keys: around 2.5 million bitcoins are said to be permanently inaccessible, reducing the effective supply to 18.5 million, or 12.6% less than the theoretical total. This dynamic reinforces the deflationary nature of the asset.
Bitcoin is based on a transparent protocol that can be audited in real time. Each transaction is recorded immutably on the blockchain, with a new block every ten minutes. After six confirmations (approximately one hour), transactions are practically irreversible.
The miners, who secure the network, receive a reward in bitcoins, halved every 210,000 blocks (approximately every four years). Today, this reward is 3.125 BTC per block, which translates into an annual issuance of around 164,000 bitcoins, representing an inflation rate of 0.82% - much lower than that of fiat currencies. And this inflation will be halved within three years.
Because of its fixed supply, deflationary nature and transparency, Bitcoin is gradually establishing itself as a serious alternative to traditional currencies in capital preservation strategies.
Another indicator reinforces the limited nature of Bitcoin's supply: the Stock-to-Flow (S2F) model, commonly used to value commodities considered as a store of value. This ratio compares existing stock with annual production. The higher the ratio, the rarer the asset. For Bitcoin, this ratio currently stands at 121 - and continues to rise as the protocol approaches its next halving. Gold's is around 60.
This rarity logic, written into the code, sets Bitcoin apart in the asset landscape. Its supply cannot be increased in line with demand, unlike fiat currency. But while supply is fixed, price rises come essentially from demand - and demand is experiencing an unprecedented dynamic.
ETFs are now playing a driving role in this development. With a steady flow of purchases, these investment vehicles ensure constant demand. BlackRock's IBIT has become the world's third largest holder of Bitcoin, with almost 639,000 units, behind Satoshi Nakamoto's portfolio and Coinbase's.
The move by some companies, such as Strategy (ex-MicroStrategy), to incorporate Bitcoin into their treasury has also helped boost institutional demand.
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This accumulation trend reflects a gradual shift: Bitcoin is no longer just a technological bet or a niche asset, it is becoming a structuring financial asset for many investors.
As Bitcoin matures, correction phases are becoming less violent. Historically highly volatile, the asset is showing signs of gradually easing its downward cycles. This development reinforces its attractiveness as a long-term reserve asset.
During the 2012-2016 cycle, the maximum decline recorded from a peak (drawdown) had reached 92.4%. It fell to 84% between 2016 and 2020, then to 77% during the 2020-2024 cycle.
While the downside risk remains significant, its downward trend reflects a gradual stabilisation. This suggests that, over longer time horizons, the risk of holding Bitcoin as a hedge or reserve asset is becoming more acceptable, particularly for institutional investors.
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The global state of Bitcoin reserves
Few countries currently hold official Bitcoin reserves. The most emblematic example is El Salvador, which has made BTC a legal currency and buys between one and two a day. At this rate, and assuming average annual growth of 42%, the country could theoretically pay off all its public debt within five years. Today, its reserves stand at around $660 million, or 16.67% of its national debt.
El Salvador, although small in economic terms, could become the first case study of a country using Bitcoin to get out of debt. Other countries also hold BTC, but often indirectly. The United States and China have around 198,000 and 190,000 Bitcoins respectively, mainly from judicial seizures. Conversely, Germany chose to liquidate its 50,000 BTC in the summer of 2024, at an average price of $57,200 each, missing out on more than $2.7 billion in potential gains.
The adoption of Bitcoin by governments could offer them several strategic levers: diversification of central bank reserves, reduced exposure to currency risk, the ability to borrow or lend against a scarce asset, or even a partial currency peg to limit money issuance.
In the United States, several states are already experimenting with this idea. New Hampshire and Arizona have passed legislation to invest part of their public revenues in Bitcoin. New Hampshire, for example, plans to allocate 5% to Bitcoin and to digital assets with a capitalisation of more than $500 billion - that's just Bitcoin to date. As of May 2025, there are approximately 36 proposed BTC reserve laws under consideration in 19 US states, up from 45 a few months ago. Some, such as those in Oklahoma and Utah, have made significant progress. Others, such as the Bitcoin Reserve Act in Ohio, provide for the creation of dedicated funds with discretionary purchases. In Pennsylvania, a project plans to allocate up to $970 million, or 10% of the state's public funds.
But resistance is still strong. In many cases - Florida, North Dakota, Wyoming and Arizona - initiatives have been rejected, often for political reasons or because of the perception of Bitcoin as a speculative asset.
Beyond the United States, several countries such as Brazil, Poland, the Czech Republic, Japan and Hong Kong are also considering including Bitcoin in their national reserves. The subject, still marginal, is gradually gaining ground in budgetary and monetary thinking.
World reserves : Gold versus BTC
Often referred to as "digital gold", Bitcoin shares several characteristics with precious metal: scarcity, resistance to inflation, and status as a hedge asset in times of crisis. But unlike gold, Bitcoin also adapts to periods of bull markets, where the yellow metal remains more stable, or even in retreat.
Storing gold requires physical infrastructure - vaults, security, transport - whereas Bitcoin can be kept on a simple hardware wallet, protected by a recovery phrase. This low holding cost makes it a particularly attractive asset for those looking to preserve their wealth efficiently.
Since 2013, the performance of the two assets speaks for itself: an average annual return of 42% for Bitcoin, compared with 5.86% for gold. The Stock-to-Flow model shows a ratio of 121 for Bitcoin, almost twice that of gold (66), making it an even rarer asset on an annual production scale.
Despite these data, central banks continue to favour gold. China's central bank, in particular, has increased its reserves in recent years.
There are many reasons for this: a history of low confidence, lower volatility and a persistent rejection of a decentralised, intangible system. The declines recorded in the price of gold during previous cycles are less marked than those of Bitcoin: -69.5% in the 1980s-1990s, -42% between 2011 and 2015, and only -21% during the latest bear market.
For governments, the choice of gold is therefore explained by an aversion to risk and a preference for stability. But in view of its yield and programmed scarcity, Bitcoin is increasingly establishing itself as a credible long-term alternative for those seeking to diversify and strengthen their reserves.
Reserves in Bitcoin to cope with economic fragility
The idea of building up national reserves in Bitcoin is no longer just theoretical. Several countries are studying or implementing accumulation strategies depending on their economic situation, natural resources or geopolitical objectives.
In economies hit by high inflation, such as Argentina or Venezuela, Bitcoin is seen as a protection against devaluation, thanks to its limited supply. Other countries under sanctions or subject to capital controls, such as Iran and Russia, see it as a way of bypassing traditional financial systems. Some, like Bhutan, are using their excess renewable energy production to mine Bitcoin and create digital reserves. This strategy could also be applied to countries with unused or flared natural gas.
For smaller economies, like El Salvador, Bitcoin represents a route to greater financial sovereignty. Others, like the Czech Republic, see it as a tool for diversifying their assets. Emerging markets also see it as an opportunity to attract technology investment while reducing their dependence on traditional financial channels, thanks to Bitcoin's low correlation with traditional assets.
But adoption remains tentative. A survey conducted in 2025 reveals that only 2.1% of central banks are seriously considering including digital assets in their reserves. Mistrust remains dominant, despite the first steps taken by a few pioneering states.
Rather than a universal solution, Bitcoin could become a strategic tool adapted to specific contexts - particularly for countries most exposed to economic and geopolitical instability.
The barriers to global adoption of Bitcoin
Despite growing adoption in some countries and within a section of traditional finance, Bitcoin is still a long way from becoming a global reserve asset. A number of obstacles are holding it back.
The first, and well-known, obstacle is volatility. Although more stable than most other cryptoassets (excluding stablecoins), Bitcoin remains far more unstable than gold or the main fiat currencies. Its realised volatility, which is gradually falling, will not fall below 50% until the end of 2023, while gold's volatility generally remains below 30%. For an asset designed to reinforce the financial stability of a state or company, this characteristic clearly limits its appeal.
The second major barrier: unfamiliarity. For many potential users - individuals, businesses or decision-makers - Bitcoin remains a complex and poorly understood subject. The management of wallets, private keys, the operation of the blockchain or the notion of transaction fees are often sources of confusion and even concern. This generates mistrust, which is reinforced by fears of theft, loss of access or the image associated with illicit use. This lack of understanding also weighs on businesses, which are reluctant to incorporate Bitcoin as a means of payment because of regulatory or tax uncertainty.
At institutional level, the lack of clear legal frameworks and the mistrust of certain regulators accentuate this uncertainty. When they are not sufficiently familiar with the technology, legislators tend to adopt a cautious or even restrictive approach, which slows down its integration into existing economic systems.
Finally, technical limitations remain. The Bitcoin network can only process 3 to 7 transactions per second, a very low level compared with conventional payment systems. The growing importance of certain mining pools also raises questions about the real decentralisation of the network. The increase in transaction fees during periods of congestion, or the recent removal of the OP_RETURN filter by Bitcoin Core, which has reopened the way to spam on blocks that were already very limited in space, add to the list of unresolved technical challenges.
These obstacles do not call into question Bitcoin's fundamentals, but explain why its adoption as a global reserve remains, for the time being, a still distant scenario.
The Big Whale's opinion
Bitcoin has proved that it can be much more than just a speculative asset. With an average annual performance of 42% for more than ten years and declining trends, it has established itself as an asset capable of both preserving and increasing its value over time. Its programmed scarcity - a maximum supply of 21 million coins, of which around 18.5 million are actually in circulation - combined with a rate of issuance that decreases every four years, makes it a serious alternative to traditional reserves, starting with gold.
Its stock-to-flow ratio, higher than that of precious metal, testifies to its robustness. And even though some cryptoassets offer higher returns, few offer this level of resilience with better contained risk. Bitcoin remains today the only digital asset to combine scarcity, transparency, global accessibility and no dependence on a central authority.
But widespread adoption of Bitcoin still faces several limitations: its volatility remains high compared to traditional assets, its technical understanding remains difficult for a large part of the population, and its infrastructure still presents constraints - particularly in terms of transaction processing capacity.
Despite this, momentum is building. Several countries have already taken the plunge, integrating Bitcoin into their financial strategy or launching debates in parliament to study its benefits. El Salvador has led the way, others are following suit, and discussions around the creation of Bitcoin reserves are multiplying.
Since 2009, Bitcoin has been gradually establishing itself as an unprecedented monetary tool. Faced with the limitations of fiat currencies and rising systemic risks, the hypothesis of a "digital gold" is no longer fiction. It may only be a matter of time.
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