Bitcoin’s Surge
Implications for U.S.-China Relations
On November 5, following the U.S. presidential election, Bitcoin surged dramatically, doubling its value this year and breaching the critical $100,000 threshold. Analysts now speculate it could climb even higher, potentially reaching $200,000. This remarkable rally has been attributed to President Trump’s return to office and his administration’s focus on cryptocurrency deregulation as a core policy priority. Beyond market movements, Bitcoin’s ascent raises intriguing questions about its impact on the evolving dynamics between the United States and China.
For decades, the U.S. has grappled with persistent trade deficits with China. By 2017, just before the onset of the trade war, the U.S.-China trade deficit had ballooned to approximately $375 billion. This imbalance set the stage for the "Trade War of the Century" in 2018. Economists, however, recognize that under the petrodollar system, the U.S. is structurally predisposed to run trade deficits. Why, then, did the trade war escalate?
The answer lies in Trump’s "America First" policy, which spotlighted the trade imbalance as a pressing issue. Adding fuel to the fire was China’s ambitious "Made in China 2025" initiative, aimed at dominating advanced technologies such as artificial intelligence and semiconductors. These developments heightened U.S. concerns over China’s growing global influence. Washington also accused Beijing of intellectual property theft and unfair trade practices while demanding broader access to China’s financial markets.
China’s financial system, however, remains tightly controlled. Its stock market operates through three major exchanges—Shanghai, Shenzhen, and Hong Kong—ranked among the largest globally. Yet, inconsistencies in regulation, government intervention, and information asymmetry have undermined investor confidence and market efficiency. The banking sector is dominated by four state-owned giants, which collectively control over half of China’s banking assets. Moreover, foreign investors face significant barriers. Stocks are divided into A-shares (accessible primarily to domestic investors and select foreign institutions) and B-shares (priced in foreign currencies for international investors). Mechanisms like Stock Connect have eased foreign access to A-shares, but restrictions persist. Similarly, foreign financial institutions face limits on ownership stakes in Chinese enterprises.
While opening its capital markets fully could attract substantial foreign investment, China remains wary of the risks. Full integration into the petrodollar system could expose Beijing to U.S. monetary policy, eroding its economic sovereignty. Instead, China has adopted a cautious strategy—balancing selective openness with strict controls—while steadily ascending as the world’s second-largest economy.
Bitcoin, however, presents a unique challenge to China’s tightly regulated financial system. Since 2013, Beijing has systematically cracked down on cryptocurrencies, culminating in a near-total ban on mining, trading, and related services by 2021. Officials cited financial stability and capital control as primary reasons for the crackdown, as cryptocurrencies enabled wealthy Chinese individuals to circumvent capital restrictions. Despite the ban, illegal Bitcoin mining persists in regions such as Xinjiang, Laos, and Myanmar.
Bitcoin could emerge as a powerful tool for the U.S. in its economic rivalry with China. As the world’s two largest Bitcoin-holding nations, the U.S. may leverage cryptocurrencies to disrupt China’s financial defenses and pressure its capital markets. This strategy aligns with broader U.S. efforts to isolate China from global semiconductor supply chains and advanced technologies.
During the height of the trade war in 2018, I had the opportunity to lecture in China. At a dinner, a Chinese Communist Party official candidly remarked that Beijing preferred Trump over Biden. According to the official, Democrats’ proactive stance on human rights issues in Xinjiang and Hong Kong posed a greater challenge than Trump’s straightforward, tariff-centric policies.
Today, the second chapter of the U.S.-China trade war is unfolding, expanding beyond trade deficits and tariffs. The critical questions now are whether the U.S. can effectively leverage Bitcoin to penetrate China’s financial system and whether its alliances can constrain China’s technological and geopolitical ambitions. Conversely, can China, through initiatives like BRICS, successfully counter the petrodollar hegemony and assert itself as a dominant global power?
