What Could Global De-Dollarization Mean for Crypto Market Positions?

The past months have been filled with unceasing buzz regarding a dollar-reliance reduction. The U.S. dollar has been the standard currency in countries for years, but with recent developments, this narrative could take a different turn.

For about 79 years, the U.S. dollar has dominated the financial market, setting and unsetting market trends.

It has been the standard asset for investments, international trades, and global monetary policies. Stock indexes tend to increase alongside an increase in dollar value, and vice versa. Other significant assets are also known to follow its trajectory, just like altcoins follow the Bitcoin trend.

The U.S. dollar was the king of currencies until certain headlines started making rounds globally. We've seen a series of events and news updates showing reduced alliance to the U.S. dollar and attempts to substitute this currency as the global reserve for other alternatives.

In light of these recent developments, this article gives a detailed overview of de-dollarization and what the phenomenon could mean for digital assets.

Seeing that cryptocurrencies display a significant reliance on the US dollar, we’ll dive deeper into what de-dollarization could mean for digital assets like cryptocurrencies.

Dollar Dominance: The Beginning of the End?

If de-dollarization would end the dollar dominance in the world, how about we begin by understanding how this dollar reign came about in the first place?

Before the second world war, the British pound functioned as the world's reserve currency. However, the detrimental effects of the war led to a change that cemented the U.S. dollar's status as the new reserve currency. The dollar served its purpose well shortly after World War II.

However, over the years, this dominance has come with some drawbacks. Aside from the snowball effect of dollar devaluation, which constantly affected global trade, this dominance has brought some imbalance and vulnerabilities to the global financial system.

The economic disruption experienced by countries like Iran and Russia is substantial proof of these imbalances.

The U.S. impeded a freeze of over $600bn foreign reserves and gold held in U.S. and E.U banks when Russia invaded Ukraine, resulting in Russia's inability to access its reserve assets.

Regardless of the world's position on the Russian-Ukraine war, the U.S. dominance has shown instances that allow leveraging countries' reserves against them.

And such a level of dominance gives uncontrolled authority over foreign countries.

Conversations around de-dollarization can be traced back to the need for a more widely spread control or better stability over the global financial system.

What Is De-Dollarization? A High-Level Overview

De-dollarization is a concept that has gained significant traction in the past years. It refers to substituting the dollar as the reserve currency for other currencies or commodities.

The introduction of this concept was birthed from the profound economic tumult experienced by major countries in the past.

Countries like Russia, Iran, India, China, Saudi Arabia, and Malaysia are beginning to work towards replacing the dollar as a reserve currency and medium of international trade.

Although the concept of de-dollarization has been making rounds for years, the actions we've seen from these counties signify that we could be closer to this change than ever before. Russia and China have taken some giant strides towards alternative means of transactions.

And the ruble-yuan trade has increased by 80% since the 2022 invasion. Brazil and Argentina are discussing the creation of a common currency, and for the first time in years, Saudi Arabia is open to trading in other currencies, excluding the U.S. dollar.

These new developments and movements from varying countries signify that we might be closer to the end of the dollar reign than ever before.

However, it is essential to note that larger amounts of instability could accompany such rapid changes in economic trends before we can attain some level of independence.

What Does De-Dollarization Mean for Cryptocurrencies?

The centralized financial economy, particularly the U.S. government, has cracked down on cryptocurrencies for a long time.

Seeing some minor changes following the backtrack from dollar reliance is exciting, and we'll be discussing how some of these recent developments could positively influence crypto market positions.

One of the first and most interesting of them is Iran and Russia's plan to launch a new cryptocurrency backed by Gold. The countries recently announced this new inventory as an avenue to avoid dollar sanctions and recurring acts of freezing accounts.

With these developments, there are expectations of Russia legalizing cryptocurrency before the year ends and providing solutions to regulatory problems.

Subsequently, China is beginning to welcome cryptocurrencies again, albeit through the back door, by allowing cryptocurrency and stable coin trades in its special administrative region, Hong Kong.

There have been several conversations around the cryptocurrency evolving to be a global financial reserve alternative, allowing for international trades and seamless transactions without intermediaries.

These events and several other circumstances coming together are fueling the narrative that the next bull market will be funded by the East as compared to the market seeing a huge inflow from the West during the last bull run.

With the Russia-Iran movement welcoming such an idea, the practicality of cryptocurrencies as trading alternatives is beginning to take root. And this can be characterized as a significant win for the crypto market.

The value proposition of the crypto market is in a bigger spotlight as that one digital asset that no single body can fully gain control over.

In theory, cryptocurrencies exhibit the qualities of a reserve asset. Still, many also argue the possibility of this happening soon is slim, mainly due to factors like volatility, regulatory limitations, and the need for more stability.

However, de-dollarization marks the beginning of substituting the U.S. dollar for other alternatives. Whatever fraction of liquidity gets directed at cryptocurrencies could result in more price pumps in years to come.

In addition, the more these digital assets are seen as viable commodities, the more they will become less volatile.

This also means digital assets could have a shot at a more welcoming ecosystem, signaling positivity and stability for the crypto community.