Here's a thought experiment:
1) China, Russia and all other countries with significant currencies ban legitimate Bitcoin activities.
2) US regulates in a way that is mostly favorable to Bitcoin (without silly attacks on things like fungibility) and that allows or even facilitates exchange of Bitcoin with USD
3) Bitcoin becomes huge
4) Bitcoin ends behaving a lot like a commodity like so many people argue
In this scenario Bitcoin is just yet another commodity that the USD buys and that no other currency buys. Wouldn't this scenario strengthen the status of the USD as the reserve currency when compared to other fiat currencies?
You can argue that this only works in time scales lower than the USD inflation or intrinsic lifetime since Bitcoin, on the long run, would always be more desirable than USD. However gold, oil and so on already have that same value preserving property and that does not reduce the USD status as the reserve currency since USD is still the link between those commodities with different properties.
If (4) is true then what reserve currency would want to let a commodity to be traded in other currency instead of their own?
End of experiment.
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Now I think (4) is actually mostly wrong. In my view Bitcoin does behave a bit more like a currency than a commodity. However, in my view, Bitcoin would have to compete very aggressively in exactly the same space, with the same properties, and in the
same scale as the USD for the free exchange of USD/BTC to be more detrimental than advantageous for the status of the USD as the reserve currency.
In fact, it is a small step to see that even if the US attacked the ease of transaction between USD and any other fiat currency it would be detrimental to the USD as a reserve currency! Such blockades are made regularly for political reasons but they all have adverse impacts in the USD, even if tiny. Wasn't Iran trading oil with China using Yuan at some point? Wasn't that bad for the USD and good for the Yuan?
Further, there are things that people (for one reason or another) play along with: like government, tax and military. These are often quoted as "backing" for the USD and the USD users network respects that. Bitcoin does not compete with the USD on that front. Or even central bank control that was so successfully sold by the credit industry to the World (if it was via the people's ignorance that is immaterial for this case). Bitcoin has none of that either.
Bitcoin has other things that the USD will never have and that people will keep looking for in other inferior venues anyway: inferior centralized online payment processors, physical gold, dollar bills, "spirit catchers", credit cards... and it would be bad for the USD as a reserve currency to not trade with those as well.
The only way that the USD as a reserve currency will lose out to Bitcoin is:
A) Bitcoin proves to be such a superior currency and grows so big that it makes the USD obsolete faster than the intrinsic lifetime of the USD:
The lifetime of the USD is already intrinsically limited by the credit system it exists in. So even if things like Gold will certainly live longer that the USD, it would only hurt the USD, in the short to medium term, to attack gold. So the USD backers, if rational, would have little incentive to attack the free exchange of USD with Bitcoin in the case of A) since it would only accelerate its demise once Bitcoin would actually become important.
B) USD proponents attack Bitcoin<->USD exchange fiercely by making laws against it:
In this case the USD has reduced use and other currencies with less barriers gain from one extra thing that they can trade that the USD can't.
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Feels like this has been overlooked. I'm not saying any of the things above (including the USD) are good or bad, just pointing it out. Comments?
