Bitcoin, Dollar Stablecoins Complement Each Other in Boost to Dollar Dominance

Bitcoin and dollar-backed stablecoins are developing a complementary relationship that is helping reinforce the US dollar system, according to an analysis.

Sam Lyman, research director at the Bitcoin Policy Institute, told Cointelegraph on June 5 that Bitcoin’s main trading pairs are BTC/USD or dollar-pegged stablecoins such as Tether’s USDT. As a result, Bitcoin and the dollar system are strengthening each other.

That dynamic runs counter to the view that Bitcoin could undermine dollar dominance, he said. Instead, it is increasing demand for the US currency. Like the petrodollar system, in which international oil trades are settled in dollars, Bitcoin transactions are also largely dollar-based and generate demand for the greenback.

Lyman said the US needs to put in place a regulatory framework for stablecoins. Building on existing frameworks, including the GENIUS Act, would help preserve dollar dominance and strengthen global competitiveness, he added.

He also said China has repeatedly banned Bitcoin and stablecoins to maintain capital controls. China’s economy relies heavily on those controls, and authorities view virtual assets, or cryptocurrencies, as a threat because they could facilitate capital flight.

China is instead promoting the digital yuan, its central bank digital currency, or CBDC. The system is structured to remain under government control and is aimed at managing capital flows and expanding Beijing’s influence over foreign-exchange markets.

Despite those restrictions, crypto activity appears to be continuing. Even after China’s mining ban, Chinese-affiliated mining pools still account for more than 36% of the total hash rate.