If you're new to crypto, here's one idea you might not have heard before: Bitcoin (BTC 1.52%) could be ready to challenge the U.S. dollar as the world's reserve currency. That type of transformative change, of course, would be history-making, and it would require a fundamental restructuring of the global financial system -- sort of like we're seeing right now, with tariffs and the potential for a global trade war.

In his annual letter to investors this year, BlackRock (BLK 2.41%) CEO and Chairman, Larry Fink, suggested that Bitcoin had the potential to replace the U.S. dollar as the world's reserve currency. Is that scenario really possible? And if it is, what does it mean for Bitcoin's future?

The case for Bitcoin as a reserve currency

There's obviously a lot to unpack here. The first is the entire notion of what a reserve currency should be, and what role it plays in the global economy. The easiest way to think about a reserve currency is that it is the one currency that you need to do business in the world. So it needs to be truly global. It needs to function as a medium of exchange for trade and investment. And it needs to be accepted and used by citizens in every sovereign nation.

According to crypto enthusiasts, Bitcoin meets -- at least on paper -- the required characteristics to be the world's reserve currency. In fact, for more than a decade, Bitcoin bulls have made the argument that Bitcoin would eventually replace the U.S. dollar. They view Bitcoin as "sound money," while fiat currencies are fundamentally flawed, due to the ability of governments to print vast sums of money.

At some point in time, the thinking goes, people will prefer to hold Bitcoin rather than dollars. Sovereign governments and central banks will choose to stockpile Bitcoin rather than dollars. Assets will begin to be priced in Bitcoin, rather than in dollars, to facilitate global trade. Eventually, the dollar will become just like the pound, which served as the world's reserve currency for more than a century.

Larry Fink's letter to investors

That's all you need to understand the context of Fink's annual letter to investors. As Fink points out in his 2025 letter: "The U.S. has benefited from the dollar serving as the world's reserve currency for decades. But that's not guaranteed to last forever." He points specifically to the nation's growing debt load, which has grown at 3 times the pace of gross domestic product (GDP) since 1989. In 2025, says Fink, interest payments on that debt will reach nearly $1 trillion, which is more than the U.S. spends on defense.

At some point, it's just not sustainable. The expanding U.S. debt load is a potential house of cards, the unfortunate outcome of America living beyond its means for decades. This is a point that Fink drives home: "If the U.S. doesn't get its debt under control, if deficits keep ballooning, America risks losing that position to digital assets like Bitcoin."

Image source: Getty Images.

In many ways, what is happening now in America is similar to what happened to Great Britain in the last century. Paying for two world wars at the start of the 20th century nearly bankrupted Great Britain, eventually forcing it to cede its place in the global economy to the United States.

How likely is this scenario?

It's hard to imagine a world where Bitcoin takes over immediately. As in the case of the dollar replacing the pound, it will take massive international cooperation. In 1944, it took the Bretton Woods Agreement to make it happen, when dozens of nations from around the world met in New Hampshire to hammer out a deal. In addition to holding gold, the nations agreed to hold dollars, which were backed by the world's largest gold supply at the time. And they agreed on the role of central banks in setting exchange rates pegged to the dollar.

A similar type of massive global cooperation involving Bitcoin might strike some people as being preposterous. But just look at what is happening now with tariffs and a potential trade war with China. Any time the White House says something like "50 nations called us to discuss a deal," I think about a new Bretton Woods.

Bitcoin and the global financial system

The current debate over tariffs and trade is exposing all the interdependencies between fiscal deficits, trade deficits, and global economic growth. We're learning about the fragility of the equity and debt markets, and how investor perceptions can change on a dime. The past few weeks have been a crash course in macroeconomics for many investors.

Against this backdrop, sovereign governments and central banks are starting to stockpile Bitcoin, with the U.S. leading the way with its Strategic Bitcoin Reserve. Russia and China are already experimenting with Bitcoin as a mechanism for international trade, especially in settling energy trades. Bolivia has said it will pay for imported electricity with cryptocurrency, and El Salvador has experimented with Bitcoin-denominated sovereign debt.

These are potential baby steps to Bitcoin eventually replacing the U.S. dollar one day. But it will likely require something massive and consequential, like the 1944 Bretton Woods Agreement, to make it happen. You can't just say that Bitcoin is a reserve currency and expect it to happen overnight. However, a potential change in the global financial system might be the best reason yet to start buying Bitcoin now.