We examine how cryptocurrencies interact with state-backed money by tracing Bitcoin’s response to monetary shifts in the US and China—today’s two largest economies. Employing a Bayesian TVP-VAR estimated by daily data (2013–2019), the study links Bitcoin price and trading volume to (i) the long-term Treasury rate spread between the two countries and (ii) movements in the USD/CNY exchange rate. Results show that a widening spread—especially when Federal Reserve tightening lifts the dollar—raises Bitcoin’s price and activity, as investors seek an asset insulated from divergent policy stances. Similarly, a weaker yuan relative to the dollar spurs additional trade in Bitcoin, confirming its appeal as a cross-border substitute for fiat. These patterns illustrate “de-fiatization”: cryptocurrencies siphon value from central bank money when policy credibility or convertibility is in doubt. Policy implications follow. First, while blockchain technology can boost efficiency, high volatility demands proportionate supervision and global coordination to forestall systemic risk. Second, balanced frameworks should protect innovation while curbing cybercrime and fraud. Finally, because cryptocurrencies diffuse monetary and even political power, timely regulatory adaptation—not blanket prohibition—offers the best path toward a resilient, inclusive financial architecture.