Many central banks are "blocking" Bitcoin because its liquidity has exceeded that of many countries' legal currencies

On May 18, the China Internet Finance Association, the China Banking Association, and the China Payment and Clearing Association jointly issued an announcement requiring financial institutions and payment institutions not to conduct virtual currency-related businesses. Immediately afterwards, the State Council Financial Committee issued a strong statement to crack down on Bitcoin mining and trading. Subsequently, the prices of Bitcoin and other cryptocurrencies plummeted, and the market fluctuated violently.

In fact, not only has China sent out signals of strict regulation of Bitcoin, but the European Central Bank, the Federal Reserve, the Bank of Canada, or the financial departments have also successively issued policies requiring strengthened regulation of Bitcoin, showing a trend of "encirclement and suppression."

Why is Bitcoin "encircled" by many central banks? Many countries have released signals to accelerate the layout of digital currencies. What are the considerations behind this? To this end, on May 28, Baidu Finance exclusively invited Cai Weide, director of the Digital Society and Blockchain Laboratory of Beihang University, Tsinghua Changjiang Lecture Professor, and founder of Tiande Chain, Wan Zhe, professor of Beijing Normal University and former chief economist of China Gold Group, and Huang Zhen, director of the Institute of Financial Law of Central University of Finance and Economics, to hold an online forum to discuss the future direction of Bitcoin and look forward to the development prospects of central bank digital currencies.

As for why Bitcoin is being “blocked” by central banks of many countries, Cai Wei-de believes that Bitcoin has “three sins”. The first is money laundering and fraud. The second is that the huge amount of resources consumed in its mining and trading runs counter to the goals of “carbon peak” and “carbon neutrality”. The third is that its property of skyrocketing and plummeting in the financial market has actually interfered with the normal development of the financial market. However, the main reason why central banks of many countries have “blocked” Bitcoin recently is that its market liquidity has exceeded the liquidity of legal currencies in many countries.

"Some analysis shows that Bitcoin's market liquidity ranked sixth in the world in October 2020, and has even reached third place since then. In the field of digital currency, there is a very famous field called the digital currency zone. There is a very important theory in the digital currency zone that trading volume is one of the important factors in determining the status of the world's reserve currency. If we think according to this theory, in November 2020, Bitcoin is no longer a challenge to energy, no longer a challenge to money laundering, and no longer a challenge to plummeting and skyrocketing, but a direct challenge to the world's legal currency. For example, in March of this year, the Federal Reserve publicly acknowledged for the first time that Bitcoin is challenging the US dollar." Cai Wei De said.

The Securities Daily reporter noted that according to the statistics in the research report of Deutsche Bank's official website in December 2020, there are only four countries in the world whose legal currencies can surpass Bitcoin in liquidity, namely the US dollar, the RMB, the euro, and the Japanese yen. At the same time, 98% of the countries' legal currencies in the world have been defeated by Bitcoin in terms of liquidity. In March 2021, the research report data showed that the liquidity of Bitcoin has exceeded that of the Japanese yen.

Why are many countries sending signals to speed up the layout of digital currency? Huang Zhen said that there is a core difference between digital currency and encrypted digital currency. That is, Bitcoin and encrypted digital currency have a denationalized and decentralized concept, which is a manifestation of their anarchism. Based on this fundamental difference, the Canadian digital currency is completely different from our national centralized currency and the digital currency currently issued. It is also here that the two have irreconcilable contradictions, and central banks of various countries are unwilling to recognize Bitcoin as a currency or digital currency.

On the other hand, because it is denationalized and decentralized, it does not care whether there are laws to guarantee its legality. Therefore, as a so-called new currency experiment, it relies on the so-called code and regards it as the law. However, our current digital RMB or digital currency relies on the state to formulate laws to guarantee its legality and legality, which is also a big difference.

Huang Zhen believes that the central bank is launching its own digital currency to resist the impact of Bitcoin, especially the influence of the concept of denationalization and decentralization. If this concept can be further popularized through digital currency, governments around the world will face great impact and influence in the future, and national governance will also face a great test.

Cai Wei-de further analyzed that we can regard Bitcoin as the world's largest bank or the world's most frequently traded asset, but not as a currency. At the same time, Bitcoin cannot be reduced to zero in a short period of time, because if it is reduced to zero, we will face some other financial problems. So now we can only live in peace with Bitcoin, standardize it and bring it under supervision.

Finally, Cai Wei-de expressed an interesting point of view. He said: "Many people think that Bitcoin is easy to launder money, but I hold the opposite view. In fact, the world's dark web now rejects Bitcoin. Because the US government can use some high-tech to track every Bitcoin transaction, the world's largest dark web in the United States now rejects Bitcoin, because if this continues, Bitcoin will enter the dark web, and the dark web will no longer be dark."