Whose business is the booming Bitcoin?

Source: Yuyuan Tantian (WeChat public account)

The U.S. stock market has once again been on a roller coaster ride in the past two days.

Last Friday night, perhaps foreshadowing the good news that the 1.9 trillion investment plan was about to be passed, the Dow Jones Index, which had been falling continuously, started a big reversal of 800 points. The price of a special "product" also took a roller coaster ride, but its increase was a bit exaggerated.

If we count from the US stock market circuit breaker last year, it has soared from the lowest point and has now risen more than ten times. This "exciting" investment product is called Bitcoin.

Two weeks ago, Bitcoin’s market value exceeded $1 trillion. If it were a company, its market value would have ranked sixth in the world, behind Apple, Saudi Aramco, Microsoft, Amazon and Google.

What is more noteworthy is that of the 1 trillion, more than 460 billion, nearly 50%, rose in 2021. From January 1 to February 19, it took only 49 days. Its unit price rose from $10,000 to $20,000 in 40 days; from $20,000 to $30,000 in 17 days; and from $30,000 to $40,000 in 6 days.

Such a rise is like a mystery. It is clear that the force driving Bitcoin's rise is very strong, but no one knows who it is. This has even aroused the vigilance of the US Treasury Department, and US Treasury Secretary Janet Yellen warned that Bitcoin would pose a danger to investors and the public.

If Bitcoin is regarded as a company, this $1 trillion company has no chairman, no CEO, and no employees. But it is really there, waiting for you to approach.

Faced with the unknown, some people choose to join the game now.

Not long ago, JPMorgan announced that we must get involved in Bitcoin.

▲JPMorgan Chase announced that we must get involved in the Bitcoin business.

Jamie Dimon, CEO of JPMorgan Chase, one of the world's largest financial services institutions and investment banks, once said something that is still remembered today:

I will fire any trader who gets involved in Bitcoin because he is stupid.

Jamie Dimon, once the youngest CEO of a Fortune 500 company and a typical Wall Street banker, initially disdained Bitcoin.

At the beginning of 2013, the price of Bitcoin was $13, and it rose to $1,242 in the middle of the year. At that time, many people asked Jamie Dimon about his views on Bitcoin, and he directly replied, "A fraud."

The ups and downs of Bitcoin at that time just "confirmed" his judgment. At the end of 2013, the price was still $800, but by 2014, it was only $300. However, the following year, Bitcoin "made a comeback" and the price rose by 40%. Some speculators asked Jamie Dimon again, but they were slapped in the face again:

JPMorgan Chase processes $6 trillion digitally every day, while the scale of Bitcoin is only $2 billion.

Later, perhaps because he was tired of being asked, Jamie Dimon just said that Bitcoin is a scam.

Even though that day, the market value of Bitcoin reached a record high. Even though later, searches for "Bitcoin" on Google surpassed "Trump".

▲The search popularity curve of Bitcoin and Trump in Google.

But for large institutions, Bitcoin is still a "small matter". In 2018, when the price of Bitcoin fluctuated more violently, JPMorgan Chase directly banned users from using credit cards to buy Bitcoin.

According to the US website Business Insider, due to the sharp fluctuations in Bitcoin prices, credit card service providers that allow Bitcoin transactions will face higher risks than usual. For JPMorgan Chase, the risks of Bitcoin are far greater than the benefits. However, as long as the benefits are high enough, the risks may be ignored.

That year, the price of Bitcoin once surged to $20,000. At that time, Jamie Dimon immediately changed his face and expressed his regret for calling Bitcoin a scam.

▲Jamie Dimon said he regretted calling Bitcoin a scam and now firmly believes in the technological power behind Bitcoin.

After that, Jamie Dimon never made any comments on Bitcoin again. However, JPMorgan Chase's subsequent actions reflected his change in attitude towards Bitcoin.

In 2020, a report by JPMorgan Chase stated that "Bitcoin has become a competitor to gold" and estimated that the price of Bitcoin would reach $146,000. From being bearish to bullish, the number of people supporting Bitcoin has grown from a small group to a large group.

According to data from Robinhood, an online securities trading platform in the United States, the number of investors in the platform's virtual currency business increased by 6 million in the first two months of this year. Business Insider magazine in the United States reported that there are 106 million cryptocurrency users worldwide, of which more than 14 million were newly added in January.

▲A report from cryptocurrency exchange Crypto.com estimates that the number of global cryptocurrency users reached 106 million in January, following a 16% increase in the previous month.

These people are all potential users of JPMorgan Chase. Some people who held the same views as Jamie Dimon have now begun to change their direction and stand up for Bitcoin.

BlackRock, the world's largest asset management company, which once called Bitcoin a "money laundering index", has now begun to "get involved in Bitcoin on a small scale." Goldman Sachs has also restarted its Bitcoin trading department to provide clients with trading, custody and other services.

The price of Bitcoin fluctuates greatly. In the past four years, on average, the price of Bitcoin has been "halved" once a year. After hitting the bottom, it can rebound at a faster rate. These are all speculative opportunities.

For institutions with financial, technological and information advantages, the more volatile Bitcoin fluctuates, the greater their room for profit.

A few days ago, American Bitcoin investors were concerned about the movements of one person.

He is Gary Gensler, the new chairman of the Securities and Exchange Commission nominated by US President Biden, and is known as "the most radical regulator in the United States in 20 years." Unlike his predecessor's leniency, Gary Gensler has repeatedly stated publicly that the Securities and Exchange Commission's supervision of Bitcoin should be strengthened.

On March 2, as soon as he opened his mouth, the price of Bitcoin fell by 4%.

▲Biden’s newly nominated Gary Gensler said that the Securities and Exchange Commission will try to eliminate fraud and manipulation in the crypto market, and the price of Bitcoin fell 4%.

Strengthening supervision means more transparency, but Bitcoin is inherently opaque because it is anonymous.

The first to take advantage of anonymity were individuals and groups engaged in the gray industry. In 2011, an American named Ulbricht founded a shopping website that only accepted Bitcoin transactions. This transaction experience, in which buyers and sellers were unaware of each other and funds were transferred without going through banks, quickly attracted 1 million people to register. The website sold drugs, guns and ammunition, counterfeit currency, human trafficking, and even murder services.

There is nothing you can't buy, only what you can't think of. In 2013, the FBI arrested Ulbricht. In the two years, the website traded 9.5 million bitcoins, accounting for 80% of the total bitcoin production at the time. After the website was shut down, the price of bitcoin fell from $135 to below $100. When the 2.0 version of the website was launched, the price of bitcoin rose sixfold in one month to $1,200.

In order to increase the price of Bitcoin, these people even invented a ransomware virus called "Wannacry".

At that time, the Wannacry virus exploited a vulnerability in the Windows operating system and infected more than 300,000 computers in over 150 countries around the world.

If victims want to recover their computer data, they must pay Bitcoin as ransom. Disney Studios, European banks, power systems, communication systems, and airports have all been infected. Bitcoin, which is used as ransom, has frequently appeared on the front pages of various countries and is well known to ordinary people.

During those two months, the price of Bitcoin rose from $1,534 to $2,959. Because transactions can be anonymous, Bitcoin has been closely associated with crimes for a long time.

In 2018, the FBI requested 80 new employees and $21.6 million in spending to investigate the endless cases of illegal applications of cryptocurrencies. But this does not mean that all departments do not like Bitcoin, at least the IRS does not think so. They think that Bitcoin is a taxable asset.

The more transactions you make, the higher your profits will be, and the more taxes you will pay. Therefore, in the eyes of the IRS, Bitcoin transactions should not be restricted, but should be liberalized. In November 2016, it required the US Bitcoin exchange "Coinbase" to hand over user records of Bitcoin purchases from 2013 to 2015.

▲The IRS’s request for Coinbase to provide Bitcoin transaction data sets a dangerous precedent.

Under the court ruling, the IRS obtained the information of more than 14,000 users. Soon, these people received letters from the IRS.

In fact, it is not only American institutions that are eyeing Bitcoin. A number of American technology companies are also working hard to promote the popularization of Bitcoin. A month ago, a document from Tesla showed that the company had purchased $1.5 billion in Bitcoin. A new energy vehicle company focusing on technology research and development suddenly used real money to support Bitcoin. What exactly does Tesla want to do?

The Times revealed the answer: Tesla's book profit from buying Bitcoin since January is about $930 million, which is 30% higher than its net profit from selling cars in 2020.

▲ Tesla's profit from buying Bitcoin is higher than selling cars

It seems that Tesla is trying to make money, but its real purpose is more than that.

In addition to spending $1.5 billion to buy Bitcoin, Tesla has another move - the company will start accepting Bitcoin payments.

In addition to Tesla, many companies such as PayPal and Uber have also announced that they will use cryptocurrencies as a payment method. It seems that Bitcoin is "acting" as a currency. American companies are intentionally or unintentionally blurring the boundaries between the two.

Is it really feasible? The solution given by PayPal is to first convert the Bitcoin in the hands of users into legal tender according to the prevailing rate, and then use legal tender for transactions.

So, the buyer spends the legal currency, and the seller receives the legal currency as well. But few people expose this, and most people are exaggerating that Bitcoin is a digital currency. This is not an isolated case. In the United States, many times, Bitcoin and digital currency policies seem to be "advancing and retreating" together.

In December 2020, the U.S. Treasury Department proposed new regulations on the regulation of digital currencies. On the same day, digital currency policies were tightened and the price of Bitcoin fell. Is Bitcoin really a digital currency?

The essence of money is a general equivalent. In other words, it must first be a commodity and have value. But the essence of Bitcoin is a piece of code, at best, just a virtual asset. Not only that, Bitcoin cannot assume any of the functions of currency.

Money has three main functions: a measure of value, a store of value and a medium of exchange.

▲The three functions of money: value scale, value storage and medium of exchange

The scale is immutable. 1 cm is this long today and should be this long tomorrow. The value storage also requires extremely high stability - the price cannot be $50,000 today and only $40,000 tomorrow. However, Bitcoin's high volatility makes it unable to fulfill these functions.

Similarly, Bitcoin has no backing, and when a country's sovereignty deems it illegal, it cannot circulate. Therefore, Bitcoin does not function as a medium of exchange.

These key issues seem to have been downplayed. Whether those who support or are bearish on Bitcoin are discussing whether Bitcoin can maintain its value, whether it can avoid risks, and whether it is digital gold. The statements are different, but the ultimate goal is only one, to attract more ordinary investors.

As long as some people use Bitcoin as a currency, those who participate will make a profit. Tesla once proposed a plan to launch 1 million driverless taxis.

▲Tesla plans to launch driverless taxi service in 2020

These orders are paid with Bitcoin, so each transaction will not go through banks and the existing financial system, that is, it is outside the supervision. In addition, this ride-hailing network is shared, and there will be more and more passengers.

These people need to use Tesla's digital wallet, which is equivalent to an expanding independent system. Independent system + no supervision, for any enterprise, this is a temptation that is hard to refuse. But no matter how it is rendered, Bitcoin itself has no value and cannot be used as currency.

The United States has called a black cat a white cat, sparking global enthusiasm and pursuit of Bitcoin, but some people are very sober. The Atlantic is one of the few magazines that voiced opposition. The article mentioned that "2013 is a year of shame for Silicon Valley. In this year, no breakthrough products were born, but the price of Bitcoin increased tenfold."

▲2013: A bad, terrible, terrible year for the technology industry

At first, Bitcoin was an innovation.

It has driven the development of blockchain technology and related industries, and has also inspired many countries to conduct research in the field of digital currency - even though the two are essentially different, they can be used as references in terms of technology. However, some people are more concerned about interests than technology.

Anonymity is used by people to conduct underground transactions; scarcity is used by people to speculate and drive up prices; decentralization is used by people to establish a new payment system…

Some people in the United States are good at this kind of "packaging." Just like in 2008, financial institutions on Wall Street packaged "subprime loans" one by one into "AAA-rated" high-quality assets and sold them to ordinary investors. This routine can continue until the balloon is blown up.

Obviously, some people did not learn any lessons from the disaster that year, or perhaps the creators of these disasters were not affected. This is not the first time in the United States, and it will not be the last time.

The market value of Bitcoin has been growing, and more and more people are deeply trapped in it and unable to extricate themselves.

However, does a business that is guaranteed to make a profit really exist?