Gu Yanxi: Is global regulation good for Bitcoin? Interpreting the ECB President's views on Bitcoin

According to Reuters, at a recent online conference, European Central Bank President Christine Lagarde expressed her views on Bitcoin. This article analyzes her views and makes some predictions about the regulatory policies of global financial regulators on Bitcoin and encrypted digital currencies.

Bitcoin is an asset

Lagarde believes that Bitcoin is a highly speculative asset, not a currency. Such a statement shows that she believes that Bitcoin is an asset, although it is highly speculative. Such a view also shows that European financial regulators recognize Bitcoin as an asset, not a tool that needs to be completely banned, and have not called it "rat poison squared" (Buffett, 2018). However, it is highly speculative, and at the same time it is used to do some inexplicable business and as a tool for money laundering. Therefore, Bitcoin needs to be regulated.

Regulation of Bitcoin requires cooperation from global financial institutions

Lagarde believes that the regulation of Bitcoin requires multilateral cooperation among global financial institutions. If there is a regulatory loophole in global regulation, Bitcoin will definitely take advantage of it. Therefore, the regulation of Bitcoin must be the cooperation of global financial institutions. The implementation of this cooperation may start from the G7, then to the G20 countries, and then further promote it. Currently, the FATF working group is playing a promoting role in this regard.

Lagarde's view is correct. Bitcoin operates globally, and any individual or institution can join and leave at will, and transfer Bitcoins with other addresses on this network. It is therefore not restricted by any national borders or regulations. Therefore, effective regulation of Bitcoin must be achieved through the cooperation of global regulatory agencies.

Lagarde's view should also be a general consensus among global financial regulators. At the G7 meeting in December 2020, the central banks and finance ministers of the Group of Seven have expressed the need for stricter regulation of cryptocurrencies. Recently, British financial regulators have once again proposed that cryptocurrencies are highly speculative assets. The research views of some major financial institutions in the US market also believe that Bitcoin is a highly speculative product. For example, Wells Fargo's research view is that Bitcoin is a highly speculative product. For example, Bank of America's research view even proposes that Bitcoin is the mother of all bubbles. The views of mainstream financial institutions and some financial regulators in this regard indicate that financial regulators will definitely take more measures to regulate Bitcoin.

Global regulation of Bitcoin is good for Bitcoin

Bitcoin was originally designed to compete with the existing legal tender system. Therefore, its basic feature is that it is unregulated and any user can join, leave and use it at will. As Bitcoin has developed to this day, its value storage and value transfer properties are increasingly being used. These applications occur in some financial regulatory areas where it is purchased by mainstream financial institutions, and in other areas where it is used for trade transactions between countries to avoid US dollar sanctions. Since the use of Bitcoin is not yet fully regulated, most of the funds in the market cannot enter Bitcoin. This is because the operation of these funds must meet local regulatory requirements. Therefore, although Bitcoin is popular in the market and its market value is constantly increasing, most of the funds managed by institutions in the market are still unable to enter it. In addition, the current highly speculative nature of Bitcoin is also a major reason that hinders institutions from holding Bitcoin. For institutions that manage large amounts of funds, they value stability far more than potential returns. If Bitcoin is placed under financial supervision, its current highly speculative nature will definitely be curbed. This will be very conducive to the funds held by institutions entering Bitcoin. Therefore, for Bitcoin holders, global financial supervision is good news for Bitcoin.

Global regulation of Bitcoin is also conducive to the development of encrypted digital finance

If the world's major financial regulators work together to jointly formulate regulatory policies for Bitcoin, then the coverage of these policies will definitely not be limited to Bitcoin, but will be further expanded to cover the field of encrypted digital assets. This is because the development of encrypted digital finance also has a very strong international attribute. The digital financial products developed and circulated on the blockchain are not restricted by national borders, and their liquidity must be cross-regulatory. Therefore, financial regulators from all over the world need to cooperate to formulate common regulatory policies.

The stablecoins that are currently developing in the market and the expected faster development in this area will further promote the development of encrypted digital assets. This is because the development of stablecoins will definitely drive the development of the underlying blockchain and promote the construction of financial market infrastructure. On top of these new financial market infrastructures, various financial activities will definitely be carried out. Such market infrastructure and the financial activities on it can be completed across national borders. Therefore, it will definitely require financial regulators from all over the world to cooperate to regulate such financial activities. So I believe that while global financial regulators cooperate to formulate regulatory policies for Bitcoin, they will also formulate corresponding regulatory policies for the development of encrypted digital assets. In fact, activities in this regard have already begun. The operation of the FATF working group mentioned by Lagarde is the cooperation of global financial regulators in this regard. Obviously, the current development of Bitcoin is driving global financial regulators to accelerate cooperation in this regard.