Xiao Lei: Why Bitcoin has not become the second tulip bubble, China needs to respond with caution

From the perspective of current global economic development, there are two main factors driving economic growth: technology and market. It is difficult to generalize which of these two is more important.

Without the market, technology can almost only stay in the laboratory or in the minds of R&D personnel, but without technology, the demand created by the market itself is extremely limited. The lasting influence of the Industrial Revolution lies in the fact that people's demand for industrial products has begun to explode, and the spread of information technology also stems from people's broader demand for information transmission.

The real reason why the United States is very worried about China's current technological initiatives is that in the development of technology and the market, there is an imperceptible law that resources and technology will eventually flow to the market. The United States will never worry about the development of technology in African countries, not because Africans do not have the ability to develop technology, but because Africa currently does not have enough markets.

If the US dollar is the universal resource in today's world (it can buy most resources), then apart from the United States, the country that prints dollars, the largest net inflow of dollars is China. China is currently the world's largest foreign exchange reserve country for dollars; China is also currently the largest importer of gold, with more than 1,500 tons of gold flowing into China each year.

This phenomenon shows that as long as the Chinese market is large enough, even if China does not deliberately attach importance to certain strategic resources or technologies, these resources and technologies will automatically flow to China. According to the Coase Theorem, the market with the greatest demand for resources and technologies and the most effective use of them will eventually have the ownership of resources and technologies flow to that market.

Returning to the recently very hot digital currency market, the price of Bitcoin has now returned to above $12,000, with a year-to-date increase of 300%. It has not become the tulip bubble of the 21st century, but has further stimulated the development of financial technology. Based on the global demand for Bitcoin and the demand for financial applications of blockchain technology, the US Internet giant Facebook is launching a new world currency infrastructure. In such a context, what can China do?

I think it is enough for China to allow the market to operate on its own. There is no need to introduce any encouragement or stimulus policies. As long as there is no prohibition, China will be able to gain greater rights and interests in this field. This is because China’s biggest and most effective bargaining tool for global resources and technology is the market itself.

For example, although Bitcoin is a product of American technology, most of the new Bitcoin production is currently in the hands of the Chinese. 80% of the computing power of the Bitcoin network is in China. In fact, this is the power of the market. As long as China does not ban it, it is the greatest support for this market.

As for the concerns of many people that the core technology is in the hands of others and having the market alone seems to be strangled by others, in fact, this worry is unnecessary. If an organization that masters the technology would rather destroy its own technology than achieve the goal of hitting the market, then it means that the ideal of technology is to attack others rather than change the world. This deviates from the original driving force of technology, and the value of the technology itself is questionable.

Therefore, there must be a game relationship between technology and the market, but it is absolutely impossible for them to be completely opposite. For example, the technological debate between China and the United States is actually a game of interests. The Americans just think that you used my technology, but you didn't pay enough. In fact, if you look at the stock prices of American technology companies, if there were no Chinese market and no Chinese investors, would the stock prices still be maintained at this level? The "tax" paid by the Chinese market to the United States cannot be calculated clearly with simple tariff figures.

Let me continue to give you examples. For example, among the top ten digital currencies by market value, except for Bitcoin, five are directly made by the Chinese market or Chinese people. For example, Ethereum was incubated by some Chinese funds, Bitcoin Cash was forked by the Chinese, Litecoin was also written by the Chinese, EOS was funded and promoted by the Chinese market, and BNB is an overseas exchange opened by the Chinese. If we add USDT, the stablecoin with the largest number of Chinese holdings, that is to say, among the top ten digital currencies, except for Bitcoin, only three have a weak relationship with the Chinese market, and the rest almost all started and flourished in the Chinese market.

Libra, issued by Facebook, is currently attracting global attention. With its blockchain technology and decentralized operation model, it has brought a ray of hope for the establishment of a new world monetary system in the future. However, at present, in addition to its advantages in technology and channels, Libra's ultimate carrier is actually an asset securitization transaction target. For the Chinese market, it is difficult for us to predict the evolution of the technical level, or the thinking after the policy level is triggered, but one thing is certain: if trading is open, the largest holder of Libra may still gradually fall into the hands of the Chinese.

The market is China's greatest advantage and its most powerful bargaining tool. If we cannot make good use of the power of the market, we may not even be able to distinguish which things are trending, which things have a demand basis and future value, and which things can be self-eliminated. More importantly, if we do not have the market to rely on, we will lose more than just the right to speak. When the game really comes to the national level in the future, the chips on hand will be stretched.

Text/Xiao Lei