The regulatory logic of fantasy Bitcoin

The Bitcoin market is in turmoil again. After the joint inspection team of the central bank and other three departments entered several Bitcoin trading platforms in mid-to-late January, on February 8 , the central bank interviewed the heads of nine other smaller trading platforms, which once again caused a sharp drop in Bitcoin prices.

What is the essence of Bitcoin? What is the logic behind the regulatory measures taken by various countries on Bitcoin so far?

People are used to calling Bitcoin a virtual currency. Although the adjective "virtual" is correct, Bitcoin is not a currency. It is just a man-made fantasy item with the name of currency, which is exactly the same as the real estate certificates on the moon and Mars. Although Bitcoin advocates give it anti-traditional, decentralized, and anti-inflation colors, anyone who knows a little about monetary economics knows that this is just wishful thinking.

Some people always compare Bitcoin to game Q coins, credit cards, meal tickets, and even bank electronic accounts, but they have nothing in common. Q coins are essentially prepayments, and meal tickets are essentially liabilities.

Whether Bitcoin is a Ponzi scheme or a pyramid scheme, its intrinsic value is 0. If Bitcoin is regarded as a whole system, its value is negative, because the added value of Bitcoin cannot be fully obtained by the pioneers, and a considerable part of it is destroyed in the "mining" process, causing environmental pollution. Perhaps the only value of Bitcoin is to satisfy the fantasy psychology of some people.

Since this is something that does not produce any value in general, why don't central banks of various countries ban it? First of all, the total market value of Bitcoin is currently estimated to be at most 20 to 30 billion US dollars. Compared with the global legal currency of trillions of dollars, it is like a drop of water in a pond, and its impact is negligible. Therefore, central banks of various countries can open their minds to show their openness, otherwise they will not hesitate to slap it to death. Secondly, Bitcoin may have something to learn from on the technical level. For example, the People's Bank of China once intended to use blockchain technology to study future virtual currencies. Of course, what the central bank wants to study is still legal currency in essence, but it uses high technology to save the cost of custody and transactions. Third, although Bitcoin has some real or potential harm to society, it currently only involves a small number of people with strong risk-taking capabilities and is relatively controllable, so the financial regulatory authorities turn a blind eye.

It is precisely for the above reasons that since the launch of Bitcoin in 2009, regulatory authorities in various countries have followed the principle of "no prohibition, limited scope, limited impact, and crime prevention" in regulating Bitcoin. The focus of regulation is to prevent Bitcoin from becoming a money laundering channel or being used by terrorist organizations. At the same time, restrictions of varying degrees are imposed on Bitcoin's access to the traditional financial system. For example, China prohibits traditional financial institutions from intervening and prohibits third-party payment companies from providing clearing. This is to prevent Bitcoin from becoming larger on the one hand, and to isolate risks on the other.

Although the central bank has a generally relaxed attitude towards Bitcoin and has not banned it like a scam or pyramid scheme, it does not mean that the authorities have no red lines. The red line is not to disrupt the existing financial order and not to cause serious social consequences. In January, Bitcoin skyrocketed, the RMB depreciated, and rumors that Bitcoin had become a convenient channel for capital outflows were rampant. Sensitive people knew that the central bank must take action. The regulatory measures in June last year and the two consecutive visits and talks at the beginning of this year were all aimed at preventing Bitcoin from becoming a bad boy that disrupts the financial order. In the future, if the Bitcoin market touches the red line of social stability, the authorities will definitely take action again.