According to Reuters, at a recent online meeting, European Central Bank President Lagarde expressed her views on Bitcoin. This article analyzes her views and makes some predictions about the regulatory policies of Bitcoin and encrypted digital currencies by global financial regulators.
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, despite its highly speculative nature. Such a view also shows that European financial regulation recognizes Bitcoin as an asset, not a tool that needs to be completely banned, let alone called the "rat poison square" (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.
The regulation of Bitcoin requires the cooperation of global financial institutions
Lagarde believes that the regulation of Bitcoin requires the multilateral cooperation of global financial institutions. If there is a regulatory loophole in global regulation, then Bitcoin will definitely take advantage of this regulatory loophole. Therefore, the supervision of Bitcoin must be the cooperation of global financial institutions. The way to implement this kind of cooperation may start with G7, then go to G20 countries, and then extend it further. The FATF working group is currently playing a propelling role in this regard.
Lagarde's view is correct. Bitcoin operates on a global scale, and any individual or organization can join and leave at will, and conduct Bitcoin transfer transactions with other addresses on this network. It is therefore not subject to any national borders and regulations. Therefore, effective supervision of Bitcoin must be accomplished through the cooperation of global regulatory agencies.
Lagarde’s view should also be the general consensus of global financial regulators. At the G7 meeting in December 2020, the central banks and finance ministers of the Group of Seven countries have expressed the need for stricter supervision of encrypted digital currencies. Recently, the financial supervision of the United Kingdom once again proposed that encrypted digital currencies are highly speculative assets. The research opinions 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. Another example is the research point of Bank of America even suggesting that Bitcoin is the mother of all bubbles. The views of mainstream financial institutions and some financial regulatory agencies in this regard indicate that financial supervision will definitely take more measures to supervise Bitcoin.
Global regulation of Bitcoin is good for Bitcoin
Bitcoin was originally designed to compete with the existing legal currency system. Therefore, its basic feature is that it is not supervised, and any user can join, leave and use at will. With the development of Bitcoin today, its value storage and value transfer properties are increasingly being used. These applications not only occur in some financial regulatory regions purchased by mainstream financial institutions, but also in some other regions to avoid US dollar sanctions and trade transactions between countries. 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 welcomed by the market and its market value is constantly rising, most of the funds managed by institutions in the market still cannot enter it. In addition, the current highly speculative nature of Bitcoin is also a major factor hindering institutions from holding Bitcoin. For institutions that manage large amounts of money, they value stability far more than they value potential benefits. If Bitcoin is placed under financial supervision, its current highly speculative nature will definitely be curbed. This will be very helpful for the funds held by institutions to enter Bitcoin. Therefore, for Bitcoin holders, global financial regulation is good news for Bitcoin.
Global regulation of Bitcoin is also conducive to the development of encrypted digital finance
If major financial regulators around the world cooperate to jointly formulate regulatory policies for Bitcoin, then the coverage of these policies will not be limited to Bitcoin, but will further expand to the field of encrypted digital assets. This is because the development of encrypted digital finance also has very strong international attributes. The development and circulation of digital financial products on the blockchain is not restricted by national boundaries, and its liquidity must be across the regulatory field. Therefore, local financial regulatory agencies need to cooperate to formulate common regulatory policies.
The stablecoins currently being developed 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 stable coins 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 the cooperation of financial supervision and management in various places to supervise such financial activities. Therefore, I believe that while the global financial supervision cooperation formulates regulatory policies for Bitcoin, it will also formulate corresponding regulatory policies for the development of encrypted digital assets. In fact, activities in this area have already begun. The operation of the FATF working group mentioned by Lagarde is the cooperation of global financial regulators in this area. Obviously, the current development of Bitcoin is promoting global financial supervision to accelerate cooperation in this area.