Li Yang: Bitcoin can’t be considered a scam, and can be used as an asset allocation like gold

After gold is demonetized, it morphs into an investment object and is one of the various investable assets.

Li Yang, director of the National Finance and Development Laboratory and a member of the Chinese Academy of Social Sciences, accepted that when it comes to cryptocurrencies such as Bitcoin, Li Yang said: Bitcoin cannot be considered a scam, it is a new data asset, people can invest in it like gold, but it is not a currency.

According to Li Yang, after gold was demonetized, it morphed into an investment object, one of many kinds of investable assets. Now Bitcoin is a digital asset, and it’s in the same class as gold. From an investment point of view, bitcoin is as investable as gold.

Li Yang also stressed that just because Bitcoin has the word “coin” in its name, it should not be treated as a currency, and it is not scientific to talk about Bitcoin and call it a currency without the essence of money.

Li Yang believes that money has several basic characteristics, first of all it is the centralized embodiment of a country’s economic sovereignty, secondly money itself as the standard for all goods and services transactions, as an anchor, its price is more stable, and finally, in order to perform its function as a price standard, the supply of money should be able to stretch freely. In contrast, Bitcoin does not have most of these conditions that make it a currency.

Regarding the Central American country of El Salvador’s use of bitcoin as an anchor asset for its national fiat currency not long ago, Li Yang believes that “it won’t take long for it to move away from bitcoin, something that has more propaganda significance than it does practical significance.”

Li Yang also said that El Salvador’s use of bitcoin as an anchor asset for its domestic monetary system unmistakably demonstrates its desire to move away from the control of the U.S. dollar. This is reminiscent of the euro back then, which was fundamentally launched with the same main purpose of getting rid of the dollar, and after more than 20 years of tortuous development, the euro is now the second largest reserve currency in the world. However, for other economies, it is not easy to get rid of the dollar because of its long-standing dominance in the international financial sphere.

The following is the content of the interview.

Bitcoin cannot be considered a scam and can be allocated as an asset like gold

Phoenix Finance: I saw that you also have concerns about cryptocurrencies, including Bitcoin, a virtual currency that rose to more than $60,000 a few months ago and now has fallen to $30,000, what is your view on this virtual currency? Some people say bitcoin is a scam, what do you think?

Yang Li: Bitcoin can’t be considered a scam, it’s a new asset, it’s a data asset. It’s called a “coin” and it’s not really scientific. I think that if you make that clear, other issues will be better understood. I think it’s a bit of a stretch for China to translate Bitcoin into coin and try to make it a currency, which doesn’t fit its essence.

Phoenix Business: I see that some people say it is digital gold, maybe treating it as the same asset as gold?

Li Yang: It can be considered. Since it was demonetized, gold has morphed directly into an asset available for investment, which people can hold to preserve its value, but it’s difficult to restore it to its status as a currency. Now the digital bitcoin is also an asset, a digital asset, which is really similar to gold. It’s important to note that investing in gold, while it may retain its value, it may also depreciate in value, and it’s not just about making money.

Phoenix Finance: So from the investment point of view, do you think it is a good investment target?

Li Yang: As an investment object is certainly possible, just like investing in gold, you have free money to invest. It should be pointed out that gold itself has no yield, it can’t make money at the bottom of the box, and a complete transaction (assuming it can increase in value) requires buying and selling twice, which is very risky. Therefore, in the investment world, gold is known as an inefficient or poor quality investment. In this respect, Bitcoin is similar.

Phoenix Business: It can be used as an asset allocation?

Li Yang: Yes, but you should never think it’s a currency, it’s not a currency. Because, there are several conditions for something to become a currency. First of all, currency is sovereignty, I have repeatedly stressed that we should not forget the point that currency is the economic sovereignty of a country. There are only two economic rights of the state, one is to issue money, and the second is to tax. Without these two rights, the country will not be a country in economic terms. Imagine that these two tools, which support the economic establishment of the state, can be taken away and replaced by a few keystrokes on the computer. In short, keeping in mind that money is sovereignty, the sovereignty that supports a country’s economic establishment, our research on Bitcoin, digital currency, etc. can only start on the right path. This is a premise that will not change.

Second, money is the general equivalent of a country’s commodity world. The “general” here means that all products and services, all kinds of things traded in the market are priced by it. So, it is a condition that it is relatively stable. If it is not stable, it cannot be a benchmark for pricing. A coin, whose own price fluctuates constantly and dramatically, how can other products be traded? At this point, not only normal transactions cannot be carried out, but also the order of transactions will be disrupted.

Thirdly, in order to ensure the price stability of the currency itself, to ensure its full performance of its general equivalence and intermediary function, the supply mechanism of the currency must be fully flexible, that is, its supply mechanism should be able to respond to the market demand for transactions and increase or decrease freely. If prices rise in the market, the supply of money should be increased in a timely manner, and vice versa. In this way, Bitcoin does not have this condition. We know that technically speaking, the total amount of bitcoin is limited, and in fact, one of the main reasons for the demonetization of gold was that it was in limited supply and could not adapt to the needs of the commodity flow. In short, the contradiction between an asset of limited size facing an economy of infinite expansion cannot be reconciled, so gold gave up its throne as a currency back then, and today’s bitcoin is therefore not in a position to gain that throne.

I think that if we grasp the function and essence of money, we will not be confused by the golden appearance of gold, and similarly we will not be confused by the high-tech appearance of bitcoin.

Li Yang: Currency is a kind of sovereignty, saying that Bitcoin is a currency is fooling

Phoenix Business: A country in Central America called El Salvador has adopted bitcoin as the country’s fiat currency. There are reports that Panama and some other small countries like Venezuela may also have this intention.

Li Yang: This news just came out, so I haven’t had a chance to look into it yet. But, based on my expertise, I’m afraid this country is not treating bitcoin as a fiat currency, but rather pegging its currency to bitcoin, as many countries have done in the past by pegging their fiat currency to gold. Here, bitcoin, and gold in the past, plays a role as an “anchor” to ensure the stability of the country’s currency, rather than acting as a direct currency itself. In my judgment, it won’t be long before the country’s currency is removed from the “anchor” of bitcoin, because bitcoin doesn’t have the functionality to be the “anchor” of a currency yet either. The most important thing that makes a country’s economy work is its currency, because it provides the general standard and intermediary for all transactions. If that standard is always moving, it’s not going to work.

As far as I know, El Salvador was originally a dollarized country, and the process of “conversion” took place around the beginning of this century. That is to say, El Salvador lost some of its monetary sovereignty at the turn of the century. The problem now is that the U.S. currency is flooding El Salvador through the “anchor” and the latter’s economic and financial operations are being adversely impacted, and the country wants to change its economic situation by shifting the “anchor” from the U.S. dollar to bitcoin. The country hopes to change its economic situation by shifting its “anchor” from the US dollar to bitcoin.

As you can see, El Salvador is hoping to change its anchor to get out of its predicament, but I am afraid that this effort will be extremely unsuccessful. There are several angles of analysis. First, the root cause of inflation and domestic recession is in the domestic economy, and changing the anchor is a technical issue that does not solve the country’s deep-seated real economic conflicts. Secondly, it is rumored that this time, Saldova will convert their foreign exchange earnings into bitcoin, the national currency is anchored to bitcoin, on the other side, the value of bitcoin but continue to anchor the U.S. dollar, where, of course, there is the possibility of further conversion of the dollar into other international currencies through the bitcoin market, but, in the dollar-dominated international monetary system, this transformation does not seem to play much of a role. What’s more, there is no developed market for bitcoin compared to the dollar, and the liquidity is poor, making it even harder for the country to save itself if the bitcoin market goes south.

In short, I think that El Salvador’s move to switch the anchor of its currency from the US dollar to bitcoin, but with bitcoin continuing to be anchored by the US dollar, seems to have little practical significance and is not helpful, it is more propaganda than it is practical. It shows that the global proliferation of the dollar is causing resentment in a growing number of countries.

Some countries don’t trust the dollar now, but they can’t get rid of it for the time being

Phoenix Finance: In fact, this kind of small countries it is no longer willing to adopt the dollar, does it also indicate that the dollar its credit degree has been reduced?

Li Yang: You are right. However, in a fairly regular period of time, the dollar is something you can not get rid of. This is because the international monetary system is highly complex, and its development is a large-scale process, that is to say, five or ten years, you can see some meaningful changes. Therefore, for a long period of time, the world will still not be able to get rid of the dominance of the dollar, especially for small countries.

An example will give you an idea of the complexity of this problem. In the 1970s, the entire European currency was dependent on the dollar, and the monetary systems of the countries followed the United States. However, from the late 1960s, the U.S. domestic economy gradually went wrong. In order to stabilize the domestic economy, the U.S. issued dollars indiscriminately, causing violent fluctuations in the international exchange rate market and disrupting the operation of the European economy and financial markets. So, at one time, several major countries were discussing the problem in one piece, hoping that the United States could take responsibility. As a result, the then U.S. Trade Representative famously said that the dollar was “our currency, your problem!” Here, the logic of power is in its fullest expression.

A further example is the launch of the euro. The launch of the euro is a fairly long process, from the sixties several major European countries in coal, steel, atomic energy, agriculture and other major national economic areas of close cooperation, and then the introduction of the European currency unit, until the introduction of the euro, it took a full 40 years. The French president at the time said that I started the euro for no other reason, for Europe is no longer at the mercy of the dollar. The then president of the European Union also said that the launch of the euro, both the economic unity of Europe, but also the political unity of Europe, the goal is to create a true European community of destiny. It is for this reason that the euro has continued to move forward after its launch, despite the many storms it has experienced. I remember that after the US subprime mortgage crisis affected Europe in 07/08, many people in the country claimed with conviction that the euro was about to collapse, today’s facts tell us that not only has the euro not been wiped out, but its global influence is expanding.

All the above examples tell us that the currency is sovereign. All discussions about it must not leave this essence, otherwise it loses its scientific nature.

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