Will the advent of central bank digital currency (CBDC) affect the market value of Bitcoin?
The translation and collation of this article comes from Hankyung Economy, Decenter, a Korean news network, and discusses the different opinions of various parties on the issue of whether the market value of Bitcoin will decline after the advent of the central bank digital currency (CBDC).
“If the central bank issues digital currency (CBDC), the price and market value of Bitcoin (BTC) will fall.” This is the opinion made by Lee Joo-yeol, President of the Bank of Korea, in his written symposium. In addition to the Bank of Korea, Fed Chairman Powell and other financial regulatory authorities around the world continue to make statements that CBDC will contain cryptocurrencies such as BTC.
Control the dominant power of the existing financial system
Criticizing cryptocurrency one after another
The statement of Bank of Korea President Lee Joo-yeol coincides with that of Chairman Powell. Chairman Powell once said: “Virtual currency is very volatile, so it is not a useful means of storing value. Compared with the U.S. dollar, cryptocurrency is basically more like an alternative. Speculative assets.”
Cryptocurrencies such as BTC cannot be compared with fiat currencies such as the U.S. dollar, which means that they cannot overthrow the existing financial system. The opinions of President Li Zhulie also contain BTC and advocate that the digital currency issued by the central bank is more powerful. From this point of view, this is in the same line as Jerome Powell’s speech.
On the 24th of this month, Bank for International Settlements (BIS) President Agustin Carstens made a clearer opinion, emphasizing, “I don’t think cryptocurrency will deprive the current financial system of sovereignty.”
All those who say this have one thing in common, that is, they have the power to dominate legal tender. In order not to lose their dominance, they continue to contain cryptocurrencies.
CBDC and Bitcoin are different
The two have the possibility of complementarity
So, when CBDC is issued, will the price and market value of BTC and other cryptocurrencies fall?
There are different opinions, but the answer can be found in the words of Chairman Powell. Let us revisit Chairman Powell’s earlier comments. “Cryptocurrency is more like a speculative asset, basically a substitute for gold than the U.S. dollar,” he said. In other words, although cryptocurrency cannot cross the field of legal tender, its value is recognized as an alternative investment asset such as gold. Although President Li Zhulie and Powell have the same starting point of supporting legal currencies such as CBDC and containing BTC, it can be seen that there are still some differences in their views on BTC.
President Li Zhulie seems to judge and limit the value of BTC at the level of “payment methods”. Of course, the original intention of BTC was to establish a “peer-to-peer transaction system based on a decentralized network”. If a variety of companies, led by Tesla, begin to support BTC payments, consumers who use BTC for actual payments will also increase.
However, compared to the original purpose of BTC, BTC is playing a greater role as a “store of value”. After Tesla acquired a large number of BTC, it also announced that it would not exchange the BTC paid to Tesla into cash. In addition, multinational companies such as MicroStrategy and Square have bought bitcoin in large quantities.
However, BTC is playing a greater role as a “value storage method” than its original purpose. After Tesla acquired a large number of BTC, it also announced that it would not exchange the BTC paid to Tesla into cash. In addition, multinational companies such as MicroStrategy and Square have bought bitcoin in large quantities. These companies do not use BTC for payment or settlement, but are worried about inflation, so they invest in BTC as a hedge.
From this perspective, BTC and CBDC are very different. On the contrary, after CBDC is issued, the establishment of related infrastructure can increase people’s exposure to cryptocurrencies, which can have a positive impact on each other. Contrary to the position of regulators, multinational companies are accelerating their entry into cryptocurrency-related industries. Under the control of the government, what will happen to the future of cryptocurrency, let us wait and see.
Chairman Powell: “No need for Bitcoin”
cryptocurrency camp: “will coexist”
Federal Reserve Chairman Jerome Powell stated in the House of Representatives hearing on July 14 that “If the United States has a CBDC, there is no need for cryptocurrency.”
If the central bank digital currency (CBDC) is commercialized, cryptocurrencies such as Bitcoin will face What kind of fate, people have given different predictions. Some people like Powell argued that “cryptocurrency will disappear.” On the contrary, some people believe that “CBDC and cryptocurrency will coexist in a complementary relationship.”
CBDC is not affected by price fluctuations, which is the Achilles heel of most cryptocurrencies. Bitcoin and Ethereum also have problems such as long transaction times and soaring fees. CBDC overcomes these shortcomings, and the central bank’s guarantee of payment security is its core advantage. Therefore, some analysts believe that once CBDC is widely spread, most cryptocurrencies will disappear, and only a few cryptocurrencies will continue to exist as “speculative methods”.
The camp that supports cryptocurrency holds a completely different view. Korbit Director Zheng Xiwen said: “Once the public gets used to the state-led digital wallet, the barriers that hinder people from holding cryptocurrencies will be removed, and instead they can be made active.”
A cryptocurrency exchange CEO said: “CBDC is a system through which the central bank can peek into all private transactions. Many people do not want to use CBDC. Although CBDC is likely to encroach on a large part of the payment market, it will compete with cryptocurrencies. Expand the blockchain ecosystem while coexisting.”
In general, there are two different camps of opinion regarding the fate of other cryptocurrencies after the advent of CBDC. The first is the regulatory agencies in charge of the existing financial system. They generally believe that the emergence of CBDB will severely impact the cryptocurrency industry; the other is the camp that supports cryptocurrencies, and they insist that the emergence of CBDB may affect the cryptocurrency industry. It is influential, but the two will complement each other and coexist harmoniously because of their different functions. Currently. Countries have strengthened the supervision of cryptocurrencies. Therefore, it is still difficult to draw conclusions about the impact of the popularization of CBDB. But what is certain is that CBDB will be a significant milestone in the history of cryptocurrency.
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