Will the advent of central bank digital currency (CBDC) affect the market value of Bitcoin?
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Foreword:
This article is translated and organized from the Korean news network Hankyung economy, Decenter, discussing the different views of various parties on whether the market value of Bitcoin will decline after the advent of the Central Bank Digital Currency (CBDC). (This article has a total of 2018 words, and the reading time is about 4 minutes)""If the central bank issues a digital currency (CBDC), the price and market value of Bitcoin (BTC) will fall." This is the opinion put forward by Lee Ju-yeol, governor of the Bank of Korea, in his written reply to the symposium. In addition to the Bank of Korea, Federal Reserve Chairman Powell and other financial regulatory authorities around the world continue to make statements that CBDC will contain cryptocurrencies such as BTC. The power that holds the dominance of the existing financial system has successively criticized cryptocurrencies Bank of Korea President Lee Ju-yeol’s speech coincides with Chairman Powell’s speech. Chairman Powell once said:"Virtual currencies are highly volatile and therefore not a useful store of value. Cryptocurrencies are basically more of an alternative speculative asset than the U.S. dollar.
Cryptocurrencies such as BTC are not comparable to fiat currencies such as the U.S. dollar, meaning they cannot overthrow the existing financial system. President Li Zhuyeol’s opinion is also to contain BTC and advocate that the digital currency issued by the central bank is stronger. From this point of view, this is in line with Jerome Powell’s speech. On the 24th of this month, Agustin Carstens, president of the Bank for International Settlements (BIS), issued a more explicit opinion. He emphasized, "I don't think cryptocurrencies will deprive the current financial system of sovereignty."
All those who say this have one thing in common, and that is the power that holds the hegemony over fiat currencies. In order not to lose their dominance, they keep holding back cryptocurrencies. CBDC is different from Bitcoin, and the two have the possibility of complementing each other
So, when the CBDC is issued, will the price and market value of cryptocurrencies such as BTC drop?
Opinions vary, but the answer can be found in the words of Chairman Powell. Let's revisit Chairman Powell's earlier comments. "Cryptocurrency is more of a speculative asset, basically a substitute for gold than the dollar," he said. In other words, although cryptocurrencies cannot cross the field of legal tender, their value has been recognized as an alternative investment asset such as gold. Although President Li Zhuyeol and Powell have a common starting point of supporting legal currencies such as CBDC and restraining BTC, it can be seen that there are still some differences in their views on BTC.
President Li Zhuyeol seems to judge and limit the value of BTC through the "payment method" level. Of course, the original intention of BTC is to establish a "peer-to-peer transaction system based on a decentralized network". If, led by Tesla, a variety of companies begin to support BTC payments, then consumers who use BTC for actual payments will also increase."However, BTC is playing a bigger role as a "store of value" than it was originally intended to be. After Tesla acquired a large number of BTC, it also announced that it would not exchange the BTC paid to Tesla for cash. In addition, multinational companies such as MicroStrategy and Square have purchased Bitcoin in large quantities. However, compared with the original purpose of BTC, as"store of value
play a greater role. After Tesla acquired a large number of BTC, it also announced that it would not exchange the BTC paid to Tesla for cash. In addition, multinational companies such as MicroStrategy and Square have purchased Bitcoin in large quantities. These companies are not paying or settling with BTC, 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 the issuance of CBDC, the establishment of relevant infrastructure can increase people's exposure to cryptocurrencies, which can have a positive impact on each other. Contrary to the stance of regulators, multinational corporations are accelerating their forays into cryptocurrency-related industries. Let us wait and see what the future holds for cryptocurrencies under government control.
Chairman Powell: "Bitcoin is not needed" Crypto camps "will co-exist""Federal Reserve Chairman Jerome Powell said at a House hearing on July 14,"If the US had a CBDC, there would be no need for cryptocurrencies."There have been mixed predictions about the fate of cryptocurrencies such as bitcoin if central bank digital currencies (CBDCs) become commercially available. some, like powell, argue"Cryptocurrencies will disappear". On the contrary, some people think that"
CBDC and cryptocurrencies will coexist as complementary relationships.
CBDCs are immune to price volatility, which is the Achilles heel of most cryptocurrencies. Bitcoin and Ethereum also have problems such as long transaction times and soaring handling fees. CBDC overcomes these shortcomings, and the security of payment guaranteed by the central bank 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 means".
The pro-crypto camp takes a completely different view. "Once the public gets used to state-led digital wallets, the barriers that prevent people from holding cryptocurrencies will be removed, and instead can be activated," Korbit director Zheng Xiwen said."CBDC is a system in which the central bank can spy on all private transactions, and there are many people who do not want to use CBDC. While a CBDC is likely to encroach on a significant portion of the payments market, it will expand the blockchain ecosystem while co-existing with cryptocurrencies. "
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