Debates regarding bitcoin are going on the financial world all the time, whether it is the academia or the market. It has been over a decade since this asset emerged on the global scene and as of yet, it has not seen any official acceptance from the governments. While some believe it is the next global reserve currency, some are of the view that it the digital gold. On the other hand, the opponents of bitcoin discard this asset altogether owing to the illegal activities and scams linked to it.
Now, with more and more interest getting developed regarding bitcoin among the general public and the institutions, developments are being made in the legal arena by the governments. BlockPublisher recently got in touch with Professor François Longin from ESSEC Business School as he shared his perspective regarding the world of bitcoin and regulations.
- Will bitcoin replace fiat or act as a reserve currency in the future?
François: “On a few occasions, bitcoin has played the role of alternative currency and store of value in times of financial crisis. When individuals were defiant about the value of their domestic currency (Argentina, Venezuela and Turkey in 2018) or when they were subject to temporary capital controls (Cyprus in 2013, Greece in 2015), individuals (and businesses) in these countries turn to bitcoin. Crises are indeed great opportunities for bitcoin to become part of the economic system.
In the future, the role of bitcoin as a store of value may continue especially in countries with economic problems and weak currency.”
- Is it the digital gold?
François: “Bitcoin can be considered as the new digital gold as it presents a low correlation during extremely volatile periods, especially stock market crashes. However, gold is still important for portfolio risk management. Actually, both Bitcoin and gold can be used together (in the same portfolio at the same time) to provide diversification benefit for investors.”
- Should this market be regulated?
François: “As Bitcoin is a decentralized network with nodes spread all around the world, it is difficult even impossible to regulate. But regulatory authorities can regulate the exchanges which are the main points for most individuals to access to the bitcoin market. They can ask exchanges to implement laws that they already apply to financial intermediaries (like “know your customer” or KYC laws).”
- What can governments do to curb out the negative elements linked with bitcoin?
François: “A better question would be, should the governments do something to curb out the negative elements linked with bitcoin?”
A subtle but very important point is raised by François here. Should the governments do something to eliminate the negativities linked with this space? The idea behind decentralization is the elimination of the third-party control. With governments entering this space, the essence of this very idea might get undermined. But then again, the negative elements linked with this space need to be eliminated so that a general layer of trust is established between the public and this nascent world.
With developments being made in the legislation area, it will be interesting to see how things pan out for bitcoin as we move forward.