Bitcoin regains digital currency status, the world may usher in the era of currency M5

     Bitcoin on the other side of the ocean has been quite lively recently.

     After the US regulator included Bitcoin in commodity trading on September 18, the digital currency process of Bitcoin also officially broke the ice. On September 23, Beijing time, a US company obtained the first digital currency license from the New York State regulator, which means that the company will be able to provide digital currency services in New York State with a license.

     Bitcoin has always remained in the niche investment stage, but after the United States included Bitcoin as a commodity, institutional investors appeared for the first time - an American ETF management company purchased Bitcoin assets for the first time.

     Zhang Jie, chief economist of Quantum Leap Capital, told the China Times that Bitcoin and other electronic currencies are actually M5, which are financial derivatives like M4. "The modern concept of currency is payment medium and credit certificate. The difference is the liquidity of M0-M5. The United States now gives Bitcoin the dual attributes of commodities and electronic currencies."

Legalization of Bitcoin

     Li Yu, a Chinese Bitcoin player, has been a little excited recently. The price of his Bitcoin has been rising due to the recent favorable policies. On September 18, the U.S. Commodity Futures Trading Commission (CFTC) announced that Bitcoin will be officially classified as a commodity, which means that Bitcoin is now classified as a commodity like gold and oil, and trading behavior will be subject to all commodity derivatives market rules. This move shows that the U.S. government has recognized the value of Bitcoin. The U.S. Bitcoin market has entered an active period. A U.S. ETF management company has purchased Bitcoin assets for the first time. This is the world's first ETF that owns Bitcoin assets in some form.

     The latest good news is the digital currency certificate. The American company Circl that obtained the digital currency certificate this time is supported by Goldman Sachs Group . The first digital currency license the company obtained from New York State regulators was developed based on the first set of US government guidelines. It targets companies operating in the field of virtual currencies such as Bitcoin, and aims to provide protection for consumers, prevent money laundering activities and improve network security.

     Previously, the U.S. Joint Conference of State Bank Supervisors released the final version of the regulatory model framework for electronic money, proposing to advance the process of regulating electronic money economic activities, including third-party trading companies.

     At present, in addition to New York State, Circle has or is seeking to obtain licenses in other states in the United States. Circle uses Bitcoin's "blockchain" technology to allow consumers to transfer money. "We see ourselves as a consumer financial company and see Bitcoin as a technology that has the power to move money."

     Blockchain is an important technology of Bitcoin. It is a string of data blocks generated by cryptographic methods. Each data block contains information about all Bitcoin network transactions in the past ten minutes. It is used to verify the validity of the information (anti-counterfeiting) and generate the next block.

     Financial writer and Bitcoin researcher Xiao Lei told the China Times reporter that blockchain is equivalent to decentralized technology. For example, stocks are issued by companies and currency is issued by the central bank, but blockchain does not require a center or endorsement. The technology has good confidentiality and is difficult to forge. This technology can be used for currency issuance.

     It is reported that nine major banks, including Barclays Bank and Goldman Sachs Group, are considering using blockchain technology to record the movement of virtual currencies and enhance the security of Bitcoin. In addition, the Russian Central Bank has begun researching Bitcoin blockchain technology.

M5 is born

     At present, neither banks nor official institutions in China have made any statement on Bitcoin.

     China's policy on Bitcoin dates back to December 2013, when five ministries jointly issued a risk warning document, officially stating that Bitcoin cannot exist as a currency, but trading is legal and people can buy and sell it freely. After a more than 100-fold surge in 2013, Bitcoin plummeted by more than 70% in 2014.

     Xiao Lei believes that it is precisely because of China's strict regulatory policy on Bitcoin that the development of Bitcoin has entered a trough, especially the strict third-party payment, which has reduced the transaction volume of Bitcoin.

     "When Bitcoin was hot in 2013, I wrote a book predicting that the United States would take measures to make Bitcoin a subsidiary of the dollar." Xiao Lei said that the greater the trading volume of Bitcoin, the greater the expansion capacity of the dollar and the more flexible the dollar reservoir. The United States has been looking for a new target for the dollar, and the dollar can gain pricing power from Bitcoin transactions, similar to the petrodollar.

     The petrodollar is derived from the fact that most oil in the international market is priced and settled in US dollars. The United States has gained the right to speak on prices through the petrodollar. The United States is currently including Bitcoin in commodities on the one hand, and making Bitcoin payments legal in the form of electronic currency on the other.

     In Xiao Lei's view, the United States' inclusion of Bitcoin in large-scale transactions denies Bitcoin's monetary attributes, which is mainly to prevent Bitcoin from taking over the position of the US dollar. "But Bitcoin's two identities are not in conflict, just like gold is decoupled from the US dollar but all countries reserve it, and gold is widely used in international payments and debt repayments."

     At present, countries around the world measure money supply in terms of M, where M0 is cash (currency) and M1 is M0 + commercial bank demand deposits; broad money (M2) = M1 + savings deposits, and M3 = M2 + other short-term liquid assets.

     "M4 is equal to M3 plus financial derivatives such as CDs, and M5 is electronic currency represented by Bitcoin." Zhang Jie said that M2 is often mentioned to be over one trillion. In fact, the US broad money M2 is less than China's, but because its financial derivatives market can replace the liquidity of currency, if the derivatives market is calculated, the US super broad money M3, M4, and M5 are much more than China's currency, which is almost an astronomical figure.

     "Because there are differences in the concept of currency, this difference leads to the fact that we deal with the excessive liquidity by raising interest rates, while the West responds by lowering interest rates," said Zhang Jie.

     Xiao Lei believes that as countries around the world pay more attention to Bitcoin, a number of startups will emerge. "Although Bitcoin is not a mainstream financial product, it will carve out a piece of the financial pie, which is something that regulators and entrepreneurs need to think about."