Diversifying assets confers the power to resist control in an emergency… The U.S. judged that regulation at the government level would have no effect

Citibank stated in a recent report that bitcoin has arrived at a tipping point. It forecast that either large corporations will adopt it and it will be used for international settlement, or it may rupture. A warning that the bitcoin price could collapse is nothing new, so the emphasis of this outlook falls on going mainstream. Around the same time, Goldman Sachs announced it would reopen its bitcoin trading desk. The investment bank opened a cryptocurrency trading desk in 2018 but closed it when the market slumped.

Meanwhile, the bitcoin price swung sharply on Tesla's disclosure of its bitcoin investment, followed by Treasury Secretary Janet Yellen's criticism of bitcoin. For an investor to navigate this confusing situation, one must understand Tesla's underlying motive for buying bitcoin in connection with "bitcoin as it actually exists." Was it, as Tesla CEO Elon Musk playfully said, to let customers use bitcoin to buy Tesla cars? Or was it, as New York University professor Nouriel Roubini and several media outlets angrily charged, to drive up the price and reap an improper profit? Bitcoin that the government cannot take away To understand CEO Musk, you have to put yourself in his position and ask. Suppose you hold assets worth more than 100 billion won in a foreign country. To be at ease, you would need to be able to move those assets urgently back to your home country in case that country's political and economic situation deteriorates in the future.

A factory or machinery is certainly a valuable real asset, but it cannot be moved. Deposits entrusted to the financial sector can be frozen by the bank. The options one can think of for an asset that is both physical and movable would be bundles of dollars or expensive jewels. But can they get through a border checkpoint or an airport security screening? With more than 100 billion won, is it really possible?

Bitcoin as it actually exists meets these conditions. Bitcoin has no weight and cannot be frozen by the financial sector. The reason it does not need to get out across a border is that bitcoin does not even possess the concept of a border. Anywhere on earth, enter your private key and you can move it as you will. Bitcoin as it actually exists is also large enough in scale to hold assets worth more than 100 billion won.

Even absent a coup or a crisis, multinational corporations like Tesla that must withdraw profits earned in China out of China are subject to the Chinese government's capital controls. If you routinely diversify a portion of your assets into bitcoin, you gain the power to resist such controls.

This is a logic that does not resonate with most people, who have never had the happy problem of holding staggering assets spread across several countries. But bitcoin is not needed only by the wealthy. Cathie Wood, CEO of ARK Invest, defined bitcoin as an asset the government cannot take away. According to her, there are two ways a government takes away its citizens' assets. One is inflation. The other is simply to seize it. It is no exaggeration to say that bitcoin was invented with the destiny of becoming a lifeline of hope for the people of nations where the rule of law has collapsed and chaos has taken hold.

These properties of bitcoin are nothing new. They have been there ever since bitcoin's market price passed one dollar and became meaningful. That is why it is worth taking the trouble to attach the modifier "as it actually exists." People turn away from the bitcoin that exists in reality and posit instead some other bitcoin that might disappear. It is because of that averted gaze that they fail to recognize bitcoin's value and miss the opportunity again and again.

Bitcoin as it actually exists is traded 24 hours a day against the world's major currencies and is worth more than 50 million won. What CEO Musk poured 1.7 trillion won into is precisely this bitcoin as it actually exists. Yet the skeptics have spent the past ten years shouting that this reality is a temporary delusion. It is true that if it were an asset whose price disappears, then no matter how well it can cross borders it would be useless. But that has not happened yet, and bitcoin as it actually exists does, in any case, possess that capability. The effect of China's decoupling on bitcoin The skeptics' remaining hope is that the U.S. Treasury or the central bank (the Fed) will ban bitcoin for them. In fact, merely declaring it would be enough. A declaration alone would crash the price, put Tesla at risk, and set off a chain reaction driving the individuals and companies that invested in bitcoin toward crisis. From then on, no company or wealthy individual in their right mind would ever go near bitcoin again.

Of course, if the U.S. government declared that it would regulate bitcoin, the price would crash immediately afterward and the market would contract. But the important point is that, regardless of the U.S. government's choice, bitcoin will not disappear. Even if the price crashes, it will not converge to zero as the skeptics hope. If it were going to, the U.S. government would have stepped in earlier. It is reasonable to conclude that the reason the U.S. government did not outlaw bitcoin early on is that it not only lacked suitable means to carry it out, but also judged that doing so would have no practical effect.

If the logic that "there is no way the U.S. government would tolerate the rise of a bitcoin that threatens dollar hegemony" were truly persuasive, then one has to ask oneself why the United States did not crush bitcoin early, when it was weak.

The U.S. government has been examining bitcoin for a long time. In 2013, when Silk Road — called the Amazon of drugs and illegal firearms — became a social problem, U.S. federal prosecutors considered indicting bitcoin. During the 2017 cryptocurrency boom, the chairs of the U.S. Securities and Exchange Commission (SEC) and the U.S. Commodity Futures Trading Commission (CFTC) were summoned before Congress and asked why they had taken no action on bitcoin. The response of the U.S. government and the relevant authorities over the past eight years has been full of noise, but it has consistently leaned toward acceptance. Beginning with the CFTC's approval of bitcoin futures trading in 2017, in 2020 it was expressly stated that U.S. banks may operate bitcoin custody desks for ordinary customers.

In the game of go there is a shape called the ladder. The more you try to escape from the ladder, the more territory you hand over to your opponent. So when you fall into a ladder, the strategic choice is to abandon your attachment and take profit elsewhere. At some point, when bitcoin came to have a meaningful price, it became "bitcoin as it actually exists," and governments fell into the ladder. Half-hearted measures to ban bitcoin have instead imprinted on the public and the market the idea that bitcoin is strong.

The country that has shown a consistently regulatory attitude toward bitcoin is China. China banned bitcoin exchanges outright in 2017, and in 2021 it looks poised to ban mining as well. China's influence on the bitcoin price is steadily shrinking. The perception that decoupling from China actually makes the bitcoin ecosystem healthier has been proved several times over. Had China merely issued threats and not taken extreme measures like shutting down the exchanges, the Chinese government's bluster might still be exerting influence.

If the conventional wisdom is right that bitcoin threatens the dollar's hegemony and that China hopes to see that hegemony weakened, then China should have promoted bitcoin so as to make life difficult for the United States. In other words, the Chinese government's hypersensitive reaction is precisely what reveals the weakness of the logic that infers regulatory action by the U.S. government from a presumed opposition of "dollar versus bitcoin." Looking at the countries that try to ban bitcoin, one may hypothesize that bitcoin is more threatening to nations sensitive to capital outflows than it is to the United States. If so, one can infer that the reason CEO Musk moved toward bitcoin was likewise a search for freedom of capital movement.

Oh Tae-min, author of "Bitcoin Was Strong" and "The Genealogy of Bitcoin Wisdom"