Crypto Global

Will Bitcoin remain the most mobile asset capital in the world?

Mar 30, 2021

In February of this year, Tesla announced it had bought 1.5 billion worth of Bitcoin. And since last week it has been known that customers can use the cryptocurrency Bitcoin to pay for electric cars. Elon Musk, CEO of Tesla, emphasized that bitcoins paid to Tesla will remain in bitcoin and will not be converted into fiat currency.

In the meantime, however, the Indian government is considering banning cryptocurrency trading, mining, and such investments in the country. Now billionaire Ray Dalio says it is "very likely" that the US will ban Bitcoin altogether - just as it once banned gold under the Gold Reserve Act of 1934, which made it illegal for individuals to own gold at the time because governments did not want gold to compete with money or credit as an investment. In this newsletter we would like to deal with this extensive topic and show what Bitcoin actually represents and what a ban on Bitcoin would mean.

The first thing we need to ask is how a country can really ban decentralized and peer-to-peer currency. We know that there is no centralized authority. Bitcoin exists as a data set in a decentralized ledger where anyone can send Bitcoin as long as both parties have an internet connection. Every aspect of Bitcoin is decentralized, which is why running nodes and self-control of private keys is central to Bitcoin. The more keys and computing nodes there are, the more decentralized Bitcoin becomes and the more immune Bitcoin is to attacks. It is almost impossible to forbid this. For example, although China banned Bitcoin trading in 2017, the community of Chinese crypto traders and users is bigger than ever. China even became the epicenter for some of the most famous crypto exchanges, crypto venture capital firms and of course miners and mining pools. Over 60 percent of the world's hash rate comes from miners based in China. So if China cannot use all of its methods and tools to effectively contain crypto trading, one can be pretty sure that other countries like India or even the US will have a hard time. A ban on Bitcoin in countries like the USA, India or Nigeria can be similar to the ban in China in 2017: The central banks of these governments prohibit banks from trading crypto exchanges and other companies that are a bridge between fiat and crypto. However, this ban merely shifts crypto trading from the centralized crypto exchanges to decentralized exchanges. Every time a country has taken measures to restrict the use of Bitcoin so far, it has created the unintended effect of encouraging the adoption of Bitcoin.

These governments now understand that just because it will be more difficult for investors to buy or sell Bitcoin in one country does not mean that it cannot be exchanged for a foreign currency in any other way. Countries like Switzerland, which create regulatory security and least restrict the use of Bitcoin, benefit significantly from crypto-related capital inflows.

We believe that a Bitcoin ban can have little effect on price. Bitcoin is a rare asset for everyone. Anyone who has come to appreciate Bitcoin over the years knows how valuable it is to keep an asset safe on a simple piece of paper, and how impossible it is for governments to seize it. Investors just want to use it to maintain their long-term wealth. Because of this, investors will not want to sell their bitcoins.