Bitcoin, which rushed all the way, was bloodbathed after a word from the US Treasury Secretary Yellen, plummeting 16%. Strong speculation, high risk, active illegal transactions… Yellen hit the nail on the head. This is not surprising. After all, there is a calm voice that accompanies the sharp rise. The soaring U.S. bond yield has made risky assets nowhere to escape. Even Tesla CEO Musk, who has always been singing multiple bitcoins, has begun to doubt Up. Of course, Yellen not only hit Bitcoin’s pain points, but corporate taxes are also coming.
“Highly Speculative Assets”
Bitcoin frightened all night. On the evening of February 22, the price of Bitcoin, which was approaching 60,000 US dollars, suddenly fell sharply. 10 minutes before the opening of U.S. stocks on Monday, Bitcoin fell more than 3,000 US dollars within 5 minutes, and quickly fell to 48,000 after falling below the 50,000 US dollar mark. Below the US dollar, it fell more than 17% within 24 hours, and fell to 47,668 US dollars that night.
By the 23rd, the decline continued. In the afternoon of the same day, the price of Bitcoin broke down through $45,000 and then rebounded in shock. As of 20 o’clock on the 23rd, Beijing time, the price of Bitcoin was reported at $45,900, a drop of over 16% within 24 hours. In addition, within 24 hours, a total of 29.9 billion yuan in digital currency contracts were liquidated, involving more than 490,000 people.
Yellen may have “contributed to this round of Bitcoin’s crash.” On February 22, local time, Yellen participated in an online event organized by the New York Times and mentioned his views on US debt, Bitcoin and corporate taxes.
Regarding Bitcoin, Yellen bluntly stated that using Bitcoin for transactions is an “extremely inefficient way” and the energy consumed to process these transactions is staggering. Bitcoin is often used for illegal financing and is inefficient. Bitcoin still has major problems in terms of legality and stability. Therefore, Yellen does not believe that Bitcoin can be widely used as a transaction mechanism.
“Bitcoin is still a highly speculative asset. Digital currency may bring a faster and cheaper payment experience, but there are many issues that need to be studied, including consumer protection and anti-money laundering,” Yellen said.
Before the flash crash that day, after a period of rapid rise in Bitcoin, the price has reached unprecedented heights. The data shows that since the beginning of this year, the price of Bitcoin has risen by 86.96%, and the increase in the past year is as high as 446.36%. The highest point on February 21st reached 57492.9 US dollars.
It is not uncommon for Bitcoin prices to rise and fall sharply. In 2017, in the second bull market of Bitcoin, its price once climbed to nearly $20,000, but in the second year after that, its price dropped by 80%.
Before Yellen, Musk, who has always been a loyal supporter, also had doubts about the rapid rise of Bitcoin. On the day when the price rose by more than US$57,000, Musk said on Twitter, “Currency is just data, which saves us from the inconvenience of bartering. This data, like all data, has delays and errors. So, Bitcoin and Ethereum seem to be really high.”
It seems that Bitcoin’s strangulation is not surprising when the big guys expressed their opinions. After all, the former represents the US regulators, while the latter implies the current institutional investment attitudes. Nikolaos Panigirtzoglou, a strategist at JPMorgan Chase, also said recently that Bitcoin has risen about twice in the past three months, but the liquidity of the Bitcoin market has deteriorated.
The possibility of a digital dollar
“Needless to say, new investors in Bitcoin should be prepared for large fluctuations. The price may plummet, just like the previous surge.” Markets.com chief analyst Neil Wilson said.
Liu Xiangdong, deputy director of the Economic Research Department of the China International Economic Exchange Center, analyzed that risk assets such as Bitcoin, if there is no supervision, there will definitely be some speculation. Now that this form of currency already exists, then for the US government, The question is how to get it into the formal regulatory framework.
Liu Xiangdong further stated, “It is impossible for countries to allow another set of currency systems besides fiat currencies, which will reduce the status and credit of fiat currencies. Now Yellen’s statement may also imply that the government will prevent excessive Bitcoin speculation and market manipulation in the future. , Leading cryptocurrency in a more formalized direction.”
Indeed, even if prices soar all the way, Bitcoin still looks like a scourge in the eyes of regulators in various countries. Similar to Yellen’s attitude, European Central Bank President Christina Lagarde is also pessimistic about Bitcoin.
On February 10, Lagarde stated that he did not consider Bitcoin to be a real currency, and central banks would not soon hold it as a reserve currency. Earlier in January, she also called for more regulation of cryptocurrencies, saying that Bitcoin has been used in some “interesting businesses” including money laundering.
In fact, although Bitcoin has been bombarded, countries are somewhat relaxed when it comes to digital currencies. Lagarde has stated that he hopes to make the digital euro a reality within five years.
Compared with Europe, Japan has long been ready to move. The three major commercial banks and more than 30 companies have jointly established a digital currency research group. The Bank of Japan plans to start digital currency empirical experiments in the spring of 2021. In South Korea, the governor of the central bank, Li Juyeol, also stated that the central bank’s digital currency will build a testing system in a virtual environment according to the established plan and carry out related testing.
In this conversation, Yellen pointed out that the digital dollar issued by the Federal Reserve may help solve the obstacles to the realization of inclusive finance for low-income families in the United States. “Too many Americans do not have convenient payment systems and bank accounts. I think digital dollars It will help in this regard. This may lead to faster, safer and cheaper payments, which I think is an important goal.”
However, just like the concerns about Bitcoin, Yellen also added that there are “many things to consider” before the possible launch of a digital dollar, such as how regulators will “manage money laundering and illegal financing” and how digital dollar The influence of banks and the Federal Reserve is questionable.
Gradual increase in corporate tax
In this statement, Bitcoin is the focus, but in addition to Bitcoin, Yellen, as the US Treasury Secretary, also revealed some future fiscal policy trends.
For example, the high-profile corporate tax issue. Yellen said that President Biden hopes to increase the corporate tax from 21% to 28% to support the long-term economic reconstruction plan and ensure debt sustainability. In addition, Yellen also said that raising the capital gains tax is “worthy of consideration”. The impact of the financial transaction tax on ordinary investors will be carefully studied, but the wealth tax will be avoided at the same time.
“In fact, regarding the increase in corporate tax, in July last year, the Democratic Party’s program expressed its will.” Yang Shuiqing, an assistant researcher at the Institute of American Studies of the Chinese Academy of Social Sciences, analyzed that the Trump administration had previously reduced corporate tax from 35% to 21%. At the hearing on January 19 this year, Yellen said that tax increases will not be raised until the economy has fully recovered. At that time, the market speculated that tax increases may not be raised before 2022. But by last week, the direction of the wind has changed. Yellen’s statement is that any tax increases the government seeks to help pay for the huge expenditures will be implemented gradually, or introduced later in 2021.
Yang Shuiqing pointed out that the scope of corporate tax collection is relatively large, except for some special industries that may be reduced or exempted. The current change in Yellen’s attitude must have something to do with the tight US finances. In order to recover the economy, the Biden administration requires money for many projects, and unlimited printing of money is also impossible.
In Yang Shuiqing’s view, in addition to raising corporate tax, the US government may also make a fuss about capital gains tax. Now this tax is below 20%, and it is not ruled out that it may be increased to a level that matches corporate tax in the future.
It is true that debt is an issue that cannot be ignored for the United States at present, but the $1.9 trillion stimulus plan is also on the line and must be issued. Liu Xiangdong pointed out that the Democratic Party has always advocated government actions, but all expenditures require money, but in the context of quantitative easing, the current debt scale of the United States is very high, so tax increases are a very likely choice.
However, while advocating tax increases on the one hand, on the other hand, even with high debt, Yellen did not give up the possibility of continuing to launch an economic stimulus plan. Yellen said that in the current low interest rate environment, the debt-to-GDP ratio, a traditional indicator of debt assessment, is no longer important. The more important indicator is the federal debt interest-to-GDP ratio, which is currently about 2%, not higher than 2007 level. Yellen said that the cost of debt can be partially recovered through stronger economic growth.
According to Yang Shuiqing’s analysis, the current U.S. debt to GDP ratio is about 120%. There is a view in the market that as long as fiscal revenue can pay the interest on debt, it can continue to expand. The current U.S. actual interest rate is negative, so the interest generated is Very few, so you can gradually increase tax to make up for fiscal revenue. Of course, whether or not to increase taxes still has to wait for economic recovery. Compared with the growth rate of economic recovery, Yellen’s speech is more about employment indicators. If the level before the epidemic is achieved, tax increases may be promoted.
Author/ Translator: Jamie Kim
Bio: Jamie Kim is a technology journalist. Raised in Hong Kong and always vocal at heart. She aims to share her expertise with the readers at blockreview.net. Kim is a Bitcoin maximalist who believes with unwavering conviction that Bitcoin is the only cryptocurrency – in fact, currency – worth caring about.