The widespread adoption of Bitcoin among the masses has made it part of the global economic system. While the number of Bitcoin users continue to grow, there is still a lack of clarity about the cryptocurrency’s status in the financial system. Countries like Japan have already assigned a legal position to Bitcoin as a currency, and there are others that are mulling regulations to bring the digital currency within the purview of the country’s legal structure.
By design Bitcoin shares similarities with different financial instruments. The cryptocurrency can be classified as both money and asset. However, many governments fear that by calling the virtual currency money, they will be undermining the country’s monetary system. At the same time, they can’t simply ignore Bitcoin either, thereby forcing them to call it an asset instead of money.
A recent comment by one of the advisers at the People’s Bank of China perfectly matches the observation. In an interview Sheng Songcheng mentioned,
“Bitcoin does not have the strong fundamental attributes needed to be a currency as it is a string of code generated by complex algorithms… But I do not deny that virtual currencies have technical value and are a type of asset.”
Sheng went on to further explain the reason behind it by stating that the finite supply of Bitcoin, set to be fulfilled by the year 2140 will create a mismatch between the economic needs of the future and the actual capabilities of the cryptocurrency.
However, Sheng accepts the superiority of the cryptocurrencies over traditional currencies, thanks to their qualities. He believes that a cryptocurrency with more government control over it might be the next step towards creating the future monetary system that is more consistent with the evolving needs.
Currently, Bitcoin holds the status of a virtual good, similar to game tokens, downloadable content, etc. However, new regulations in the near future might soon change it.by