Bitcoin was created in the aftermath of the 2008 financial crisis in 2009. A technological marvel aimed at avoiding the entire banking system. A novel way to challenge fiat currencies as well as government regulation, centralization, and control.
However, its design is fundamentally flawed; with an artificially imposed cap, the supply of Bitcoins is permanently fixed at 21 million, which is an economically illogical design. An economy requires as much money as it does transactions and activities.
So, if a large number of people want to start paying through the Bitcoin network, the value of Bitcoins will need to rise or, at the very least, remain high to accommodate such demand.
Why Bitcoin Will Fail?
Bitcoin will always be remembered as the first cryptocurrency, but being the first does not guarantee longevity.
Netscape Navigator was the first web browser, but it faded into obscurity as newer, better, more functional alternatives like Internet Explorer rendered the original obsolete.
There are numerous reasons to believe that Bitcoin is on its way out in the same manner.
Here are the top five reasons why Bitcoin will fail. I’m not predicting that cryptocurrencies will fail for sure. In fact, it is self-evident that the future of currencies is digital, and crypto is simply one method of operating a digital currency.
Investment in Bitcoin Is Not an Investment in Blockchain Technology
Stablecoins are cryptocurrencies that are backed by real assets (such as the US dollar) and use cutting-edge blockchain technology. These coins are far more suitable for use as currencies because they fluctuate only as much as their underlying assets. So, once again, no one is buying bitcoin because of its blockchain technology because there are better alternatives.
Blockchain technology, according to PricewaterhouseCoopers, is poised to revolutionize the auto industry by managing fractional ownership of self-driving vehicles. It has the potential to streamline the financial industry by significantly lowering transaction costs. Blockchain technology may also make voting more accessible and secure, as well as improve secure data sharing in the healthcare field.
Bitcoin is not a viable Currency
Bitcoin’s breakthrough year was 2017, when it broke through the $1,000 barrier for the first time that January. It was the beginning of an incredible bull run that saw its price double to $2,000 by May. Bitcoin had risen to $19,000 by the end of the year.
While the mainstreaming of the world’s first cryptocurrency helped to calm things down, Bitcoin remains an untamed beast. On August 15, Kate Waltman, a CPA specializing in cryptocurrency, told Time NextAdvisor that many experts predict Bitcoin will reach $100,000 by 2022.
Whether or not that’s true, given Bitcoin’s history of quick, wild gains, it’s certainly possible — and that possibility is precisely what makes Bitcoin an unrealistic currency. After all, who on Earth would pay $5 for a latte when the same amount of cryptocurrency could be worth $50 a few days later? If a $20 bill could buy a pizza one day and a steak and lobster dinner the next, it would be too volatile to be a useful medium of exchange, much like Bitcoin.
Bitcoin is a utopian dream
Why are prominent people investing in bitcoin when it has so many flaws? Some bitcoin supporters envision a future in which currencies are completely decentralized and not controlled by governments. Based on the foregoing, I am not optimistic about the future.
The massive amount of liquidity in the markets right now, as a result of many government’s monetary and fiscal policies to combat covid, is a major reason for bitcoin’s rise in value. This cannot be sustained in the long run.
Whatever advantages bitcoin may have over fiat money, such as transaction speed, will be lost when fiat money becomes fully digital.
Bitcoin has no intrinsic value
Stocks are valuable because they represent ownership of a business. Commodities have value because they are raw materials used in the manufacture of goods.
However, “Bitcoin investors appear to be relying on the greater fool theory — all you need to profit from an investment is to find someone willing to buy the asset at an even higher price,” according to Brookings.
In a nutshell, Bitcoin has no intrinsic value; it is valuable because people have decided to value it.
Proponents of Bitcoin argue that the same could be said for the paper rectangles emblazoned with images of deceased presidents that we keep in our wallets. After all, money, like Bitcoin, is a construct. They argue that since the dollar was decoupled from the gold standard, the only real value of fiat currency is that society agrees it is valuable.
Bitcoin is incapable of competing with fiat currencies
Bitcoin is completely incapable of competing with well-established fiat currencies, owing to its owners’ preference to hoard rather than spend, and this is the primary reason why its value has skyrocketed in recent months. Unfortunately, it will never be a currency until goods are valued in Bitcoin directly rather than in other currencies. Even if its adoption was required, Bitcoin’s path to mainstream usage is fraught with legal, regulatory, and cultural stumbling blocks.
Bitcoin is not a currency, but rather more of a commodity. It’s a digital one. Consider it the digital equivalent of gold, but without the intrinsic value of the latter. Bitcoin has all of the characteristics of a commodity because it is scarce, portable, secure, and long-lasting, but it has serious flaws.
Bitcoin is typically followed by “a lot of excitement” and “a lot of volatility.” The ideal combination of an impending economic disaster. The market cannot always produce optimal outcomes and profits for everyone; that is not what capitalism is all about.
The craze will eventually fade, and, as we’ve seen in the past, panic will set in. Only those looking for speculative gains will try to cash out and reap their profits; those who thought they were on their way to becoming millionaires will, unfortunately, suffer the terrible consequences of the bubble burst.
Bitcoin has all of the characteristics of a bubble. It’s volatile, speculative, volatile, complicated, and far too euphoric right now.
We are just in front of another frothy bubble that will inevitably and spectacularly crash someday in the near future; all we have to do is wait.