At first, Bitcoin was supposed to be an instrument of exchange.
Then, it was thought to serve as an inflation hedge as a kind of digital gold.
However, as the massive cryptocurrency market crash of the past three months began to unfold, it appeared more straightforward: an insufficient tech stock.
Digital currencies, overall, have been in decline recently. Even though it has risen slightly over the weekend, Bitcoin has lost about 45 percent of its value since November as other cryptocurrency assets, like Ether, are down more. Since the collapse, the entire cryptocurrency market has lost over $1.3 trillion, roughly the amount of all federal student loans.
The thumping, long-lasting crash serves as a reminder of the reasons Bitcoin hasn’t been a success as a standard currency despite the enormous resources devoted to trying to get it to catch on. Most reliable coins have relatively stable values. It’s significant when they move up or down by 10 percent. U.S. dollar goes upwards or downwards by 10. Bitcoin is not the case. Bitcoin can drive this much in an hour due to the vast amount of speculation around the currency, making it an unreliable medium of storage or exchange. Investors tend to take this volatility for granted in the present. “Long downturns like this are normal with crypto,” the CEO of a crypto tech firm that works with asset managers said to CNBC. “Folks should know that going in.” This could be a good idea; however, it is ridicule of the notion that cryptocurrency will ever be able to replace euros or dollars.
However, this hasn’t only undermined the argument that Bitcoin could be a viable cryptocurrency (which was a little doubtful for quite a while). It’s also destroying one of the main arguments that support Bitcoin and another cryptocurrency for investment purposes. Since Bitcoin’s supply Bitcoin is technically limited, and no central bank can print more, it’s been touted for a long time as a safe spot where investors can put their money in if they are concerned about inflation. It’s a kind of gold without the hassle and expense of storing an entire load of shiny metal. It’s been a significant aspect of its appeal to hard-money libertarians who don’t trust their faith in the Federal Reserve.
The notion that Bitcoin could act as an inflation hedge was plausible during the first half of 2021. When prices for consumer goods were rising, cryptocurrency prices went up. However, now? Even though inflation is still in the air, it’s not so great as Bitcoin and its kin decline. “You’d think with the inflation we’re seeing, you’d see the contrary,” Bob Fitzsimmons, the executive vice president of fixed income, commodities, and credit to stocks in Wedbush Securities, told the Washington Post recently. “That’s been one of many offering points for Bitcoin.” Contrary to that, the cost of real gold, the most enduring, most effective hedge against inflation, has remained relatively stable over the last few months and is rising little in the previous 60 days.
Instead of being a currency hedge against inflation, Bitcoin is being viewed as something different: it’s a tech company. Over time, its performance has been increasingly correlated with the NASDAQ index. (Its correlation to gold is virtually nonexistent.)
Investors, as a result, were betting on Bitcoin as a way to bet on the tech bubble, which has happened plenty in recent years. Recently investors have been moving away from stocks and other risky assets to prepare for a Federal Reserve raising interest rates soon to curb inflation. In the process, they’re also dumping crypto. (It does not help because Russia’s central banking institution has made public plans to prohibit crypto, just like China already has.) There’s an irony in this: Bitcoin’s ideological origins lie in the need to develop a type of money that is entirely unaffected by central bank intervention. In the end, just like all other assets, its value is tumbling to the tune of Jerome Powell. You’ll never be able to avoid the influence of Jerome Powell’s Fed.
This brings up a crucial question about Bitcoin what precisely is it meant to serve? It is not necessary to invest in tech stocks. It’s possible to … place bets on tech stocks for this. Contrary to other bitcoin-related brethren, such as Ether, which is the token that powers that Ethereum network does not provide the foundation for payment via a blockchain capable of serving as a platform for high-end financial solutions. One possible reason is that crime is a factor–crypto is the preferred method of payment used by hackers to carry out ransomware-related attacks, but that doesn’t suggest that bitcoin will be a good investment for the future. What does it serve if it’s not an actual currency, it’s not an alternative to gold, and isn’t a suitable method for diversifying your investment portfolio? From what I’m aware, it’s not anything aside from purchasing medicines on the internet.