What Can Investors Expect from Bitcoin?

Finance

  • Author Maxwell Sumba
  • Published July 27, 2022
  • Word count 948

Bitcoin's future has become a topical issue of deliberation recently. From its ever-high price of about $ 69,000, the first-generation coin has fallen more than 70 percent. Trying to regain its lost footing, it has even traded for less than $ 18,000 as of June 2022. Through the mayhem, there have been mixed reactions from all corners of the world.

The Vision of Bitcoin

Satoshi Nakamoto’s idea of a decentralized currency is what bore Bitcoin that has joined many other technologies causing disruption. Although it was seen as an unrealistic goal more than a decade ago has gained the interests of many including giant investors. Behind the scenes of what we see about this cryptocurrency, is a complicated technology of decoding information that was created to frustrate the efforts of fraudsters. Even with that technology, Bitcoin is yet to achieve its objective with a myriad of challenges surrounding it. It has been marked by wild price swings, missteps, and scandals.

Events Centering Bitcoin’s Vision

Issues relating to what could be termed as security were rampant in the recent past. In the United States, for instance, two individuals were arrested in February 2022 for the allegation of conspiracy to launder cryptocurrency valued at $4.5 billion in 2016. During the arrest, Deputy Attorney General Lisa O. Monaco mentioned that it was the most significant financial seizure ever and that cryptocurrency is not a haven for criminals.

In addition to the scandals, the process of getting this asset has recently hit headlines creating some questions and suspicion on environmental ramifications. An estimate by the University of Cambridge points out that annual energy generation by Bitcoin alone is 132.48 terawatt-hours (TWh). With such energy, the emission of carbon dioxide is relatively high. Although the last mining was done in 2020, proof of work takes place, and it takes a lot of energy thus affecting the environment because of huge carbon dioxide released.

As a result of the above matters relating to Bitcoin, the asset started trading in the red and it has been quite a long being in this unfavorable level of price. Looking back at the price dynamics of Bitcoin is very amazing. As of 2011, its price was merely about $1, and it positively changed, rising to $69,000 in late 2021 before it went down again to about $ 17,000 (as of 18th June 2022). Along the way, there were ups and downs in how prices moved, and it seemed to have no stable position. The ever-reducing prices have sent some fear to trading platforms like Binance halting and blocking the withdrawal of Bitcoins. Although CEO said in a tweet that the temporary pause was a result of a transaction that was stuck causing a backlog that would be fixed in a few minutes, it sent fear to investors and those ambitious equally.

Looking at how these prices have changed, raises the question, who controls the price given it is not centralized? Since economic policies do not apply to Bitcoin compared to fiat currencies, demand and supply, and the cost of mining becomes the only forces behind these changes. 2020 Being the year in which the last mining was done, other factors led to a decrease in demand. Such aspects as covid-19 created economic crisis across the globe, general inflation, and Russia's invasion of Ukraine are among the key issues that deepened the already struggling market price of Bitcoin.

Although decentralization was a key objective in creating these assets, a point was recently raised that whales (those who own a lot of bitcoins) are the ones controlling the prices. If that is true, then how are they benefiting from low prices? Of course, any investor aims to reap the most in any investment. If there is no benefit now, are they planning for something that some players in the industry do not know? Or they have already executed their thing and what is seen is the smoke?

What Follows?

Small investors who rushed into the bitcoin market have been the power behind the boom in the market clinging to the hope of profiting within a short time. But with crashes, the sector has been seen as risk sending holders to cash out. A writer of the Financial Times Long view column, Katie Martin commented that bitcoin is the most speculative on the planet of all time.

With the turn of events and amid extreme fear zone trading, there is a possibility that there will be recovery, but it won’t be immediate. With regulators promising to be “unrelentingly hard”, it becomes cloudy on how any future rules will work practically. However, there is abundant evidence of joined-up thinking, and if regulators succeed in setting rules, the crypto industry will gain more trust and eventually deliver some stability.

Although this view of recovery is possible, one is tempted to take China’s perspective. Here, a newspaper-run purview of the Chinese Communist Party published an article warning against Bitcoin investments. There is a belief that the price would be heading to zero; therefore, investors are warned against parking money in Bitcoin. It is further read that bitcoin is nothing more than a string of codes and its returns are a result of buying low and selling high. According to this article, once the confidence of investors is lost or sovereign countries illegalize Bitcoin, it will go back to its original value which is almost worthless.

The two views place one in a dilemma situation not knowing what exactly will happen. Not even a single professional can predict with clarity this future. It is mere guesswork based on some historic information and data. Most importantly is to understand that Bitcoin is majorly influenced by such things as celebrity's comments, government decisions, and activists’ reactions towards certain phenomena relating to Bitcoin.

Maxwell Sumba is a business strategist/ Accountant/ passionate writer on business matters and Cryptos

Article source: https://articlebiz.com
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