As many have already taken quite a bit of notice of; bitcoin prices absolutely fell this week. With bitcoin being valued at 43.000US dollars at the start of Wednesday to, half a week later, being valued at a mere 33.500US dollars. This, for the most part, due to Elon Musk and remarks he made regarding the dependence of bitcoin miners on fossil fuels, as well as Musk’s Tesla making the decision not to accept bitcoin as a payment option. In response, many on this platform have seemed to view this as a moment for investment in the currency. Titles such as “Why I’m buying bitcoin” and “A lovely second chance for crypto newcomers” are cropping up, and many are deciding to buy, hoping for another increase in the value of bitcoin as seen many times before. I completely understand this. Despite these challenges, bitcoin is likely still able to be quite lucrative in the short term, and considering the low value at the moment, could be a good investment at this point in time.
However, there is an inherent issue with bitcoin which can not be overlooked; especially considering it is at the crossroads of becoming a widely accepted currency. And that is the sheer amount of volatility of the coin.
This might seem weird. In the eyes of many investors, the level of volatility is of course a good thing. It is what allowed huge spikes in bitcoin value to happen, and in turn has allowed many people to earn millions of dollars through trading this currency. Heck, if bitcoin was not as volatile as it is, and did not have the reputation of being a 21st century gate to the upper class it is seen as, bitcoin would have most likely stayed a pet peeve project only used by a few computer geeks instead of being the powerhouse it is slowly becoming.
But this same volatility is causing the idea of bitcoin as a currency to become diluted. The reason many of us invest in bitcoin, after all, is because of the value we see in bitcoin becoming major in the currency market; making transactions easier and cheaper, this without the involvement of institutions, either governmental or non-governmental, controlling its market and potentially incurring large amounts of inflation. What many investors fail to realize though, is that whilst inflation through printing does not happen in bitcoin, it does not solve the root issue of volatility that can cause this same inflation to happen.
Imagine, for instance, the implications that the foreign exchange rates of the currency in the country you live in crashing 20% over the course of half a week would have on your life. Imagine the amounts of inflation on imported goods, especially considering the levels of globalization that has led to many products heavily depending on foreign exchange rates. It has happened before, mind you; Venezuela, Hungary, the Weimar Republic. All examples that are incredibly noteworthy for the disastrous effects on the economy as well as the lives of people. This is, for a large part, why bitcoin is not readily used as a currency as of right now. Whilst the system is there, the market is there, everything is there, it is the sheer level of volatility that is detracting people from genuinely becoming a widely-used currency (apart in markets which may or may not be illicit, of course).
What is left over from this is an impasse. One the one hand, the reason why bitcoin has become so big is because of the current volatility of its price. With people being able to make millions over a day, there are a huge amount of people deciding it would be worth taking the gamble and investing. On the other hand, the intrinsic value of bitcoin is placed in the idea that this could become a genuine currency, and would in fact never even be as known as it is if this was not the case. The impasse lies in the fact it is the same volatility that investors use so greatly that diminishes the intrinsic value of bitcoin.
In the end, what will eventually happen may never be known. As more companies are seemingly taking the gamble to accept bitcoin, and the bitcoin mining difficulty is causing the supply of new bitcoins to lower, the price could start stabilizing, meaning that it will truly have become a major currency. It would detract large amounts of investors, sure, but it will truly fulfill the promises given to bitcoin by its intrinsic value. However, what could also happen is that bitcoin will always be seen as more of an investment than a currency. And as time progresses, and that intrinsic value further dissipates, you could wonder; will there be many investors left?
