Several factors pose long-term threat to bitcoin‘s price: Study
Several factors pose a long-term threat to the price of bitcoin and other cryptocurrencies, according to Canada-based global investment research firm BCA Research, Bloomberg reported on Monday.
The energy-intensive nature of bitcoin mining and potential regulatory hurdles could hamper bitcoin’s progress to the point where the cryptocurrency could end up “losing most its value over time,” BCA Research said in a report.
BCA Research’s chief market strategist, Peter Berezin, wrote in the report that the expense and slowness of bitcoin transactions make it “unsuitable as a medium of exchange,” further warning that environmental, social, and governance-focused (ESG) funds are likely to shun companies associated with the top cryptocurrency.
According to Cambridge Bitcoin Electricity Consumption Index, bitcoin’s annualized electricity consumption now equals Argentina’s annual carbon footprint.
The risk for today’s bitcoin buyers, is that the price retreats when this crisis passes and fiscal tightening returns.
Modern fiat or central bank money largely serves three purposes; of liquidity, as a store of value, and as a stable unit of account. Bitcoin cannot replace the need for liquidity in the event of a crisis like a war that requires a government-backed response, and the price volatility rules it out as a unit of account.
China shut down its local cryptocurrency exchanges in 2017, smothering a speculative market that had accounted for 90% of global bitcoin trading.
Bitcoin and other cryptocurrency prices tumbled last month after a sharp warning from US Treasury Secretary Janet Yellen that bitcoin was “extremely inefficient” and a “highly speculative asset."
Bitcoin’s high volatility, critics say, is among reasons that it has so far failed to gain widespread traction as a means of payment - an expectation that has in part fuelled its rally.
Most Islamic scholars believe that using bitcoin and other cryptocurrencies as money is unacceptable since digital currencies lack intrinsic value and there is a high risk involved in their trading.
Other reasons Islamic experts cite for invalidating cryptocurrencies is that these currencies lack real ownership and are not backed by any governments.
Research shows that cryptocurrency is hugely volatile and has limits to being called ‘money,’ as it is limited and used for speculation, which is prohibited in Islam.