Here’s Why Bitcoin Will Fail
Netscape Navigator was the first web browser, yet it passed into history as newer, better, more functional alternatives like Internet Explorer rendered the original an obsolete relic of the past.
There are plenty of reasons to believe that Bitcoin is currently on its way to the same kind of phasing out.
Here’s a look at the top reasons why Bitcoin will fail.
The Idea of Decentralization Has a Dystopian Side
Bitcoin’s early lure was the democratization of currency — since a central bank doesn’t control the blockchain, crypto levels the economic playing field. But as the ongoing inflationary crisis proves, the influence of a central regulatory authority isn’t always a bad thing.
To combat rising prices, the Federal Reserve raised interest rates to counter the dollar’s declining purchasing power. As borrowing became more expensive, the Fed’s actions choked off the flow of money into the economy and the inflation rate is now cooling.
Bitcoin has no such central authority that can offer a similar remedy.
Digital tokens worth $68,000 in November 2021 are worth about $24,000 now. When a “currency” loses nearly two-thirds of its value in less than a year, reasonable economists would consider it a crisis.
With no central authority to address that crisis, Bitcoin owners can only wait and hope for the best.
Bitcoin Is Not a Viable Currency
Bitcoin’s breakout year was 2017, when it breached $1,000 for the first time that January. It was the start of an extraordinary bull run that saw its price double to $2,000 by May. By the end of the year, Bitcoin had soared to $19,000.
While the mainstreaming of the world’s first cryptocurrency cooled things off a little, Bitcoin is still an untamed beast. On Aug. 15, Kate Waltman, a CPA specializing in crypto, told Time NextAdvisor that many experts predict that Bitcoin will hit $100,000 in 2022.
Whether or not that’s true, it’s certainly possible considering Bitcoin’s history of fast, wild gains — and that possibility is precisely what makes Bitcoin an unrealistic currency. After all, who on Earth would use Bitcoin to buy a $5 latte when that same amount of crypto might very well be worth $50 a few days later? If a $20 bill could buy a pizza one day and steak and lobster dinner the next, it would be too unpredictable to be a practical medium of exchange — just like Bitcoin.
It Has No Intrinsic Value
Stocks have value because they represent ownership in a company. Commodities have value because they are the raw materials that are used in the production of goods.
But according to Brookings, “Bitcoin investors seem 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.”
In short, Bitcoin has no intrinsic value — it’s valuable because people have decided to assign value to it.
Bitcoin proponents argue that the same could be said for the paper rectangles emblazoned with pictures of dead presidents that we carry in our wallets. Money, after all, is a construct just like Bitcoin. Since the dollar was removed from the gold standard, they argue, the only real value of fiat currency is that society agrees that it is, indeed, valuable.
The U.S. dollar is backed by the full faith and credit of the U.S. government, which can guarantee its currency by selling public assets, issuing bonds and demanding that individuals and businesses pay taxes in the same currency that it issues.
Bitcoin can not.
An Investment in Bitcoin Is Not an Investment in Blockchain Technology
There is little disagreement that blockchain — the computational technology that underlies cryptocurrencies like Bitcoin — will play a major role in the next iteration of the internet and the future, in general.
According to PricewaterhouseCoopers, blockchain technology is poised to revolutionize the auto industry by managing fractional ownership of self-driving vehicles. It could streamline the financial industry by greatly reducing transaction costs. Blockchain technology could also make voting more accessible and more secure while enhancing secure data-sharing in the health care field.
All of that might be worth investing in, but contrary to popular belief, the purchase of Bitcoin does not buy you access to any of it.
Other Cryptocurrencies Offer More Utility
To demonstrate the cryptocurrency’s lack of intrinsic value, Bryan Routledge, associate professor of finance at the Tepper School of Business at Carnegie Mellon University, compared Bitcoin to gold in an interview with Time NextAdvisor.
He said that gold is just a hunk of metal, no more or less valuable than the rocks and dirt found next to it in mines. The only reason it’s valuable, he argues, is because people assign value to it, just like Bitcoin — but that’s not really a fair comparison.
Gold offers functional utility far beyond the “greater fool” dynamic that Bitcoin lives and dies by.
Gold doesn’t react with oxygen, which means it doesn’t rust or tarnish like other metals. It’s highly malleable, which makes it easy to craft into jewelry and other artistic elements. Gold conducts heat and electricity, and its connections outlast both copper and silver. It’s also highly ductile. According to the American Museum of Natural History, gold can be strung out into the thinnest of wires — a single ounce can be drawn out into a 50-mile thread — which is why it’s so important in electronics micro-manufacturing. It also has important applications in fields like dentistry — and, of course, it’s beautiful.
Bitcoin, on the other hand, doesn’t “do” any of the things that other cryptocurrencies with true, gold-like functionality can do.
According to Outlook, stablecoins like Tether derive their value from their corresponding external assets, like gold or the U.S. dollar.
Siacoin eliminates the need for expensive cloud storage by replacing signups, servers and trusted third parties with blockchain-based data-storage marketplaces.
What does Bitcoin do?
There was a time when Bitcoin was the only cryptocurrency. Today, it’s just one of at least 19,000 rivals.
While cryptocurrency is not likely to fade into extinction, Bitcoin just might. If you’re convinced that Bitcoin could, indeed, be a dead coin walking, don’t panic sell. You’ll lock in losses if you offload your BTC while you’re down. If you sell while you’re up, the IRS will hit you with capital gains taxes. Talk to your financial advisor, but consider waiting out the crypto winter if you purchased your Bitcoins for more than they’re worth now, and if you’re up, consider waiting until your short-term gains become long-term gains to minimize your tax burden.
Information is accurate as of Aug. 19, 2022.
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