Bitcoin has raised the bars for cryptocurrencies! This term was underestimated until Bitcoin reached close to $20000 in 2017. It had disrupted financial markets and there were predictions that Bitcoin will enter the mainstream. But the stats fell, and Bitcoin is now trading below $4000! It has lost more than half of its market capitalization and can enter death spiral in next few years! We have seven reasons to justify why we feel that bitcoin will fail.
Cryptocurrencies are complex: There is a portion of our population which has distanced itself from share market trading. There are people who still don’t understand terms like call, put options, forwards, futures, derivatives, stop loss etc. Even after so many years, people don’t have confidence or are not interested in staking their money in a regulated financial market! If this is the case with stock market, can we expect investors to understand complex cryptocurrency in a matter of few years? Can we expect a boom of investment? Most likely not! If a financial instrument fails to establish trustworthy grounds for investors, there are remote chances that it will flourish!
Lack of regulatory monitoring: There are no regulators monitoring the price of bitcoin. This is the major pitfall of Bitcoin which entire world is aware of! A regulated financial instrument can never fluctuate drastically because of the upper and lower cap imposed by regulators. Unfortunately, bitcoin suffers from this level of close monitoring. A regulated exchange is always trustworthy as the buyers and sellers are authorised to trade. Many fraud cases have already been reported in bitcoin exchanges! People have disguised themselves as sellers and collected money without providing any bitcoin. Due to this opaque atmosphere (no transparency in exchanges) and trade of unlicensed and fake bitcoins, investors choose to abandon the field of cryptocurrencies.
Negative sentiment: ‘Sentiment’ is a very crucial component which works for any financial instrument. The sentiment of investors globally is not very positive towards Bitcoin and this is the reason that there are chances of its failure. Amazon share is touching skies because its stakeholders have full belief that this company has potential to grow. They have a flourishing sentiment towards Amazon but the same is missing in Bitcoin’s stakeholders. The market is extremely volatile, and its price can fluctuate hundreds of dollars in matter of few hours. The sentiment here is linked to fear, doubt and ambiguity which can potentially lead to failure of Bitcoin.
No map for Bitcoin’s future: the creator of Bitcoin disappeared soon after creating a platform for its exchange. The world is not ready to accept bitcoin as a currency. This currency has potential to eliminate foreign exchange fluctuations. Nobody has ever come up with an idea of a currency which is globally acceptable! The idea is incredible but the same is not echoed by financial agencies of the world. Due to this, it can be easily said that bitcoin has no future! There is no leader to raise voice and take initiative of bringing everyone on same page! If the biggest economies of the world have rejected this cryptocurrency, it will vanish sooner from the markets!
Artificial movement of prices: Due to lack of regulation, market manipulation and speculation are very easy in bitcoin industry. To shoot prices up, traders buy bitcoins in bulk (creating a fake demand) and vice versa. These fictious trades move the prices artificially which spook the investors away from investing. Market or instrument which lacks investor’s trust is bound to fall in long run!
Poor Reputation: The secrecy around Bitcoin transactions is more than any online trade of financial instruments. Due to this, there is a speculation that many illegal activities are being carried out using this crypto currency. An individual investor who just wants to earn profit and step out would think 100 times before trading into anything which can potentially trouble him in long run! FBI has also stated that they have eye on every transaction that is happening using bitcoin on world wide web. The transactions are not fully anonymous, and it is no big deal for FBI to fetch details of transactions. You are not doing something illegal but if you accidentally buy a bitcoin which has come through illegal route then you are screwed! You don’t have any way to trace the source of bitcoin that you are buying.
Mining problems: The bitcoin network can collapse without the miners. ‘Mining’ refers to creation of new bitcoins to keep the trade on! The gigantic miners are sitting in China & Canada. Bitcoin mining is incredibly hungry of power which ultimately increases costs of equipment and electricity. The authorities of respective nations are opposing supply of electricity to mining facilities as they want to divert their resources towards something which is sustainable and acceptable to the world! This threatens the survival of Bitcoin in long run!