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Bitcoin (BTC-USD) was destined to revolutionize finance and the way we use currencies. Alongside other cryptocurrencies, it has been promised as a safer, anonymized and efficient blockchain payment for the modern world. In reality, Bitcoin barely managed to deliver each of its supposed goals/benefits, faces more competition than ever and lacks any intrinsic value to underpin its value.
It lacks stability
Bitcoin price chart for the last five years shows massive price swings.
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This level of price volatility is prohibitive for its use as a core currency in any economy. If you think inflation is bad, imagine the price volatility that would occur if Bitcoin were used ubiquitously in our economy. Bitcoin is an unpegged, unbacked digital currency, which means it trades as a purely speculative investment vehicle and only changes based on sentiment and not fundamentals. As such, it may not be stable enough to see real long-term currency adoption. And if it does, it needs to change so much that it no longer has any merit as an investment.
Anonymized and not traceable? I do not think so
Several high-profile seizures over the past few years have proven beyond a reasonable doubt that Bitcoin is highly traceable thanks to its public ledgers. As a result, the IRS is taxing crypto, and various governments have been confiscating it with increasing frequency. This is not limited to Bitcoin either, Ethereum (ETH-USD) and other cryptocurrencies have also been vulnerable to seizures and asset freezes. One of the benefits of Bitcoin, perceived by many, was the ability for people living under oppressive regimes to transfer currency and trade without the influence of the state. However, as we recently saw in Belarus, the possibility of confiscating Bitcoin is very real. The truth is that Bitcoin’s claim to anonymity is fading by the day as authorities around the world learn to attribute transactions to individuals and continue to invest resources in their efforts to do so.
Unclear regulatory future
The cryptocurrency regulatory environment is becoming more uncertain as different countries bid their bids to attract and also tax and control the industry. Calls for regulation of crypto in the United States have grown louder following the TerraUSD crash (the company has since relaunched LUNA2-USD). Kevin O’Leary expects regulations to be passed after the midterms in November, and the US Congress has introduced fifty crypto-related bills this year.
In the UK, the opening of Parliament came with a promise to introduce legislation giving the government “powers to seize and recover crypto assets more quickly and easily.” This would come with a regulatory framework (and possibly UK government-issued NFT) designed to facilitate the growth of the crypto sector in the UK.
With so much new regulation on the horizon, there is one big unknown that could be affecting sentiment around Bitcoin.
A plethora of non-crypto digital currency alternatives
The other problem I see for Bitcoin and other cryptocurrencies is that there are just so many competitors with more user-friendliness. While bitcoin may be adopted by retailers (or the odd Honduras) here and there, other forms of digital cash are becoming more widely available and as easy to use as a credit card. With Apple Cash, Venmo and other services, you can easily send and receive money and spend on various services. Countries are also introducing digital versions of their fiat currencies, like the digital yuan in the People’s Republic of China. According to Seeking Alpha’s report on the Digital Yuan, it has numerous advantages, while its two listed disadvantages (lack of anonymity and competition with Alibaba) mean nothing when Bitcoin itself is already traceable and competition is inevitable.
Conclusion
Bitcoin has received a lot of praise and hate since its inception, but amidst all the noise, the cryptocurrency doesn’t have much to offer. It’s too unstable to serve as real currency (and you’re taxed on its fluctuations). Its promise of anonymity has been proven false as governments pour money into tools that allow them to confiscate crypto. The regulatory environment is about to shift as countries take crypto regulation seriously. And finally, it just doesn’t have a unique advantage in most use cases: there are many other ways to conduct digital transactions, which are often simpler and more efficient. In the end, Bitcoin is not attractive either as an investment or as a currency.
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