Bitcoin bubble: Is this hugely-inflated market about to burst? | This is Money
Bitcoin would gain momentum if more and more people use it as a monetary tool rather than as an investment. Read Bitcoin, Tulips, and Power Consumption.
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South Korean regulators have said they would now more closely monitor the cryptocurrency market. The primary reason bitcoin and other cryptocurrencies became so popular are that they are unregulated by governments. People could use them anonymously. But the South Korean government is planning to ban the anonymous cryptocurrency accounts and even provide measures to shut down exchanges if needed.
China is also tightening the grip on bitcoin miners. If there is anyone who is going to burst the bitcoin bubble, it would be the central bankers. Bank of Canada governor Stephen Poloz said last month buying bitcoin was more like gambling than investing.
As the Australian Financial Review points out, central bankers believe digital currencies do not offer any major advantages over traditional currencies such as the dollar, pound, euro, and yen. Currency is something that acts as a means of payment and a store of value.
The huge fluctuations in cryptocurrency prices make them unsuitable for a store of value or a unit of account. Nowadays bitcoin transactions are taking longer than before because the bitcoin network is capable of handling only limited transactions per second. As the traffic increases, so do the transaction times and fees.
One of the biggest reasons central bankers would target the bitcoin bubble is that they fear retail investors would put all their money into different forms of cryptocurrencies hoping to reap the same financial rewards that others have enjoyed. If central bankers decide to crack down on the bitcoin bubble, they would most likely target the cross-border payments in cryptocurrencies.
They could also target the flow of money between individuals and exchanges because you have to first transfer money from your bank account to a bitcoin exchange to carry out a bitcoin transaction. Since last month, many bitcoin investors in Australia have complained that almost all the large banks in the country were freezing their accounts and preventing them from transferring money to bitcoin exchanges.
No central bank would want to give away all the monetary power to bitcoin or another technological ingenuity. Bitcoin and crypto are being domesticated and given a new sheen of legitimacy. More interest from institutional investors means two things for bitcoin: the volumes bought are usually higher than when man-of-the-road investors trade; and those volumes are more prone to stay put — making the supply of circulating bitcoin scarcer, and therefore hiking the price. A report by Chainalysis, a blockchain analytics company that tracks cryptocurrency movements, suggests as much.
The report also suggests that bigger investors sucked out liquidity from the market, buying bitcoins from traders and keeping them under lock and key — "hodling" them, in crypto-lingo. When these larger investors sold their bitcoin, they usually charged higher prices. This is only part of the story.
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That is an automatic process by which the output of bitcoins produced by miners — individuals who run expensive computers to upkeep the currency network and get paid bitcoin rewards — every ten minutes was halved starting from May 11, One consequence of the attendant scarcity is a rise in price. That was always attractive to a certain crowd — libertarians, anarchists, goldbugs — but the triumph of chaos and despair also known as must have convinced many that it was worth giving it a try.
One consequence of the pandemic has been a lot of government spending, which made it a no-brainer, for many, to put at least some money in bitcoin. In some quarters, Bitcoin is now regarded as a genuine competitor of gold — to the extent that J. Is that really going to happen? Some factors could indeed push the price higher. The market is not mature yet, and as more investors join, the price might rise.
Are central bankers about to burst the bitcoin bubble?
Other relevant dynamics will be internal to the decentralised bitcoin community. Notably, miners are currently grappling with delays in the manufacturing of mining computers , which might drag on for months. Once those shortages are sorted out, the sudden inflow of new machines and new competitors will make the process less profitable for miners. That is not to say that there are no ways for the price to come crashing down.
Several observers think that the ongoing rally is at least partly due to algorithmic cryptocurrency funds abiding by a trend-following strategy — and in so doing inflating the price to implausible levels.
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Some suspect foul play: Nouriel Roubini, a New York University professor and bitcoin-sceptic, has singled out Tether — a privately-issued cryptocurrency that is supposedly pegged to the dollar and can be used to buy bitcoin — as a manipulative force propping it up. Philip Gradwell, a senior economist at Chainalysis argues that the data suggests the opposite. More in general, a change in strategy from key institutional investors could certainly lead to corrections.
Finally, one might wonder whether a partial solution to the Covid crisis — whenever that happens — would lead bitcoin-loving investors to move their funds elsewhere.
Bitcoin at 'tipping point,' Citi says as price surges
For Sokolin, that is a distinct possibility. He tweets from Gmvolpi. These are the best board games for adults and families. The WIRED World in is an unmissable briefing on the ideas, trends, technologies, people and companies that will shape the coming year. By Natasha Bernal.
2. The technology is maturing
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