Bitcoin, the world's oldest and largest cryptocurrency could become “worthless” and people investing in this crypto asset should be prepared for this huge monetary shock, reported the Guardian.com
The deputy governor of Bank of England, Sir Jon Cunliffe, said to BBC, “Their price can vary quite considerably and [bitcoins] could theoretically or practically drop to zero."
Bitcoin is a volatile and risky asset class, its prices had peaked out at $60,000 during November only to start its downward journey just as the news about the new Covid-19 variant started to reach the public domain. As of 16 December, 11.26 am it was trading at $48,708, showed coinmarketcap.com data.
John Paulson, president and portfolio manager of U.S. investment firm Paulson & Co said to Bloomberg in an interview “Cryptocurrencies, regardless of where they’re trading today, will eventually prove to be worthless. Once the exuberance wears off, or liquidity dries up, they will go to zero. I wouldn’t recommend anyone invest in cryptocurrencies."
The 2021 crypto market cap is 2.24 trillion dollars or about 1 per cent of the global financial asset. Bubble or not but there is a lot of money at stake with no visible signs of it coming down in the near future. The IMF's Chief Economist ,Gita Gopinath, has recently warned about the evolving crypto scenario and said that emerging economies should bring about an effective crypto regulation to maintain a stable economic structure.
Bank of England’s financial policy committee which was set up after the U.S Mortgage crisis of 2008 continues to monitor the crypto space closely. The committee says that currently the U.K's economy is not directly threatened by the growing crypto assets but if the current growth rate continues it could pose a serious problem. The problem will be more escalated if cryptos are directly linked with the traditional financial system of the U.K.
Just as in the stock market, banks accept shares as collateral for lending loans to clients, if the same thing is replicated with crypto(s) as collateral the effect could be disastrous since most crypto(s) are highly volatile and susceptible to community-driven pumped-up trading.
Thomas Belsham, who works in the Bank’s stakeholder and media engagement division, wrote, “The problem is that, unlike traditional forms of money, Bitcoin isn’t used to price things other than itself. As Bitcoiners themselves are fond of saying, ‘one Bitcoin = one Bitcoin’. But a tautology does not make a currency," reported the Guardian.
Bitcoin was made in such a way that only a certain number of coins could be in circulation at max. That number is 21,000,000. It is limited by software. Already about 90 per cent of bitcoins have been mined and it is expected that by February 2140 all the bitcoins would have been mined, so it will be curious to see what happens after that.
Despite this looming threat to its existence several prominent corporations continue to buy and hold bitcoins in their wallets, including Tesla INC, which has got more than 1.5 billion dollars in BTC as per its corporate filing with the SEC. Recently Tesla’s CEO Elon Musk said that people buying Tesla merchandise could well pay for it by DOGE. DOGE(Dogecoin) is a meme cryptocurrency that reacted to this news and saw its prices surge by almost 20 percent. Its current market cap stands at $23,80,83,40,286 as per coinmarketcap.com data.
Microstrategy another big software company has bought about $414 million worth of bitcoins in the 4th quarter of 2021 as per its SEC Filing record, reported virginiabusiness.com
With trillions of dollars at stake, Central Bankers and Governments across the entire globe are worried about crypto(s) impact upon the national economy. Shaktikanta Das, governor, Reserve Bank Of India, expressed in a recent meeting his concerns about the negative effects that crypto(s) may pose to India’s Financial Stability.