When mentioning bitcoin, we are not predicting the failure of cryptocurrencies. There is no doubt that digital currencies are the future and crypto is merely another method of operating digital currencies. What I’m saying is that bitcoin will fail.
Some articles make use of bitcoin and cryptocurrency as synonyms, but that’s incorrect. Thousands of different cryptocurrencies exist, bitcoin is only one of them. Despite being among the first digital currency, there are serious problems with bitcoins that may cause them to fail. Below are some of the reasons.
Top reasons why Bitcoin value may fall
There is no real value
Since we moved past the gold standard phase, many people believe that fiat money is also known as the normal currencies we use today lacks real value. They are wrong. The value of fiat currency is guaranteed by the government that issues it.
You will see the words “promise to pay the bearer” on the Indian rupee, whereas on the US dollar you will see “legal tender”, which have the same meaning. There are various ways for governments to provide currency assurance, including taxing their citizens and businesses and selling government assets.
These are powerful forces that confer the confidence that the currency value will remain intact. As long as the companies can produce profits from the goods and services they offer, stocks have real value. Industry purchases commodities as raw materials for producing goods and services. That’s why they have real value.
Bitcoin only has value if someone else is willing to pay for it. So, bitcoin is similar to an artwork in that sense. Even a piece of art can enhance the space in which it is displayed. The same can’t be said for Bitcoin.
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There is no stabilizing force
The government that issues fiat money defends it strongly. To keep their currencies stable, central banks engage in “market operations” which involves buying and selling national currencies on the international monetary market. Without stability, a currency cannot function.
A cryptocurrency like Bitcoin is an awful currency due to its volatility. The number of vendors that claim to accept it doesn’t matter. What would you do if you had bitcoin? Would you buy anything with it? Probably not.
Instead, you’ll use a traditional form of currency. Bitcoin cannot be used as money because you didn’t buy it for that purpose. You intended to buy it speculatively, hoping it would appreciate. Because you are afraid that bitcoin’s value will rise anytime soon, you would not pay in bitcoin. Vendors will also stop accepting bitcoin as a means of payment for the same reason, as they don’t want the value to drop after collecting from you.
It is competing with Natural Currencies
According to bitcoin supporters, fiat money will be replaced by bitcoin. This implies that bitcoin competes with national currencies even if this is remotely possible. Can you imagine that central banks in the US, China, and the EU saying “they’ll scrap the paper money and use bitcoin, which no one has control over?”
China has already banned bitcoin mining and trading, and various other countries have hinted that they may follow suit. Therefore, countries won’t adopt bitcoin. They may issue their versions and ban bitcoin.
There is a lot of liquidity currently in the markets because many governments are using monetary and fiscal policies to combat covid. However, this cannot continue forever. Bitcoin might have some advantages over fiat money but whatever they are, they will fade away if fiat money becomes digital.