Bitcoin is a double-edged sword, offering both benefits and disadvantages. One advantage is that it provides a payment system for individuals not connected to the traditional banking system. Economist Nouriel Roubini said, “Bitcoin is not a currency; it is not a unit of account, it is not a scalable means of payment, it is not stable in value, and it is not even a particularly effective speculative asset.” However, many individuals who transact in micro-payments for a few dollars to millions of dollars find Bitcoin to be a reliable payment option.
The traditional mode of payment for individuals outside the financial system is cash, which has several disadvantages. Cash is hard to manage, and once it is paid, the ownership of the money is transferred to the recipient. In contrast, Bitcoin is a powerful tool that offers ownership of money to the individual who has it in their possession. This feature has attracted many individuals to Bitcoin, leading to a mad rush to acquire this new payment system. According to the CEO of Twitter, Jack Dorsey, “The world ultimately will have a single currency; the internet will have a single currency. I personally believe that it will be Bitcoin.”
Despite the benefits of Bitcoin, its price is subject to market forces that can go up or down, depending on the majority’s perception. The demand for Bitcoin in local markets has always been higher than what global exchanges were selling, creating a discrepancy in prices. When Wall Street firms entered the game, additional tools of the trade, such as the futures market, opened up. These tools made it easier for the average person to bet against the pump and dump method, affecting the price of Bitcoin.
Recent crackdowns on Signature Bank and Silvergate by the federal government have halted billions of dollars from transacting through these two networks. Wall Street traders had the advantage of directly linking their bank accounts to the world of cryptocurrency trading, while local markets had to go through expensive middlemen. Now that the cost of shorting Bitcoin has gone up, the price of Bitcoin has the potential to increase.
The unintended consequence of trying to stop Bitcoin has solidified it as a legitimate alternative to the financial system. With more individuals trying to enter the Bitcoin market using middlemen, the cost of owning Bitcoin is increasing, leading to an escalation in prices. As prices increase, more people will surge into the market, creating a self-fulfilling premise that Bitcoin is here to stay and that it will hit record prices in the coming years.
In conclusion, Bitcoin has benefits as a payment system for individuals outside the traditional banking system. However, its price is subject to market forces, making it vulnerable to fluctuations. Recent crackdowns on Bitcoin have made it a legitimate alternative to the financial system. As more individuals enter the Bitcoin market, the cost of owning Bitcoin will increase, leading to an escalation in prices. As economist Tyler Cowen said, “Bitcoin could be one of the world’s major currencies. But Bitcoin does need to become more stable first.”