Recently, bitcoin has been hitting all-time highs and is the top topic in the media. Bitcoin may be polarizing and may reach a point where it replaces gold, credit cards, government-backed money and turns all the banking systems on their head. However, that might not happen any time soon or might not ever happen. Media critics mischaracterize Bitcoin as an environmental disaster, speculative tool, bubble, or worse. Any individual planning to invest in bitcoin should research and understand all the risks they are likely to face. Here are seven common myths of bitcoin.
Bitcoin miners tend to use a lot of computing power to ensure the network is secure. The computers utilize so much energy and hence the charges of wasting energy. The Bitcoin network serves millions of people and secures over one trillion dollars. Cryptocurrency mining takes place in areas where power is free and abundant, meaning they use geothermal or renewable hydroelectric power sources. Bitcoin is not a bad idea, even though the carbon footprint is an issue that requires a solution.
It is not true that bitcoin is only used for speculation. The bitcoin network manages to settle transactions worth about $10 billion every day. Around 305,000 daily transactions are behind Fedwire at 550,000 transactions. These transactions may be for investment purchases, speculation, and regular usage such as remittances. For instance, in countries like Belarus and Russia, bitcoin is the only way of funding anti-corruption protests and efforts.
Indeed, governments of some countries like Russia, Nigeria, and Belarus give bitcoin the cold shoulder. However, countries like the US and Canada and most of the West tend to support cryptocurrency. Central banks tend to care about financial stability, and an unwarranted and arbitrary crackdown would destabilize the one trillion-dollar bitcoin market.
Bitcoin is considered to be more volatile than government bonds, but this isn’t necessarily bad. In the ’70s, gold was removed from the monetary systems, and its price became very volatile. In a decade, the price rose ten times before reducing 60%, then flatlined for decades. The increase in the value of the gold made it more volatile. It is important to note that most volatile assets give the best returns, or they do not give any. Currently, bitcoin is in the phase of discovering its price, so we expect big swings down and up. Also, due to the volatility, it is not suitable for every investor.
It is optimistic about being dependent on governments to be the tech innovators. Most central banks have broadcasted the CBDC initiatives, but very few are in the stage of proof-of-concept. The only exception is China, where the government is launching its digital money to extend its reach globally and gain a bigger oversight towards domestic spending. This initiative is a booster to bitcoin. Instead of stable coins threatening bitcoin, they might strengthen it. Since 2017, the value of stable coins has shot up forty times, but bitcoin keeps on thriving every day.
There have been thousands of novel cryptocurrencies since 2009 when Bitcoin went live, but they do not impact the cost of bitcoin. This makes sense since even though we mine thousands of tonnes of tin from the earth, it does not affect gold’s supply. The total supply of bitcoin isn’t fixed since it can be divided into small increments.
Most risk assets benefit from an easy interest rate policy at the Federal Reserve, Bank of Canada, and elsewhere. Since investors tend to invest cautiously in investments whose value increases by more than 500% in a year, like bitcoin, tightening their monetary policy will do a lot of good.
Bitcoin is a catalyst that will be among the key players in the future. Money is now becoming digitalized, and purchasing bitcoin will offer you a way of getting exposed to the future. However, it is important to note that there is no guarantee for bitcoin’s success; hence, not suitable for all investors. Also, note that there are uncertainties and risks that we cannot overlook with this new cryptocurrency. So, begin with the facts to critically understand bitcoin.
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