Is crypto currency (Bitcoin) bubble about to burst?

ArticleIs crypto currency (Bitcoin) bubble about to burst?


Is crypto currency (Bitcoin) bubble about to burst?

By : Dheeraj Upadhyay 

The investor across the globe is in shock & awe when the price of the world’s most valuable and famously volatile digital currency Bitcoin fell more than 30% on Wednesday posting its biggest single-day fall. After Elon Musk tweeted that Tesla will not accept Bitcoins, followed by China’s warning to its financial institutions and payment companies to desist from crypto also had a damaging effect on the digital currency. Though the fall halted at below 10% but till Thursday in just 24 hours Bitcoin had lost around $80 billion in market value.

According to Coindesk, Bitcoin has lost around 40% of its value since April 13 after touching a high of more than $64,800. Meanwhile free fall of the volatile currency is on the cards due the unrealistic surge while the China’s warning was just the latest headwind after Tesla’s decision to not accept the crypto currency (Bitcoin) as payment for its cars; leading to murmurs of further tightening of regulations around crypto currencies in the US, had also put further selling pressure on Bitcoin.

What is Bitcoin and how it works

Bitcoin is a digital currency which is not regulated by any bank or government it allows it users (miners) to spend money anonymously. The coins are created by users who “mine” them through computing power by verifying other users’ transactions, in exchange the get Bitcoins. The crypto coins can also be bought and sold on exchanges set up by many people using U.S. dollars and other facilitated currencies. Although few businesses have started accepting Bitcoin as payment and few financial institutions have also allowed it in their clients’ portfolios, but mainstream acceptance is still in the nascent stage.

Bitcoins are basically lines of computer code or one can say digital entries signed each time they travel from one owner to other. The anonymous transactions are making the crypto currency popular with independent tech enthusiasts, tech geeks as well as among speculators and somewhat into the criminals.

Bitcoins and other crypto currencies have to be stored in a digital wallet, either online through an exchange like Wazirix, Coinbase, or into offline in a computer hard drive using specialized software. But the real catch is the numbers; as per the Coinbase, currently about 18.7 million Bitcoins are in circulation and only 21 million will ever exist. No one knows the unclear reason but where all the Bitcoins are is anyone’s guess.

In Indian crypto market, domestic crypto exchanges went into a “downtime” facing steep selling pressure on Wednesday. Domestic exchanges like one of the India’s largest crypto exchange WazirX, witnessed a 400% surge while CoinDCX also went into “maintenance mode” and same was the case with Binance and Coinbase, two of the biggest crypto exchanges of the world, after the free fall.

Even other global crypto assets like Ethereum and Binance’s too has plunged about 25% and 33% respectively. As per, about 50% of the total crypto currency market capitalization has been wiped off between in just a week after Elon Musk tweet.

Rumours and scepticism about Bitcoin and crypto?

Yes rumours are there, since no one knows the exact technique how it was mined and its real value that’s why many financial institutions and experts have doubts on crypto currency. While it was boasted as an alternative for paper money, but this hasn’t happened so far. US Fed Reserve Chairman Jerome Powell once said that the US central bank prefers to call it “crypto assets,” since their volatility undermines its intrinsic store value, a basic and the most important function of any currency.

“A currency can’t be so volatile that it can swing up and down more than 30% in day: said Market Analyst Ajay Bagga.

Overall majority of financial services and companies are staying away from crypto at the moment.

Rumors are also doing the round that Tesla’s founder Elon Musk is the real culprit behind this bloodbath in crypto market. Since, Musk has announced in February that his electric car company Tesla had invested $1.5 billion in Bitcoin. In March, Tesla began accepting Bitcoin and suddenly in May he stops taking bitcoins, citing it is hazardous and toxic to environment led to the crash of nearly 40% in Bitcoin.

His environment reason also invited some criticism from fans and billionaire like Mark Cuban who said that gold mining is more harmful to the environment than mining Bitcoin.

Recent crypto sell-off have damaged the sentiments of its investors

Meanwhile the recent sell-off, in crypto & digital currencies have wiped out about 80bn from the market value of nearly 2.3 tn to just about $1.72 tn.  Still daily transactions in crypto currencies are above 3 lakhs, but its way behind the card and cash transactions witnessed across the world.

Wednesday sell-off have also triggered a panic sell-off by the investors on the crypto currency exchanges by liquidating and closing of around 11 lakhs wallet accounts from the total 3.1 crore existed wallets according to the CoinGecko.

How Bitcoin came into existence

Although, it’s a mystery who launched Bitcoin, but it was said that it was launched in 2009 by a person or group under the name of Satoshi Nakamoto. Nakamoto has alienated due to the widespread traction it attracted, but insiders says it hardly matters; since the Bitcoin currency follows its own set of internal logic.

 Way ahead for crypto currencies

As per the crypto industry stake holders a major correction had been overdue, since many companies like Tesla and others financial institutions have liquidated their Bitcoin positions after sensing the unrealistic price levels.

Now it was bound that digital and crypto currency will attract much more regulation and vigilance from the governments across the world; but none of the govts are going to accept it as mainstream financial currency alternative in the near future due to its volatile nature. Investor, traders and millennial tech enthusiasts should also adopt a cautious approach while trading in crypto currencies.

Read also : Govt policy on pulses import; one step forward and two steps back

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