This video reviews the positive and negative forces that are pulling on the Bitcoin cryptocurrency and how those forces could potentially shape its future. As the market for cryptos in general and Bitcoin specifically is extremely volatile associated with enormous speculation, and other unknowns, you should watch other more recent videos and read recent articles before making any critical decisions. This video also reviews the pros and cons of Bitcoin as it relates to the Blockchain technology.
Transcript follows:
Can Bitcoin and Cryptocurrencies Survive the year 2018 and Beyond?
This is another session on Blockchain and Cryptocurrencies. If you like this video, please ensure that you subscribe to this channel and connect with me on Linkedin at the link at the end of this presentation.
The focus of this video session is more toward Bitcoin because it has been around much longer than the other cryptos and has a much larger market capitalization compared to other cryptos and is thus under increased scrutiny by people and governments alike.
In this video, I will be reviewing the positive and negative forces that are pulling on the Bitcoin cryptocurrency and how those forces could potentially shape its future. As the market for cryptos in general and Bitcoin specifically is extremely volatile associated with enormous speculation, and other unknowns, you should watch other more recent videos and read recent articles before making any critical decisions.
As cryptos in general are inserting themselves in the middle of a rather relatively stable financial system, they are facing concerned and strange looks from regulators, bankers, governments, and other entities that are concerned about any potential impact to the world’s financial systems.
Let’s now review some of the positive and negative forces that are impacting Bitcoin and that could shape its future. For more information on Bitcoin and the blockchain technology behind it, you should watch other videos on CIOTechCentral.com and subscribe to this video channel on Youtube.
Positive Forces
Let’s first review the positive forces that are shaping Bitcoin.
High Market Cap: First, if we look at the market capitalization of cryptocurrencies in general and Bitcoin specifically, it has reached staggering levels. Bitcoin, for example, lately had surpassed a market cap of more than quarter a trillion dollars and even after the recent corrections it is exceeding $150 Billion. In fact the market cap for cryptos has reached levels where governments have started to take notice and are concerned how their future success or failure could impact the existing financial systems and markets. This high market cap is largely due to the increasing number of merchants and customers that have started to trade in Bitcoin and is also influenced by the upbeat sentiment of a large number of investors.
Investor Trust: The second positive force propelling Bitcoin and other cryptocurrencies has to do with investor trust. A number of investors and cryptocurrency believers are of the opinion that once institutional investors get into the game, the price of Bitcoin will scale to new heights into high five and even 6 figures. Many of us have heard predictions of bitcoin hitting price levels of $100,000 in the next two years. However, that’s a big if and while the start of futures trading by a number of Wall Street firms such as Morgan Stanley and Goldman Sachs shows potential on that front, its overall effect largely remains to be seen. Another indication of high investor trust is that despite a number of bad news surfacing in various corners of the globe, most of which has to do with governments coming down hard on Bitcoin and other cryptocurrencies, the stock price of bitcoin as of this date continues to hover around $2000. This is indicative of the high trust that a certain segment of the population continues to place in the future viability of cryptos.
Utility: Another positive force related to the popularity of Bitcoin has to do with its utility. It has been a while since Bitcoin is being accepted as a digital asset of exchange in commercial transactions. Many merchants have now enabled the ability to accept Bitcoin as a currency and the trend is continuously on the rise. Merchants that accept Bitcoin include Overstock.com, Expedia, Dish Network, Microsoft, and many others. Lately, Mark Cuban the owner of the Dallas Mavericks Basketball team also announced that the team will start accepting bitcoin for ticket sales.
Valuation – Another factor related to the popularity of Bitcoin has to do with its valuation. Although there are many skeptics who question the potential value of any digital asset, there are others who make the flip argument that the scarcity and utility of any asset give it value and that includes digital assets such as Bitcoin. Given that Bitcoin has a fixed limit of 21 million coins, and its utility is on the rise, supporters contend that this would not only prevent Bitcoin to get devalued in the future but will continue to increase its value.
Negative Forces
Now, let’s review some of the negative forces and influences that are bearing down on cryptos in general and Bitcoin more specifically. These negative forces are being discussed even more these days as all cryptos seem to be going through another phase of market correction.
So, here are the negative forces bearing down on cryptos in general and Bitcoin more specifically.
First use case of the blockchain technology – One general comment that is considered negative related to Bitcoin specifically is that as Bitcoin was one of the first use cases of the blockchain technology, it has a number of technical drawbacks. This includes the long time that it takes to process transaction blocks and add them to the blockchain, the high energy that it takes to process those transactions, and so on. With time as more technological breakthroughs are surfacing, the newer cryptocurrencies are coming up with better and efficient ways of implementing the blockchain technology. This raises the question that if cryptocurrencies were going to survive for the long run, then which specific crypto would make it ahead of the others. For example, the Ethereum blockchain that issues the Ether cryptocurrency is known to be more efficient in how the blockchain technology is implemented and investors seem to be quite bullish regarding Ethereum.
Increased Regulation – Another negative aspect of cryptos seems to be the encroaching regulation. Lately, talks regarding regulating cryptocurrencies has gained considerable momentum. We have seen a crackdown of cryptocurrencies from a number of countries. Obviously increased regulation will make it difficult for investors and users to exchange cryptocurrencies to their fiat counterparts and vice versa and that will have an impact on the acceptance of this cryptocurrency.
South Korea for example has been taking a number of steps to stem the use of cryptocurrencies. In 2017 South Korea took the steps to stop more ICOs or Initial Coin Offerings. Then, starting in 2018 the South Korean government started to take steps to stop cryptocurrency trading altogether. Although the legislation for this is still in the works, it seems that the government may follow through on its commitment to ban the use of cryptocurrencies. Obviously such measures taken by any government can lead to a loss of trust in the cryptocurrency as a potential asset. And more countries move in to take such measures, it’s going to potentially further impact the investor trust behind such currencies.
China and Russia, too, have been taking similar steps. China, for example, has started to take steps to stem the proliferation of cryptocurrency miners and similar to South Korea is in the process of taking steps to stop trading associated with cryptocurrencies.
As for the US, the US regulators such as the SEC and other government agencies are increasingly concerned about unseasoned investors pushing the stock prices of Bitcoin and other cryptocurrencies to new highs. These regulators are very wary about such bubbles as from their earlier experiences of the housing and Internet bubbles only a few years earlier, the regulators are keen to prevent more of such happening in the future. What’s adding to their concerns is the perceived lack of utility for such cryptocurrencies and their use as an asset. There is even more of a concern as according to many reports, investors are said to be using credit cards and even taking out mortgages to invest in cryptocurrencies. So, the key concern for regulators is that should cryptocurrencies experience a serious meltdown that the impact could also impact the existing financial markets.
No perceived intrinsic value – Another attribute of Bitcoin that its skeptics like to point out is that cryptocurrencies don’t have any intrinsic value. An asset usually attains value because of the trust that people place in it. Gold and fiat currencies for example are trusted because governments back those assets guaranteeing their value. Bitcoin and other cryptocurrencies to date lacks that backing and thus there are questions whether any crypto or asset can be of any significant value without such a global backing of governments.
High mining costs – Another negative force preventing Bitcoin’s wider acceptance is that mining bitcoin is known to be quite expensive as it uses a lot of energy. According to many estimates, it takes more than $10,000 to process a bitcoin transaction block where each block has 2500 transactions in each block. Given that miners compete to process the blocks and only the fastest to validate the blocks qualify for a compensation, this would prevent miners in the future to participate in mining activities and therefore, may drive a number of miners out of the market thus impacting the overall value of Bitcoin.
Decreasing incentives for mining Bitcoin – For cryptos that are built on blockchain technology, mining is an important function as miners validate the authenticity and integrity of transaction blocks before they are added to the blockchain. In the current scenario, miners are incentivized by getting compensated in Bitcoins. However, the concern is that once all Bitcoins are issued, processing Bitcoin transactions will have to rely on transaction fees and that may have to be set high to keep the overall business model profitable for miners. This new model that solely would rely on transaction fees may not be as attractive or profitable and thus may eventually drive many miners out of the market.
Summary
So, to summarize, the answer to the question whether Bitcoin and other cryptocurrencies can survive this year and beyond will greatly depend on the following factors:
- The first factor has to do with the extent to which governments around the globe crack down on cryptocurrencies. This includes cracking down on mining operations, exchanges, as well as we on trading. The extent of crackdown could vary from one government to another. Obviously, in extreme cases, if there is a global crackdown on all activities then that would put a damper on the rise of cryptos.
- Point number two has to do with the extent to which governments regulate cryptocurrencies because too much regulation could make them no different than the transaction of fiat currencies in the digital world.
- Specifically to Bitcoin, the future success would depend on its ability to become more efficient and become faster in processing transactions and adding them to the Bitcoin Blockchain.
- Also, specific to Bitcoin, it will have to address its rising demands on energy required for mining operations.
- Another factor driving the future success of Bitcoin would be the new business model that will have to be decided on once all Bitcoins are issued and the miners start looking for another form of compensation using transaction fees.
With this we have come to the end of this video session. Be sure to subscribe to this channel for more videos on cryptos and blockchain and also don’t hesitate to connect with me on Linkedin at the link that you see on the screen.
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