Bitcoin is the most popular cryptocurrency. Most individuals know about bitcoin and the bitcoin blockchain is also one of the most widely adopted networks. However, the recent trend suggests that there has been a decline in bitcoin’s value and its adoption. While bitcoin was the first cryptocurrency, ethereum is the most affordable cryptocurrency. At USD 226, ethereum is affordable by individuals who are looking to venture into the cryptocurrencies market compared to USD 9,134 for bitcoin. [1] Moreover, ethereum offers various services that are more likely to be utilised by enterprises. Then comes to the concept of ‘bitcoin halving’. Bitcoin halving is an in-built mechanism that is scheduled to take place every four years and when it occurs, the reward for mining bitcoins is cut into half. Recently, the bitcoin halving occurred on May 11, 2020, which also cut down the issuance rate of bitcoin from 12.5 BTC to 6.25 BTC for every new block that was mined in app. 10 (ten) minutes. This is done to drive interest in cryptocurrencies. Most investors and market experts suggest that the event of bitcoin halving would lead to a bull market, meaning that buying bitcoin would be encouraged. But, the question remains, is it really so?
Many nations such as the United States have not looked upon favorably to bitcoin when compared to other cryptocurrencies. Bitcoin is also not given the advantage of the classification into an ‘investment contract’ in the US markets. Moreover, investment banking giant Goldman Sachs, recently suggested that cryptocurrencies are not an ‘asset class’, driving away certain investor sentiments. [2] This is because according to them bitcoin does not have the potential to generate earnings from exposure to global markets when compared with other classes such as bonds. They also suggested that bitcoin does not have a cash flow and is subjected to high volatility rates. These identifiers put bitcoin in a negative position. The global adoption towards bitcoin has crossed milestones. Bitcoin adoption has increased by almost 60% (sixty percent) in the past 5 years. [3] However, consumer sentiments towards bitcoin have been changing at a drastic pace. Recently, fintech giants such as PayPal have decided to offer direct selling of cryptocurrencies (Access Here). This may cause consumers to shift to other cryptocurrencies such as ethereum or ripple.
Moreover, there is a race towards the adoption of a Central bank Digital Currency (‘CBDC’) amongst nations. China is getting ahead with its digital Yuan in the introductory stage into markets. Sweden is most likely to follow (Access here). When CBDCs are available, it may shift the buying power from bitcoin as CBDCs will have government backing and shall not be subjected to high volatility.
Reasons such as above may lead to a decline in bitcoin adoption. However, these are speculations and nothing is certain when it comes to bitcoin. Decentralised currency is the new competition towards USD, EUR, GBP, etc. and the current economic crisis has certainly accelerated the rate of utilisation of cryptocurrencies.
[1] Prices as of June 30, 2020 at 14:42 IST.
[2] Goldman Sachs, Cryptocurrencies are not asset class, https://www.nasdaq.com/articles/goldman-sachs%3A-cryptocurrencies-are-not-an-asset-class-2020-05-27
[3] Saiedi, E., Broström, A. & Ruiz, F. Global drivers of cryptocurrency infrastructure adoption. Small Bus Econ (2020). https://doi.org/10.1007/s11187-019-00309-8
Comments