Is The Game Over For Bitcoins?
What
a roller-coaster ride it has been for Bitcoins, the best known of the cryptocurrencies. Back on March 9th, 2020, just as
the Covid pandemic was emerging, Bitcoin traded as low as 5,385.23. A bit more than 18 months later, that price soared
almost a dozen times higher to 68,789.25.
A number of other cryptocurrencies also had major gains.
Things
have changed.
From
the peak of last November, Bitcoin has dropped by nearly two-thirds. Ethereum, another fantasy currency, had an even
more exciting ride, zooming almost 50 times from early March, 2020 to the high
reached on Halloween last year, followed by a plunge similar to that of the
Bitcoin.
There
are numerous other cryptocurrencies, most of which seem to have been created by
those who specialize in science-fiction.
Here are some of the more amusing names: Polkadot, Avalanche, Chiliz, Helium,
Fantom, PancakeSwap, and Basic Attention.
Cryptocurrencies
are digital assets created to circulate securely without the need for a central
monetary authority, such as a government or bank. They cannot be counterfeited. Though the concern for increased security
they provide in currency transfers must be acknowledged, the downside of crypto
remains considerable.
For
one thing, the interim price swings are huge.
For another, Bitcoins are created by an intensive computerized process
called mining. According to a comparison
by the University of Cambridge, worldwide Bitcoin mining consumes more than
twice as much power as all U.S. residential lighting.
The
main source of value of the Bitcoin is scarcity. To achieve success, it will have to work well
as a medium of exchange. To date,
although there has been limited progress in commercial and international
transactions, it has been of minimal value for retail trade.
Bill
Gates, the co-founder of Microsoft, described the cryptocurrency phenomenon as
something that’s “100% based on greater fool theory.”
N. Russell Wayne, CFP®
Any
questions? Please contact me at nrwayne@soundasset.com
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