Updated: Jan 31
Last year, the United States printed more money in one month than in the first two centuries after its founding. Meanwhile, the European Central Bank(ECB) was also on a printing spree. With all these things happening, switching to a decentralized currency digital currency like Bitcoin with a finite supply seems logical. But there's more to this than meets the eye. Bitcoin enthusiasts argue that Bitcoin is the next revolution, and it could dethrone the dollar in a couple of years. But wait a second, what I feel is that Bitcoin may never be the next "big thing". Let's dive deep.
The next monetary evolution may be CBDCs(Central Bank Digital Currency) and not Bitcoin. Yes, CBDCs are exactly opposite to the foundation of Bitcoin, CBDCs are centralized, non-innovative, and regulated, but they are efficient. CBDCs are also stable at the same time. Bitcoin will never be used for payments, and I would stress on the 'NEVER' with extreme confidence. This is due to several reasons. First Bitcoin is so volatile, suppose a person pays for his next car using Bitcoin, and after a few minutes what if the value of Bitcoin rises drastically. The buyer would be at loss here, or if the price falls, then the company would be at loss. People or organizations on both sides of the deal have something to lose. Secondly, transferring Bitcoin from one wallet to another takes nearly 10 to 20 minutes, and it could extend too. so within this timeframe, I hardly doubt if the value of Bitcoin would remain the same. And coming to the third point, here the enemy of Bitcoin is not volatility but Bitcoin itself. Over the years we have heard many stories where people had paid through bitcoin to buy cheap items, and today the same pennies are worth millions of dollars. So, the moral of the story is to not sell and HODL(hold in cryptic form). So, today nobody would want to sell Bitcoin because that same amount of BTC may be worth millions in the future. And not just BTC but this applies to every other crypto out there including tokens. People refuse to sell tokens too since we have also seen tokens rise exponentially (Shiba Inu). For a currency to go mainstream, practicality is the ingredient needed. Given the above points, BTC looks like it misses out on the practicality ingredient. This is where CBDCs have an upper hand. CBDCs are extremely practical. With China, the US, the E.U, and India planning to launch CBDCs, it would be difficult for Bitcoin to coexist. CBDCs are centralized and will allow the govt to monitor the citizens more keenly, this is an opportunity that no government would like to miss. Bitcoin, on the other hand, is decentralized and wants to remove power from the government. This again is not practical. No government would be happy with this. I highly doubt if the fed will sit quietly while it loses control over the financial system and another system evolves outside its purview. Though the US government isn't being hostile to the crypto market, I doubt if this will remain the same for long. Bitcoin is decentralized and its value doesn't depend on any institution, whereas a national currency's value is controlled by the central bank. This gives Bitcoin an advantage according to bullish investors. But this could also be a fatal flaw, since its value isn't controlled by anybody, there is nothing to stop its value from falling to zero. And coming to the next supposed advantage of Bitcoin, it provides anonymity. Again this is also a major negative for the currency. This can be used to evade tax, recent reports have also stated that Bitcoin is also being used to fund terrorist organizations. This is currently under scrutiny. As I said the fed would not like an alternate financial system evolving outside its purview, and no government would like terrorism being funded by cryptos, there will be restrictions or severe regulations put on cryptos. I feel there is a huge queue of restrictions and regulations on its way to disrupt the crypto markets. To control terrorism, introducing CBDCs will be very helpful, as it provides the govt with greater information than ever before. Surveillance is one reason why countries will rush to bring in CBDCs into the mainstream, by making them a legal tender. In countries like India, if CBDCs go mainstream, it would not help the country combat terrorism but also combat corruption. People argue CBDCs going mainstream will be a serious breach of privacy, but let's be practical, privacy has been a myth since the beginning of the internet age.
And again I don't think that bitcoin offers any sought of anonymity to the user. Again we should think practically and from different angles to assess this point of view. Ever since 9/11 and the patriot act, the US govt has maintained a bird's-eye view of every American, and non-American on the planet. And the CIA has been on the lookout for suspicious bank transfers all around the world, and in case flagged of terror funding, the accounts have been frozen. So now there is something called bitcoin, which takes this power away from the CIA, and the US state security department. Why would the fed allow such a parallel economic system to develop which is beyond its purview? Either the US govt is stupid enough to let Bitcoin and other cryptos flourish, or it has discovered new means to maintain its bird's-eye view on web 3.0 too. Although the idea of a digital, decentralized global currency is plausible, it will never be allowed to exist. And decentralized, no... we will have to use another word instead of decentralized because the majority of the crypto supply is held by whales, and whale manipulation is very common to see. Take for example Shiba INU, at the time of writing this article, the top 10 wallets own 72% of the total supply, and the biggest wallet holds a whopping 41%, and people call that decentralization, that's the best joke I have ever heard.
It seems like the recent crypto rallies were driven largely by Whales.
Apart from that, though it is considered decentralized and not controlled by anyone, the price of Bitcoin largely depends on what decision the governments of different countries take. As China started cracking down on Bitcoin miners in China, the crypto markets were stressed for nearly 4 to 5 months, this dependency could also be fatal. If there is a day in the future, when cryptos hypothetically grow to counter the dominance of the dollar and the fed does its part to protect the dollar, or if the government decides to take action on terror funding through cryptos, the crypto markets will go for a steep dive. It is also argued that cryptos aren't dependent on government laws and will continue to flourish even if there are banned. Let's just take a hypothetical scenario where something like 9/11 happens, the united states is in a state of alarm, and the US finds out the attack was financed through cryptos and the govt has to act immediately, the first thing they are going to do is to release a press statement advising people to withdraw funds from crypto markets, this would send shockwaves through the market, and the market would correct on a large extent, and when the govt knows that most of the American money is out of the crypto market, it would raise the capital gains tax on cryptos to a very high figure, let's take 85%, and that will be the death sentence of the crypto market as we know it. The market cap which would be in trillions(3 trillion at the time of writing the article) would be worth less than $3000 by the next sunrise, HODL would have turned into SODL.. just joking(just one way by which the US can destroy the crypto market if it wished to) Although something like that is very unlikely to happen, crypto markets are highly dependent on what the government decides, especially the American govt. In other words, the American govt has some sought(actually a huge amount) of control over the crypto markets.
Few crypto enthusiasts also argue that Bitcoin may replace the dollar as the world's reserve currency. But a reserve currency is something that has to be stable, countries look for something that has to be stable not for something that can generate profits. The US dollar has proved itself and has remained stable for decades, it is highly doubtful if something new can dethrone it. As mentioned earlier, Bitcoin prices highly depend on what the US govt decides to do with the crypto market, so making it a reserve currency could also be disastrous. As a crypto enthusiast, what I feel is that Bitcoin may continue its rally for a few more years, but in the long term, Bitcoin may not be able to meet the seemingly high expectations of the investors. Bitcoin's future is not as bright as people think it would be. Rishi D V