Bitcoin has undoubtedly opened the world to the idea of digital currencies, which is a big leap forward for greatly improving the world's financial system, but if we take into consideration all of the drawbacks and flaws of Bitcoin, we quickly realize how low the chances are of it actually succeeding as a currency.
For something to be considered a traditional function of money, it must fill three requirements: Be a medium of exchange, store of value, and unit of account. Despite speculations, Bitcoin doesn’t efficiently fulfill any of these functions, which is why many economists have doubts about Bitcoin.
For context, I have owned Bitcoin for several years (since it was under $200) and used to be a huge proponent of it. Unfortunately, it’s since been taken over by bad actors who only care about personal gain and illicit practices. By separating myself from my bias, I understood how flawed Bitcoin truly is.
In this article, I’ll be going over 5 of the top reasons why Bitcoin could likely fail in the future, which would catalyze a long-term major market correction.
1. Failure as a Payment Method
Many might praise Bitcoin for its innovative features, but what’s so innovative about having higher fees and slower transaction times than any bank on earth? When this is mentioned, Bitcoiners will quickly change the subject to the fictitious “lightning network”, which is a typical red herring fallacy.
Contrary to popular belief, the Lightning network is NOT Bitcoin. It’s a fully centralized system that isn’t settled on the BTC Network and can only sustain less than 0.00001% of users, which means it will never work on a large-scale population. It’s a common distraction BTC promoters use to avoid the elephant in the room, Bitcoin is expensive, slow, and unscalable.
Fun fact: Bitcoin processes less than 4.6 transactions per second, while Visa does around 1,700+ transactions per second on average. Even with less than 1% of the world having dabbled in Bitcoin, we’ve seen so many instances of scalability issues, imagine what would happen on an even larger scale?
During both the 2017, and 2021 Bitcoin bubbles, we saw fees surge above 50$ (on average) per transaction. Imagine going to the store and buying a pack of gum for 2$, waiting for hours, then finding out your total is 52$. I’d be pissed.
Shortly after El Salvador passed the Bitcoin law, a survey found that a whopping 77% of their citizens were strongly against it. Why? Because they couldn’t afford the fees for even a single transaction, which was sometimes equivalent to many days or weeks' worth of wages.
Bitcoin’s high fees and transaction times have made it unrealistic, and unreasonable as a payment method. Few people are using Bitcoin to make transactions, and that trend won’t be changing anytime soon.
Low acceptance as a means of payment
With the rapid rise in popularity of Bitcoin over these past few years, you would expect to see many companies accepting Bitcoin as a payment method, right? Well, you’d be wrong.
Bitcoin is mainly used as a tool for speculative gambling, and not actually utilized for payments. Earlier this year, Tesla made the risky bet of accepting Bitcoin, in which I responded with a thread explaining why that would be a terrible idea.
Just a few months afterward, Tesla reversed this decision and decided to no longer accept Bitcoin. They realized how volatile, risky, and unrealistic it was as a store of value, and payment method. They had thousands of complaints from users being locked out because the transaction took too long, or they even accidentally sent it to the wrong address.
Even Anthony Pompliano, the Bitcoin promoter, didn’t want to accept Bitcoin, but rather use it as a marketing stunt to lure people into his “Bitcoin” Pizza store, which ironically only accepted fiat.
How can Bitcoin be a global currency when not even the hardcore Bitcoin maximalists want to use it as a currency, but rather hold it in hopes it rises more? Pretty much everyone is in it to make profits (in fiat).
2. Bitcoin’s Real Value is Artificially Inflated
Many think Bitcoin won’t fail because its price has been on a large uptrend for the majority of its existence. They think price equals utility, which is a huge misconception that has fooled many into believing all sorts of things over the years.
Remember Bitconnect? Before its collapse, its promoters used its extreme growth as an advertising feature to lure in new investors. “We’ve gone up 50,000%, you must buy in now!” —It eventually popped, and is now up 0%.
Stable Coins are behind Bitcoin’s price
More people have jumped on the hype train of Bitcoin before any real-world utility has been actually provided, which is a risky, and dangerous bet considering the #1 reason Bitcoin has risen like crazy is because of Tether.
For those that don’t know, Tether is a stable coin that’s guilty of running the largest price manipulation scheme in history. They essentially print billions in unbacked dollars, use corrupt and unregulated exchanges like Bitfinex, and Binance to purchase coins, then pump Bitcoin when they chose.
Considering around 80% of the volume of the market is transacted with Tether, there’s no justification that the current price accurately reflects Bitcoin’s true value, which I believe is far below the $7,000 price range.
Without Tether, Bitcoin would be significantly lower. And that isn’t just a conspiracy theory, we’re witnessing it in real-time as Tether hasn’t printed in nearly 2 months, and the prices have effectively tanked and flatlined.
3. Bitcoin Is a Huge Waste of Energy
For the Bitcoin network to function, it needs miners to solve complex math problems, which require mining rig setups that consume enormous amounts of energy. It’s estimated that Bitcoin miners consume around 118 Terawatt Hours per year, which is even larger than many countries.
The worst part about this is the energy consumption is totally unnecessary, and just another one of Bitcoin’s outdated flaws. As we know, cryptocurrencies can use proof of stake, and other preferred techniques to verify the ledger.
Most countries on earth will soon ban Bitcoin mining
Yes, that is a bold prediction, but I truly believe it will happen.
Despite many Bitcoin maximalists lying, and saying Bitcoin is actually good for the environment (Yes, they say that), it’s no surprise to anyone with a working frontal lobe to acknowledge the fact that Bitcoin mining has disastrous environmental impacts, and with climate change being one of society's top concerns, it’s only a matter of time before we see more crackdowns.
Months before China announced they would ban Bitcoin mining, I was warning my followers in my newsletter that it was bound to happen. The BTC network has since seen a 50% reduction from a single country banning it, so what happens when other major economies follow suit? A chaotic network death spiral.
In the future, the USA, Mexico, Canada, Germany, France, Italy, Spain, Australia, Russia, and dozens of other large-scale economies will likely follow China’s lead and implement big restrictions on Bitcoin mining to tackle climate change.
Even Halfin, Bitcoin’s earliest adopter, knew it was an issue in 2009. Bitcoin’s energy consumption has since risen by over 789,000 times, which he would likely strongly disapprove of if he was still alive.
4. Bitcoin isn’t a store of value.
We often hear from Bitcoin maximalists that Bitcoin is a store of value, and competes directly with gold. I’m sorry, but an asset that loses over half of its value in a matter of weeks when a celebrity tweets about it cannot be considered a store of value, at least in the traditional sense.
If Bitcoin repeated the move that it did earlier this year, it would be worth $0.
A store of value is defined as “the function of an asset that can be saved, retrieved and exchanged at a later time, and be predictably useful when retrieved. More generally, a store of value is anything that retains purchasing power into the future.”
By this definition, bitcoin is much too volatile to be considered a store of value. There is a bit of irony here. Most investors in bitcoin today believe it’s a store of value. Yet if it were a store of value, they probably would not want to own it. It would be boring — like gold.
Bitcoin’s Extreme Volatility
Unlike fiat currencies such as the U.S. dollar, bitcoin has proven to be too volatile to make it a reliable vehicle in which to store value over long periods of time.
Its price history since its inception in 2009 has seen extreme ups and downs. Events such as cyber-attacks or criminal revelations have all played a part in influencing the price of bitcoin, whether for good or ill.
In 2018, Bitcoin lost over 85% of its valuation after Wall Street launched Bitcoin futures, which allowed mega-institutions to open massive shorts, and tank the entire market. This wouldn’t be as easy if Bitcoin had inherent value or government backing.
The only reason people would even consider buying bitcoin is that they believe they can sell it at a higher price in the future.
Current buyers are betting that bitcoin might later become widespread. Therefore, bitcoin is in a positive feedback loop. As more Tether is printed, more buyers come in, the prices pump, which in turn attracts more buyers, and so on. However, the reverse is also true. A fall of confidence in the currency will only cause more people to sell, leading to a downward cascade
5. Regulations will tame Bitcoin
Ever since this bull run made global headlines, regulators from around the world have been focusing their efforts on the crypto markets. While some compliant projects will survive, the majority are in for a harsh reality.
While regulators already know that regulating Bitcoin will be hard, if not impossible, they have something else they are going after. Stable coins.
In the near future, countries will adopt strict policies that restrict stable coins like Tether, and USDC from engaging in certain activities such as money laundering, and price manipulation. While these regulations will be overall beneficial to the community in the long run as it eliminates fraud, they will still likely have a negative impact on the prices of many assets that are dependant on stable coins.
Countries have been hinting at regulations for many months now, so don’t be surprised when they are eventually introduced. Just last week, America’s largest financial regulators met to discuss stablecoins, with Treasury Secretary Janet Yellen emphasizing “the need to act quickly to ensure there is an appropriate U.S. regulatory framework in place,” for these digital assets.
In addition, the government has dozens of other options to tame Bitcoin. They can shut down centralized exchanges, ban Bitcoin mining, ban citizens from trading Bitcoin, restrict internet access to certain crypto platforms, and be more strict with KYC/AML requirements.
In these past few months, we’ve seen the consequences Binance is facing from dozens of regulators who are aiming to crack down on their illegal activities. To say that their actions cannot negatively impact the prices is being naive.
Binance is the largest crypto exchange on earth, and when they vanish, a huge chunk of Bitcoin’s volume and value will also vanish alongside it.
To succeed as an investor, one must look at things from a contrarian and unbiased perspective. Sharing both sides of the story, whether good or bad, is absolutely essential in determining how your asset will perform.
Many Bitcoin investors strongly underestimate the power governments have. We have countries like the USA that have started huge wars in order to protect the US dollar. If Bitcoin ever poses a threat to them, they will go to great lengths in ending it, and I think they will be successful in doing so.
With the combination of some of Bitcoin's flaws as highlighted above, it’s evident that Bitcoin could face a rocky future. Once the price manipulation and speculation gambit has passed, Bitcoin’s value will aggressively shrink.
A correction of -99% isn’t out of the picture.
Mr Whale's Article originally posted here: https://cryptowhale.medium.com/5-reasons-why-bitcoin-could-fail-and-soon-witness-a-99-correction-c0e594483711