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7 misconceptions about bitcoin: Speculation? Waste of energy? Too much volatility?

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Media commentators have often gravely misinterpreted bitcoin as nothing more than a speculative vehicle, an environmental disaster, a bubble, or worse.

Original source: Chain Catcher

This article is from Fortune and translated by Chain Catcher.

Bitcoin's recent surge has revived old media fantasies. A recent story in the Canadian bitcoin newspaper Globe and Mail said: "Bitcoin's Trouble: Why the Crypto Boom Won't Last."

To be sure, Bitcoin could be polarizing. Bitcoin diehards claim that this encryptioncurrencyWill soon replace gold, all government-backed currencies and credit cards, and cripple the banking system. Except for a rational boom, this is unlikely to happen, at least in the short term. On the other hand, media commentators have often gravely misinterpreted bitcoin as nothing more than a speculative vehicle, an environmental disaster, a bubble, or worse.

This makes theinvestmentIt is shameful that an honest, sober analysis of the facts is almost impossible. As a new asset class, investors must do their homework on Bitcoin and carefully consider the risks before joining.

So, in that spirit, it's time to fact-check some common bitcoin misconceptions:

1: Bitcoin is only for speculation

This is not accurate. About $10 billion worth of transactions are settled on the Bitcoin network every day. The average daily trading volume of bitcoin is 305,000, the same as that of the Federal ReservefinancialThe daily rate of 550,000 transfers by Fedwire, a settlement system between agencies, is not far off.

Some of these transactions represent investment purchases, some of which may be speculative, but many others are used on a regular basis, such as remittances, especially in developing countries. In Nigeria, for example, 32 per cent of people own bitcoin for peer-to-peer payments, according to the World Economic Forum. In regimes like Russia and Belarus, Bitcoin is sometimes the only way to fund anti-corruption efforts and protests. That's useful.

2: Bitcoin wastes energy

Bitcoin "miners" use powerful computing power to protect the Bitcoin network. These computers consume a lot of energy: by one estimate, it uses as much energy as the country of Chile. This leads to wasted energy.

The Bitcoin network could secure $1 trillion worth of value and provide services to millions of people, including many who do not have access to traditional payment networks. Miners often live in places where electricity is plentiful and free, which usually means renewable hydroelectric or geothermal energy.

Today, at least 39% of bitcoin is ownedminingPowered by renewable energy, and that share is growing rapidly. Bitcoin's carbon footprint is definitely an issue that needs to be addressed. But that doesn't mean bitcoin is a bad idea. Instead, the carbon footprint is a challenge to overcome, like all useful entities.

3: Bitcoin is too volatile to store value

True, bitcoin is more volatile than government bonds, but it's not inherently a bad thing. In the 1970s, as gold was formally removed from the monetary system, its price was extremely volatile, rising tenfold in a decade, then falling by 60% before leveling off for decades. Gold, with its rising value, is the most volatile. Sometimes the most volatile assets earn the best returns, and sometimes they don't. Bitcoin today is in a "price discovery" phase, similar to gold in the 1970s, where big ups and downs were common. That said, Bitcoin may not be for all investors due to its volatility.

4: The government will kill bitcoin

Indeed, in Nigeria, Russia and Belarus, Bitcoin has been given a cold shoulder by governments. But in the United States, Canada and most Western countries, things are different. For example, the top U.S. securities regulator teaches a course on cryptocurrencies at the Massachusetts Institute of Technology; The Commodity Futures Trading Commission, which oversees commodity markets, is a global innovator in regulating bitcoin derivatives; The Office of the Comptroller of the Currency recently gave banks permission to offer custodian services for bitcoin. The central bank's primary concern is financial stability. Nothing would undermine the $1 trillion bitcoin market more than some arbitrary and unwarranted crackdown.

5: Other cryptocurrencies dilute bitcoin

Thousands of new cryptocurrencies have been introduced since bitcoin's launch in 2009, but it has had no discernible impact on the price of bitcoin. It makes sense. As we extract more tin from the earth, will it affect the supply of gold? No, because they are uncorrelated assets. A related criticism is that the total supply of bitcoin is fluid because bitcoin can be subdivided into tiny increments. To understand why this is wrong, replace bitcoin with pizza: If we cut a pizza into a billion pieces, do we have more pizza, less pizza or the same number of pizzas? Of course we are the same.

6: Central bank digital currencies (CBDCs) and corporate currencies will crush Bitcoin

True, many central banks have announced plans for CBDCs, but few have gone beyond the proof-of-concept stage. The only exception is in China, where the government is keen to launch its own digital currency to better monitor the country's spending and extend its reach beyond its borders.

Enterprise digital currency (also known asStable currency) would not threaten Bitcoin. In fact, they might do the opposite. The value of all stablecoins in circulation has soared 40-fold since 2017, but bitcoin continues to thrive as more and more users become comfortable with digital assets.

7: "Easy money" is pushing bitcoin into bubble territory

It is true that all risk assets have been eased by interest rates from the Bank of Canada, the Federal Reserve and elsewherepolicyBenefit. Some beneficiaries of low interest rates -- including high-yielers in high-tech sectors such as Shopify, Zoom and Peloton -- have seen swings of more than 30 per cent as bond yields have risen and money has shifted to more economically sensitive stocks such as banks and energy companies. Bitcoin will probably follow suit at some point, of course, and it would be wise for investors to be wary of any investment that grows more than 500% in value in less than a year, as Bitcoin did. That said, it's worth noting that bitcoin could benefit from tightening policy if it signals accelerating inflation, since many investors view bitcoin as a hedge against rising consumer prices.

I believe that Bitcoin is undoubtedly a catalyst for innovation and could be a key player in the future of our global financial system. For millennia, money has taken a step into the future, from shell shells to pieces of clay to precious metals, banknotes and bank balances. Money is going digital. Buying bitcoin could provide a way to access that future opportunity. But Bitcoin is no guarantee of success and may not be the right investment for everyone, with the same risks and uncertainties as any new paradigm. To understand bitcoin, start with the facts.