Author: John Wang
The BRB Bottomline
In light of recent massive spikes in cryptocurrency, many new investors have joined the fray with a “can’t lose” mentality. In actuality, having money invested in cryptocurrency right now is anything but a “can’t lose” situation.
The immense hype and chatter surrounding cryptocurrency these days is reminiscent of that during the big Bitcoin boom in 2017, with waves of recent enthusiasm fueled by major developments in the cryptocurrency world. Crypto exchange and brokerage firm Coinbase initially filed for an IPO towards the end of 2020, but pivoted on February 25th, 2021 to plans of direct listing, signaling a growth in acceptance of cryptocurrency as a legitimate means of exchange and store of value. Large, established corporations have invested large amounts of money in popular cryptocurrency Bitcoin, including Tesla’s monstrous investment of 1.5 billion dollars. As of early March 2021, Bitcoin’s market capitalization stands at a whopping $960 billion US Dollars – and some believe it can continue to rise and hit the trillion dollar mark. In the midst of waves of booms in pricing and public excitement, many are convinced that cryptocurrency is once again on the verge of another bull market, like they witnessed in previous years.
They may be getting a little bit ahead of themselves. There are countless reasons to be wary of this coming again of the crypto craze. Cryptocurrency is notoriously unstable and volatile, and fluctuates heavily with every tiny shift in public opinion. In the past year, flagship cryptocurrency Bitcoin has had an unsettling 8 corrections, as opposed to at most one or two for major stock indices such as the Dow Jones Industrial Average. Investors in cryptocurrency have many concerns to worry about, the largest being the threat of regulation by the government, which will effectively cripple cryptocurrency out of existence and lose them billions of dollars. So when the slightest rumor of potential disaster circulates, the price takes an intense nosedive. That inherent volatility prevents cryptocurrency from being a reliable medium of exchange – it’s impossible to put your confidence in the stability of a currency’s value, when its price never ceases to fluctuate and is anything but stable. Put that on top of the fundamental issues of it being an inefficient and unintuitive medium of exchange, and you’ll find yourself with a recipe for disaster. The current hype around cryptocurrency is primarily because of recent price spikes, and no legitimate scarce asset can sustain these price increases for long. Cryptocurrency is a completely intangible asset, with no backing whatsoever – its value completely is propped up by public interest and their willingness to accept its value. Looking at the situation now gives me flashbacks of the 2018 Bitcoin crash: when its bubble popped, causing its value to drop by 65% in just one month. Like it was in 2018, cryptocurrency right now is once again a bubble holding maximum tension – it can pop at any moment, leaving millions of investors in the hole.
John is a first-year student from New York City, New York studying in the College of Letters and Sciences as an economics major.