It is a dream rally in less than a decade any asset class can witness, early movers has made lot of money notionally. Who has missed investing …… regret, many call it technology & digital currency of tomorrow? It is future of unified world with one currency & not participating in same initially give feeling of FOMO to many.
But will this sustain and continue……..????
Scanning Crypto’s “IFs & Buts” through this article, can crypto sustain or it may have deadly end, wiping out tonnes & tonnes of money. Analyzing crypto world and understanding will this is here to exist or exit…… or turning out to be lethal weapon of investment in long term or legal token of new world.
- Not backed by any assets: It is digital token, mined digitally and also maintained digitally. It is virtual coin saved at multiple nodes but not backed by any of asset.
Mining new bitcoins by solving certain mathematical problems and algorithm. As it is not backed by any physical assets lacking intrinsic value and remains highly speculative.
- Reducing control and power of Central Banks: Most of Central bank does not recognize cryptocurrency, major reason being it will make monetary policy ineffective to an extent, tool used by central bank to control the quantity of money available in an economy and the channels by which new money is supplied. By managing the money supply, a central bank aims to influence macroeconomic factors including inflation, the rate of consumption, economic growth, and overall liquidity. Digital or virtual currencies are a medium of exchange only but are not regular money, unlike dollar bills and coins.
- Except one country, no Country recognize Crypto as legal tender: El Salvador is first country to recognize the crypto as legal tender, however no other country recognizes the same as legal tender. However, US and Canada allow the trading of same but few countries like China and Russia is against the trading also.
Hence, long way for crypto before it got recognized globally or at least by majority of nations.
- Most importantly not sustainable: Cryptocurrency mining is not sustainable and is not environment friendly. It requires lot of energy and miners are using high power systems in turn generating heat and consuming lot of power. On one side we want countries and corporates to be carbon zero, however crypto is not supporting the same infact digging bigger problems like power scaricity, e-waste etc.
Key Note: China has not banned mining just to fill in the loopholes to ban crypto in country, but ban in mining has also been implemented because of environmental concerns and power consumption involved in mining process.
There is worry that “mining,” the energy-intensive computing process through which bitcoin and other tokens are created, is hurting global environmental goal
China’s National Development and Reform Commission said it will work to cut off financial support and electricity supply for mining, which it said spawns risks and hampers carbon neutrality goals
Kazakhstan’s bitcoin ‘paradise’ is losing its lustre after the challenges faced and few stricter actions by the government, world second largest centre of mining and most preferred location after China ban because of cheaper power and easy to shift to China.
Country with low energy prices and energy surplus, had found that its aging power grid was not prepared to handle the sudden influx of miners, which caused a spike in the consumption of energy leading to energy crisis in nation. The government said mining accounts for 8 percent of the country’s capacity. Grappling with blackouts and power cuts, in October 2021 the government announced it would start rationing power supply to registered miners and unplug them if the grid came under any stress. All this is impacting hash rates and hence crypto.
Taking a cue from above, the one of the biggest concerns towards blockchain technology and hence crypto is sustainability, we are going digital but multiplying our problem of environmental issue and power shortages (increasing our dependency on the coal, petrol etc.)
- Currency or Commodity:
Will crypto become the 6th stage in Evolution of money, it is too early to comment.
Commodity Money à Metallic Money à Paper Money à Credit Money à Plastic Money à à Crypto
(Can crypto be sixth stage in evolution)
Money has certain function to do, it is supposed to act as medium of exchange, unit of value and capability to store the value. Despite many challenges, crypto has been used as money on small scale. As few payments apps support crypto wallets and enable the exchange. Wallets brings hope for crypto for tomorrow.
But crypto has features similar to commodity instead of currency used as money. Commodity with value decided by traders, demand-supply and value can vary from 0 to anything, used as medium for exchange but with limited functionality as money.
- It is decentralized
- It is mined by miners digitally
- It is limited and cannot be printed unlike currency
- It cannot be controlled by any central bank
- Price is decided by demand and supply as not backed by any asset.
Till the time it become legal tender, it remains digital commodity which is mined virtually and held virtually.
We are advancing digitally but taking a step back …… Earlier in world gold was used to trade & it was decentralized and mined by miners, no central bank can print or control the price of gold, it is controlled by demand and supply & mining activity,
- Crypto loves volatility: It is highly speculative, with no intrinsic value (not backed by any asset like gold etc.), additionally it is nascent asset class as price in discovery phase & terminal value is not defined. Price is majorly driven by demand supply and speculations of traders.
Moreover, no central bank or government can intervene to control the price. Crypto witnessed crash on account of Musk Tweets & actions (The MUSK EFFECT), Government announcements, environmental issues and hacking activities etc. etc……
Few instances captured below:
| Year | Crashes |
| June 2011 | -99% ( from 32 to 2) Mt Gox exchange confirmed about hackers attack. |
| August 2012 | -56% Ponzi Scheme investor has been bilking crypto investor for month. |
| April 2013 | -83% (260 to 50) Mt Gox couldn’t handle the volume & hackers attack. Forcing Mt Gox for total Shutdown. |
| December 2013 | -50% China Banned Crypto |
| Dec 2017 to 18 | -84% from peak of 20 K to 12 K |
| March 2020 | -50% Pandemic Effect |
| May 2021 | -53% Musk Effect |
- Used for Terror Financing: Turning out as mode for terror financing, money laundering activities with no or very low control on same.
Acceptance of crypto in future will be further challenged, once we have central banks coming with digital currency. Crypto has gained the significance on account of currency of future and still it cannot be ascertained hence long way to go. Crypto survival and acceptance have been in danger again and again over time. Central Bank Digital currency as when get introduced will be a game changer for crypto and may leave investors with awry.
But when humans are turning virtual so do the currency, in world of Meta crypto can be currency of tomorrow, limiting the boundaries. But will it continue to exist or some other digital currency will replace because of its sustainability issue.
Is it serious Investment or Gamble or Currency ??… ask yourself before committing yourself to it.
Kravyafin 
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