Bitcoin can also deflate but it demonstrates one thing: the need for a digital currency is there

SOPA Images via Getty Images

UKRAINE – 2021/02/09: In this photo illustration, BTCUSD / Bitcoin USD price information seen displayed on a smartphone with a Bitcoin logo in the background. (Photo Illustration by Igor Golovniov/SOPA Images/LightRocket via Getty Images)

The Bitcoin phenomenon divides experts like never before. Insiders (economists, central bankers, financial operators) are almost unanimous in arguing that this is a bubble destined to deflate: Bitcoin would have no value or, if it does, it would be very low. Those who come from the world of startups and new technologies argue instead that we would be facing a revolution with Bitcoin representing the currency of the future. They even talk about ” digital gold ”.

Let’s go to the facts. If we stick to Wall Street’s saying (“ the markets are always right ”) we should recognize that Bitcoin is not a bubble. Its price has remained fairly stable under € 10,000 over the past year and a half with no signs of ” deflating ”. However, there is one fact that cannot fail to arouse suspicion: the high volatility, in the last three months, for no apparent reason, the price of Bitcoins has tripled.

Yesterday Elon Musk announced that he had invested 1.5 billion dollars in Bitcoin (against a market that touches one trillion) and its price has risen by six thousand euros. Surely there was a herd effect due to being the character’s guru with so many people who followed his example; Musk was clever though: he also made an announcement that it could have affected the value of Bitcoin, in fact he announced that Tesla will accept Bitcoin. Is this enough to explain the price change? Difficult to think, but there may be some reason.

This is not the place to explain how Bitcoin works. It is a virtual currency that is exchanged on a platform called blockchain that lives in a virtual wallet and not on a current account. The amount of Bitcoin in circulation depends on an automatic rule that generates Bitcoins following the use of the same currency to transact goods or services. The quantity is limited and almost all will soon be in circulation.

Bitcoin thrives on a misunderstanding regarding its true nature: currency or asset?

A currency performs the function of being a payment instrument to regulate the exchange of goods and services. For a currency to be such, it must be accepted to settle transactions. The euro, for example, has ” legal tender ” in the countries of the Euro area which means that if an apple costs one euro then the greengrocer will be obliged to accept my euro if I want to buy it. An important feature of a currency to be such is that it is accepted within a community without discussion and that its value (in terms of goods that I can buy) is stable. This is typically guaranteed by a central bank that keeps inflation in check. Thanks to this fact it is said that the currency represents a store of value.

Bitcoin is a candidate to be a currency that does not live in our wallets or in our bank accounts. A currency that does not fall within the traditional payment systems (those of credit cards and bank transfers) and that escapes the control of Central Banks.

To be a ” true ” Bitcoin coin it must therefore overcome these two challenges (which are linked together): it must be accepted by a large community, and therefore it must be used, and its price cannot fluctuate significantly in how much if so no one will use it to preserve their savings over time.

The problem is that Bitcoin is currently accepted by a small group of operators, it has technological limitations that make its technology very expensive and difficult to scale to many transactions. To date, the number of transactions made in Bitcoin on the blockchain represents an insignificant fraction compared to those made with credit cards.

For this reason Elon Musk has changed the value of Bitcoin at least on paper: saying that his company would accept Bitcoin for payments showed that the community that uses them is expanding. The effect in practice is insignificant but the evocative / prospective value is certainly there.

The high volatility of Bitcoins is due to the fact that many operators interpret them as an asset: being in limited quantities, they enjoy the so-called “ scarce lands effect ”, everyone wants to buy them because there are few of them and they will have a safe-haven value. just like gold has been for millennia. It is frankly difficult to predict whether there is this effect: gold is sought for jewelry, what is the use of holding Bitcoin itself is difficult to say.

What will remain of Bitcoin? The fundamentals say that as an alternative asset it does not have great value, the possibility of it becoming a virtual currency used on a permanent basis is there but it will have to solve the problems related to scalability and high volatility and above all it will have to guard against the competition of more mature instruments. like the Stablecoin (Tether above all).

The need to have a digital currency is all due to its ability to reach people who are outside the banking circuits but have a mobile phone (over 2 billion in the world and 90 million in Europe), to counteract the decrease in the use of cash, due to its ability to be perfectly integrated with digital channels and to settle payments outside of banking circuits. The point is who should promote it: can it be private individuals or must it be central banks that have the undoubted merit of governing the economy with monetary policy?

This is perhaps the heaviest legacy of the Bitcoin phenomenon: it has shown the need for an epochal innovation on an instrument almost as old as civilization. A great battle started almost anarchically by Bitcoin, carried out (with little success at least for now) by Facebook with Lybra. Now the European Central Bank has come into play and is studying the introduction of a digital euro (one-to-one convertibility with the paper euro) for fear that another monetary authority will do it or that a private individual will do it. In short, the game is getting tough and the tough are starting to play. In all likelihood, it will not be Bitcoin that will win, but certainly the bud we are witnessing comes from there.

Source: Huffington Post Italy Athena2 by

*The article has been translated based on the content of Huffington Post Italy Athena2 by If there is any problem regarding the content, copyright, please leave a report below the article. We will try to process as quickly as possible to protect the rights of the author. Thank you very much!

*We just want readers to access information more quickly and easily with other multilingual content, instead of information only available in a certain language.

*We always respect the copyright of the content of the author and always include the original link of the source article.If the author disagrees, just leave the report below the article, the article will be edited or deleted at the request of the author. Thanks very much! Best regards!