Cryptocurrency: Expert discusses success of Bitcoin
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Bitcoin is continuing to fall after a major crypto market slump. The latest price fall means analysts remain divided over whether the problem is existential or simply a blip on the road to more record highs. Indeed, despite the recent fall, Bitcoin’s rise over the past few months has been consistently positive. But that does not make a warning from legendary economist Burton Malkiel about the cryptocurrency’s future any less relevant.
Writing in the latest edition of his iconic book ‘A Random Walk Down Wall Street’, Mr Malkiel explains how disastrous it could be if Bitcoin’s underlying encryption system is hacked.
He notes: “There would be no time to update the system’s protocol so as to keep everyone’s money safe.”
Mr Malkiel also claims holders of Bitcoin tokens “often reside in countries with weak rules of law” and “tenuous property rights” while noting that the cryptocurrency could be looked on favourably in North Korea.
Several economists have previously argued that the growth of Bitcoin has been called an “index of money laundering”.
However, Mr Malkiel appears to see the writing on the wall as he explains how legislation could burst the bubble.
He writes: “Governments can be expected to crack down on the use of Bitcoin and other cryptocurrencies for illegal transactions.
“Governments can threaten to imprison individuals using Bitcoin, which could force it into a black market.
“In 1933, US President Franklin D Roosevelt made it illegal for Americans to hold gold.
“All governments have rightly been very particular about their sole right to issue and control currencies.”
Mr Malkiel also explains how Bitcoin’s reliance on energy usage could prove fatal.
He adds: “Governments can shut down the exchanges on which cryptocurrencies are traded.
“Since Bitcoin mining operations use considerable computer power and are energy-intensive, restrictions can be imposed on the computers that run the public distributed ledger central to the transactions network.
“Creating a single token requires as much electricity as the typical American house consumes in two years.
“The total network of computers comprising the Bitcoin network consumes as much energy each year as some medium-sized countries.”
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The latest Bitcoin slump has sparked division among financial commentators, too.
Fawad Razaqzada, market analyst at ThinkMarkets, said last week that a big drop is often followed by a surge.
He said: “The bigger the drop, the higher the bounce.”
However, he added that crypto’s up and down nature will remain, meaning Bitcoin will continue to be an unpredictable asset.
Mr Razaqzada said: “But it remains to be seen whether the recovery will hold.
“Cryptos will likely stay volatile for a while as speculators weigh the impact of China’s ban and Tesla’s U-turn against the recent growth in institutional interest.”
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JPMorgan also warned in a report last week that institutional investors are dumping Bitcoin in favour of gold.
The American investment bank added: “The Bitcoin flow picture continues to deteriorate and is pointing to continued retrenchment by institutional investors.
“Over the past month, Bitcoin futures markets experienced their steepest and more sustained liquidation since the Bitcoin ascent started last October.”
Express.co.uk does not give financial advice. The journalists who worked on this article do not own any Bitcoin.
Burton Malkiel’s ‘A Random Walk Down Wall Street’ was published by W.W. Norton & Company Inc. It is available here.
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