Bitcoin, often hailed as the harbinger of a financial revolution, stands at the forefront of the cryptocurrency landscape, captivating the collective imagination with promises of transforming the way we conduct transactions and safeguard our financial assets. Nevertheless, recent empirical data cast doubts on the notion that Bitcoin is on the cusp of becoming a mainstream currency, and instead, suggest that it might more closely resemble a speculative endeavor akin to gambling. In this article, we delve into the empirical evidence that challenges the widely held belief in Bitcoin's potential as a practical medium of exchange and contemplate the reasons behind its predominant association with speculative investment.
Revisiting Bitcoin's Founding Vision
The original conceptualisation of Bitcoin, as articulated in the seminal 2008 white paper by the pseudonymous creator "Satoshi Nakamoto," posited a decentralised, peer-to-peer electronic cash system. The essence of this vision was to facilitate direct online transactions between parties, circumventing the need for intermediaries such as traditional financial institutions. However, this initial vision appears to have diverged significantly from Bitcoin's present-day reality.
Confronting the Data on Bitcoin Usage
Notably, fresh data from the Reserve Bank of Australia paints a sobering picture. This central bank, every three years, conducts an exhaustive survey of a representative sample of 1,000 adults to gauge their payment preferences. The results from this survey reveal that cryptocurrencies, including Bitcoin, are being utilised by no more than 2% of the adult population in Australia. This disconcerting observation aligns with analogous findings in the United States and Sweden, where the adoption of cryptocurrencies for everyday transactions remains exceptionally limited.
Price Volatility: A Barrier to Practical Use
A pivotal reason for Bitcoin's marginal role in daily transactions is its infamously volatile price behavior. The majority of cryptocurrencies exhibit extreme fluctuations in value, rendering them unsuitable for establishing stable prices for goods and services. For instance, a retailer opting to price their products in Bitcoin would find themselves obliged to revise these prices incessantly to accommodate the currency's swift and unpredictable fluctuations.
Efforts to address this concern through stablecoins, which pledge to maintain a consistent value, have encountered their own set of challenges, casting doubts on the long-term viability of such solutions.
Store of Value or Speculative Gamble?
If Bitcoin is not predominantly employed for transactional purposes, what utility does it offer? Proponents argue that Bitcoin's primary allure lies in its potential to serve as a store of value, particularly during periods of inflation, thanks to its capped supply.
However, this assertion confronts a challenging reality. In 2022, while major traditional currencies experienced a modest decline in purchasing power ranging from 7% to 10%, Bitcoin's purchasing power witnessed a substantial drop of approximately 65%.
In the present landscape, a significant proportion of individuals who invest in Bitcoin view it as a speculative asset, predicated on the expectation that its price will appreciate over time. Nonetheless, a comprehensive study by the Bank for International Settlements reveals that the majority of Bitcoin investors globally, between August 2015 and December 2022, have incurred losses.
The collective market capitalisation of cryptocurrencies reached a zenith of $3 trillion in November 2021, only to contract to approximately $1 trillion at present. The once lofty price of Bitcoin, which surged to $60,000, has since receded to $30,000 in 2023, accompanied by a decline in public interest.
Within the United Kingdom, over 50% of British crypto holders regard their investments as a "fun investment," and an additional 8% explicitly classify it as a form of gambling. The UK parliament's Treasury Committee has gone so far as to recommend the regulation of cryptocurrencies as a form of gambling, rather than as conventional financial products.
In light of these findings, it is paramount for individuals to comprehend that investing in cryptocurrencies, particularly Bitcoin, shares a closer kinship with speculative gambling than with conventional investment practices. It constitutes a high-stakes endeavor, necessitating a prudent approach and a readiness to acknowledge the potential for significant financial losses.
As Bitcoin continues to navigate its complex trajectory, the question lingers as to whether it can ever fulfill its foundational vision as a universally embraced digital currency or if it will remain anchored in the realm of speculative investment in the financial world.