In February 2021, as Bitcoin price approached $ 50,000, investors enthusiastically asked if its price would hit $ 100,000 in 2021. With Bitcoin price hovering around $ 36,300 right now, investors may be asking the same question, but with less enthusiasm. I propose that the answer to the question today, in June, be the same as it was in February; and this answer is “possible, but unlikely”.
The main point I want to address in this post concerns the reasons for “unlikely”. But first I would like to make a few comments on the “very likely”.
Think of the meme stock phenomenon that was so pronounced in 2021. One of the most important aspects of stocks like GameStop
Remember how much influence people like Elon Musk can have. Musk gave Bitcoin a big boost than Tesla
The climate change problem associated with blockchain technology in general, and Bitcoin in particular, is a major reason for the “unlikely” part of the answer. The huge demand for processing Bitcoin transactions is a fundamental fact of life; and it’s an investor that most investors have turned a blind eye to. Plain and simple: The rise in Bitcoin price from under $ 10,000 a year ago isn’t because the basics of Bitcoin transaction processing improved three to seven times.
At the a recent Stanford University event, I had the opportunity to ask Mark Carney, UN Special Envoy on Climate Change, about his impressions of cryptocurrency. Carney is well positioned to speak out on this matter. He is an economist who headed two central banks, England and Canada, and previously worked on Wall Street. He understands finance as well as climate change.
I formulated my question to Carney by mentioning that China, where most of the Bitcoin transactions take place, has decided to prevent processing of cryptocurrency transactions because such processing is incompatible with the country’s commitment to combating climate change. In response to my question, Carney made three points.
First, since climate change is an existential challenge, the last thing we need is a financial transaction technology that complicates the challenge. Bitcoin, of course, does this because of its enormous appetite for electricity.
Second, there are some who argue that the enormous power hunger of Bitcoin processing will pay more attention to the need to combat climate change. That argument, Carney said, makes no sense as there are better and cheaper ways to raise awareness of our need to deal with the challenges of climate change.
Third, there are many digital currencies in the world. Not all digital currencies require blockchain technologies. The competition between technologies typically leads to efficient solutions. This should also happen with competing digital currencies. Additionally, investing in improving processing technology could lead to drastic improvements in blockchain-related electricity demand.
I think Carney is right on all three points. There is a lot of irrationality driving the price of Bitcoin.
How long it will take for Bitcoin to reflect its fundamental value is unclear, but the sooner the better. The lack of clarity arises from the strong presence of feelings. In this age of meme investing, it is clear that many investors like to bet on the sentiment.