Crypto’s Empty Core: Price volatility is the reason Bitcoin does not become currency

 Ever since it burst onto the firmament of the financial universe 17 years ago, Bitcoin’s obituary has been written often but it has not just come back but made superlative returns. From a sideshow in the underbelly of the internet, it gradually became centrestage. After Donald Trump became US president, it was even given the label of a strategic reserve. Lately, however, despite all the mainstreaming, its price has been tanking. In five days starting this week, it was down 10 per cent. In one month, it was down over 20 per cent, and in the last six months, 36 per cent. The direction is clear.

It is never a wise thing to write off Bitcoin but such price movements are why it cannot be what it prom­ises—an alternative to fiat currency, or the cold cash you hold in your hand. If you go to a shop to buy something, you are reasonably sure that the next day it will be more or less the same price. A year later, may­be 5 per cent more of the amount will be needed, depending on inflation. But with cryptocurren­cies, you might need 30 or 40 per cent more, or you might save on 30 or 40 per cent. With such a currency, how is it possible to conduct any real-world transactions at all? What advantage can it give over the regular medium unless something illegal, or under the radar, needs to be done? It is why the dark web loves crypto.

Ergo, what you have is something that is currency in name only and whose entire value comes from being a spec­ulative asset. People buy and sell it expecting the price to go up and down, in order to make a profit. It does very little beyond that because it has no inherent value. That might be true of paper currency too but there is one big difference: the weight of the state behind it. The five-rupee symbol on the paper is guaranteed by the Reserve Bank of India. No one can really predict whether Bitcoin will continue to fall or once again make one of its trademark revivals, but one should not confuse buying Bitcoin with investing. It can make you money but so does gambling.