Bitcoin has faced a pretty hard time when it comes to official acceptance across the globe since its inception back in 2008. In the recent round of events, one of the most powerful personalities of the world, Donald J. Trump, the President of the USA, showed his disinterest towards the burgeoning world of cryptocurrencies in a Twitter thread stating:
I am not a fan of Bitcoin and other Cryptocurrencies, which are not money, and whose value is highly volatile and based on thin air. Unregulated Crypto Assets can facilitate unlawful behavior, including drug trade and other illegal activity
Trump has highlighted one of the basic “flaws”, as some traditional financial gurus would like to term it, of volatility in the crypto space. Bitcoin and most “pure” cryptocurrencies are not backed by any physical commodity such as gold, oil, etc. as that creates a dependency.
Although lack of physical backing makes it different than the fiat system but it is also the factor that results in extreme spikes and drops in bitcoin’s price. The price of bitcoin is solely based on speculation alone, that is believing it carries value.
Due to such faith-based price control with no backing, bitcoin has been through numerous erratic price spikes and drops in the past. The uncertain price level is also the reason why bitcoin has not gained mainstream adoption as the preferred payment method. Besides, there isn’t much regulatory clarity around bitcoin yet.
Bitcoin rose to the financial scene after the financial crisis of 2008. Its initial use-case was largely driven by its usage in illegal activities, such as money laundering, and illegal online marketplaces such as the dark web. The reason for illegal usage largely arises from lack of regulation around the digital asset.
Since bitcoin is a technological innovation, there is not a concrete regulatory framework to properly classify the asset. Many scam initial coin offerings (ICO) used the lack of regulation to their advantage raising huge amounts of money without the regulatory oversight.
Many investors have been scammed in this space, part of the reason why the media and official bodies across the globe are skeptics of the asset. Illegal activities explain why Trump has taken such a negative stance against cryptos.
Adding on, Trump further went on to map out the future possibilities for Facebook’s Libra cryptocurrency stating:
Similarly, Facebook Libra’s ‘virtual currency’ will have little standing or dependability. If Facebook and other companies want to become a bank, they must seek a new Banking Charter and become subject to all Banking Regulations, just like other Banks, both National… and International.
The correlation between banks and cryptocurrency is important here. Cryptos make their case against the centuries-old and centralized system of fiat banking by presenting forward a decentralized internet-based monetary framework free from any central party influence.
Cryptos present a financial system where the people are in control while the debt-based inflation-oriented system of banking is snubbed. Cryptos are trying to gain people’s trust in favor of a decentralized monetary system, the exact thing that the banks don’t want.
Cryptos posses the prospect of making banking obsolete, the challenge is here is hence too steep. In short, cryptos and banks don’t just go together. Finally making the case for the U.S. dollar, Trump said:
We have only one real currency in the USA, and it is stronger than ever, both dependable and reliable. It is by far the most dominant currency anywhere in the World, and it will always stay that way. It is called the United States Dollar!
It is clear, the official bodies aren’t in favor of cryptos very much. Big traditional financial gurus such as Warren Buffet have also displayed a more dismissive attitude toward bitcoin. Now, in order to “Make Bitcoin Great Again”, there a few problems that need to be solved immediately.
- Regulatory clarity needs to be achieved in order to establish a strong official and institutional trust regarding bitcoin.
- Services and utility provided by bitcoin need to drive the global adoption of the asset.
- Issues such as price manipulation by big whales and price uncertainty need to be resolved in order to pave a path for payments through cryptocurrencies on a regular and trusted basis.
- The technology lying underneath the asset needs to be made better in terms of scalability and mining problems such as excessive energy consumption, 51% attack etc.
Among these few improvements, regulatory clarity carries the utmost importance. It is the factor that is going to drive the mainstream adoption of bitcoin in both the corporate and institutional arena. Once it happens and the utilities offered by cryptos are highlighted to the world, it is likely that the official acceptance of bitcoin by governmental bodies across the world will increase. As per Trump, nothing can be said about his own personal opinion. Too much uncertainty…just like bitcoin right now.