What are the factors that could burst the Bitcoin bubble?
Perhaps the main advantage of using Bitcoin as a transaction currency and stored value product is its anonymous nature. Digital currency can be used for transactions and can also be used to circumvent government control. Moreover, holding Bitcoin as a stored-value product makes it more difficult for the government to collect the holder’s wealth, thus bringing more reliable protection. When international relations become tense, the value of Bitcoin often soars rapidly, so the holders are often residents of countries with immature regulations and weak property rights.
In addition, many illegal transactions are collected and paid through Bitcoin. If you live in North Korea or Venezuela, or you are a drug lord, you must prefer to use Bitcoin as the transaction currency instead of the U.S. dollar. Besides, Bitcoin is also used in transactions that circumvent international economic sanctions, and the growth curve of Bitcoin transactions is therefore called the “money laundering index.”
However, the trend of using Bitcoin for illegal transactions poses a particular threat to this currency. It is not difficult to imagine that governments of various countries may attack the illicit trading of Bitcoin and other cryptocurrencies or threaten to imprison Bitcoin users, resulting in the currency turning to the black market. Moreover, there are indeed precedents for this situation. In 1933, President Franklin D. Roosevelt declared that it was illegal to hold gold. Every country in the world has a legitimate position to avoid anyone infringing on the government’s sole power to issue and control currency. Besides, governments can also close cryptocurrency exchanges.
In the past, the factor that caused the tulip bubble to burst was that “investors” and speculators finally decided to settle their profits. People who hold a large amount of bitcoin are called “whales”, and as long as they sell a small part of their hands, it is also enough to make the price plummet. Until 2018, almost half of the world’s bitcoins were in the hands of less than 50 holders. These people may unite to manipulate the Bitcoin market, and it is not illegal for people who hold a large number of positions to discuss trading strategies with each other. Because Bitcoin is a currency, unlike common stocks that are traded in a closely monitored market, retail investors are especially prone to lose money in this market.
Finally, if someone suddenly cracks the encryption system that supports the Bitcoin agreement, the Bitcoin market is likely to collapse in a mess. At that time, no one will have time to update the agreement on the system, and the security of everyone’s assets can not be guaranteed. Even with all these factors and more, it is almost impossible to pinpoint which, if any, could cause bitcoin’s bubble to burst.
