Just as its price graph has shot up in the past three weeks, Bitcoin’s list of critics has grown too. Nouriel Roubini, professor of economics at New York University’s Stern School of Business and Roubini Macro Associates CEO, recently said that the world’s first cryptocurrency is a “pseudo-asset” pumped by “massive manipulation”.

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Last week, Gabriel Makhlouf, the British economist, likened the craze for Bitcoin to the Netherlands Tulip mania of the 17th century, often used metaphorically to refer to an economic bubble.

American economist and Harvard professor Kenneth Rogoff, in an interview with CNBC-TV18, said that the current zero interest rates on bitcoin are producing funny asset valuations.

And now, Janet Yellen, the US Treasury Secretary, labelled Bitcoin as an “inefficient way of conducting transactions”, adding the amount of energy it took to process these transactions was “staggering”. And this statement was enough to send Bitcoin prices tumbling. It fell 11 per cent, plunging below $50,000 at $48,080. Just a few days ago, Elon Musk, whose company Tesla invested $1.5 billion in the most valued cryptocurrency, had weighed in, saying the prices of Bitcoin were “too high”.

Still not a mainstream mode of transaction

Bitcoin’s recent gains have been largely attributed to its growing acceptance among big investors such as Tesla, Mastercard and BNY Mellon. Tesla, the electric carmaker, had even said that it was planning to start accepting Bitcoin as a mode of transaction after announcing its $1.5 billion investment. A decade ago, many had said that cryptocurrency could well be the future or even the future of money itself. Despite all kinds of claims, there’s still a long way to go before Bitcoin becomes a mainstream currency.

Volatility and statements

Historically, the value of Bitcoin has been volatile. Economist Nouriel Roubini, too, recently said that while there was a visible massive rally in Bitcoin’s stock, there was “huge volatility” as well.

For instance, from October of 2017 to January of 2018, the volatility in Bitcoin prices nearly touched 18 per cent. Over the last three weeks, the stock value of Bitcoin has grown leaps and bound but has also shown signs of massive volatility. On Sunday, Bitcoin surpassed $58,000 per unit, almost double the $29,000 of its cost on January 27.

Then came a tweet from Elon Musk, followed by a statement from Yellen now and the stock has already lost over $1billion in its value. It means the statements hurt the value. It appears the stock value depends just too much on statements from industry experts, government representatives and major investors.

Uncertainty and irregularity

Many analysts have also said that Bitcoin has no “intrinsic value”. The ever-changing perception of cryptocurrency as a “store of value” also makes it somewhat volatile and hence even inefficient.

Speaking to VOX in 2018, Nicholas Weaver, a researcher at the International Computer Science Institute at UC Berkeley, underlined something almost always ignored — that cryptocurrency exchanges are not like “regular stock exchanges”, adding these are “unregulated entities”.

“For example, in a regular stock exchange, you’re not allowed to trade with yourself because that’s price manipulation. But that’s a regular occurrence on these cryptocurrency exchanges,” he further added.

Weaver explains that for any cryptocurrency to work, the very fundamental requirement is for it to stay stable.

(Edited by : Abhishek Jha)

First Published:Feb 24, 2021 1:04 PM IST