Elon Musk, the CEO of Tesla, recently announced that his company had acquired Bitcoin for US$1.5 billion (nearly A$2 billion). The announcement ignited a surge of speculation as well as a significant decrease in the valuation of the controversial cryptocurrency.
In the near term, Musk has benefited from the price rise. Tesla’s Bitcoin holdings had grown to a value of over $1 billion at one level. Can the enthusiasm, on the other hand, be sustained? Over the next year, I think there is a fair chance that the valuation of Bitcoin would drop to its fundamental value of nil.
If Bitcoin loses half of its actual value, which is not unlikely given its extremely volatile past conduct, Tesla will lose around A$1 billion, and Elon Musk, who owns around a third of Tesla, would lose A$200 million as a result. On the other side, I do not own Bitcoin and thus face zero danger, implying that I would have outshone Musk by A$200 million.
Why Is Musk’s Decision Such A Bad One?
Musk’s actions are not helping Tesla shareholders. If they wanted to be exposed to the country’s currency rise and fall, they might buy some Bitcoin themselves; they no longer have a choice; if they so choose to invest in Tesla electric vehicles, they must be willing to accept the ebbs and flows of Bitcoin. Buying the highly volatile Bitcoin, on the other side, would add to Tesla’s earnings volatility.
Musk is still not doing his supporters any favors. Because he is a “rock star CEO” including over 40 million Twitter followers, his musings are often debated in these other publications. Musk’s public support for Bitcoin could persuade some of his supporters to invest inside this high-risk, more significant currency. They wouldn’t be able to take as many bets with their money as a multibillionaire might. (To be frank, Musk has discouraged them from investing their entire savings within the stock market.)
He’s not giving anybody any favors in this country. The method of making Bitcoins (also known as “mining”) generally requires the use of massive amounts of energy to sophisticated power machinery that solve complex but unsuccessful mathematics. It is predicted that they would sacrifice a variety of services. According to several figures, bitcoin mining uses more electricity than Argentina, Poland, Norway, and Switzerland together. Even though it contains more greenhouse gases than Estonia, according to the most pessimistic estimates, this pattern will continue as Bitcoin’s success increases.
What Does the Price of Bitcoin Have in Store for The Future?
Is it reasonable to anticipate a 50% drop in Bitcoin’s valuation in a year? There is, though, a rhythm to it. After hitting a peak of A$24,000 in December 2017, it fell to A$10,000 in February 2018. After reaching a high of A$16,000 in July 2019, it failed to A$8,000 in March 2020. Bitcoin may have been the purest example of a massive bubble ever devised.
Previous clouds, on the other side, came with a lot of baggage. Houses have a source of security. Gold has military applications and can even be used to produce jeweler. The South Sea Company and youthful engineering stocks, at the very least, is supposed to make money in the future. Bitcoin is profitable only if you can resell it to a “richer man.” It’s an SNL asset: a speculative estimate based on nothing.
The Drawbacks of Bitcoin
Proponents of Bitcoin further argue that the currency’s value stems from the fact that its availability is restricted. This is exacerbated by the fact that in the past, defector users have created “forks,” culminating in neoconservative bitcoins such as Bitcoin Cash because we accept the limit at current prices, new token production is unregulated. Litecoin, Tether, and Dogecoin are only a few of the tens of thousands available today. In any case, only because anything is limited does not always make it costly.
Another supporter of Bitcoin argues that it can be seen as a form of payment rather than traditional currency. The first Bitcoin transaction occurred more than a decade ago when two pizzas were exchanged for 10,000 bitcoins. (The coins are now worth US$500 million, so it’s a good thing the consumer enjoyed the pizzas.)
Despite the hype, Bitcoin is only embraced by a few companies and is seldom included in payment. According to a pub that knows it, no one has bought something with Bitcoin, according to a Sydney gallery that accepts it, and nobody else has used it in years. Any crypto conferences have not yet embraced Bitcoin. A t-shirt that says “I accept Bitcoin” is available on Amazon, but it cannot be purchased with Bitcoin.
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