Is crypto a day trader’s dream or a deadly investment

The Concordia Courier


By Pelin Li | 11/19/2021

Cryptocurrencies are digital assets used to buy or exchange goods and services, mainly on the web. It evolved into a form of investment and a secure way of exchanging online transactions. The increasing need for the safe and less traceable nature of Bitcoin has driven the price to skyrocket since it launched on Jan. 3, 2009. The true identity of the originator of Bitcoin -- referred to as “Nakamoto” -- remains a mystery. It is not known if it is a single person or a group of people or an organization who started it, but Bitcoin went viral online in a short amount of time.

Warren Buffett once commented on Bitcoin, saying "[Bitcoin is] probably rat poison." Buffett owns investment company Berkshire Hathaway. Buffett’s vice chairman, Charlie Munger, also shares a disinterest in trading bitcoins: "I don't welcome a currency that's so useful to kidnappers and extortionists," Munger said during an annual shareholders meeting.

CUI School of Business and Economics Professor Kit Nagel noted that "Bitcoin mining has major negative effects on the planet; it's decidedly not environmentally ‘green.’ Mining Bitcoin consumes 91 terawatt-hours of electricity annually (more than the State of Washington or the country of Finland). Nagel added that Bitcoin miners worldwide have warehouses packed with computers using power that "wastes energy by design." The underlying Bitcoin algorithm automatically increases computational "difficulty" over time – so that miners continually need larger numbers of more powerful computers. This of course piles up e-waste around the globe from the ever-increasing need for the newest and fastest hardware. Every 18 months computational power of mining hardware doubles and this makes the existing warehouses of machines obsolete.

School of Business and Economics professor Michael Kinnen says that Bitcoin acts as a diversifier to currencies such as U.S. stocks, bonds, real estate, the U.S. dollar, commodities and gold. Kinnen said, "It appears that Bitcoin does provide some limited benefits to investors, though those benefits perhaps may be fleeting." Kinnen feels that Bitcoin will not usurp traditional currencies, such as the dollar, pound or yen, to become the future of currency. He said, "Crypto's value is far too inconsistent for it to act as a store of value, which is one of the major functions of a currency."

Elon Musk tweeted a meme about falling out of love with Bitcoin, and shortly after, he announced that Tesla is no longer accepting Bitcoin for payment. Musk's tweet alone had vaporized 40% of Bitcoin's price, which was roughly $20,000 at that time. Kinnen said, "(Cryptocurrency) is hypersensitive to both information and a lack of information."

A bitcoin is currently worth over $59,000 USD, which is a 235% increase in the past year. With a multiplier like that, investing in bitcoins seems tempting, but only time will tell if the cryptocurrency is a dream or nightmare for investors.   

Tags: business, economics

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