Bitcoin dives with China restrictions

Bitcoin’s 30 per cent plunge is fuelling fresh doubts about its future.

Bitcoin medals. Picture: AFP

It‘s easy to exaggerate the impact of a fluctuation in the Bitcoin price. Crypto currency prices are volatile at the best of times. However there is growing concern about Bitcoin’s future due to recent events.

One of these is Tesla founder Elon Musk‘s revelation that he would no longer back Bitcoin because of the vast amounts of energy used to create them by the mysterious process known as Bitcoin mining.

It seems Mr Musk has recently realised what people involved with crypto currencies have known for years, that getting roomfuls of computers to solve mathematical problems of no major importance to the world is an exercise in making a commodity more valuable by making it scarce and wastes energy.

The fact that vast amounts of precious energy is consumed in the process is a scandal. You can laud the originators of Bitcoin as genii, but they were never energy conservationists.

As many who follow Bitcoin will tell you, it has no inherent value other than what the markets regard its price as. Bitcoins don‘t even exist in the real world, they are purely a digital phenomenon.

That a remark by Musk can cause Bitcoin to head south shows how fragile that market value is. Underscoring however is real concern, that if Musk, generally a fan of cryptocurrencies, isn‘t going to accept Bitcoins for buying a Tesla, what about other vendors? Its future as an online currency is under question.

That issue has come to the fore again this morning with China signalled a new crackdown on cryptocurrencies. The Times reports that China‘s three main financial regulators have banned banks, insurers and payments companies from processing transactions in digital coins such as Bitcoin and Ethereum.

These events signal that Bitcoin faces a tougher future if financial institutions increasingly shun it and the global environmental movement sees it as an enemy and a threat to world energy supplies.

Back in 2019, a University of Cambridge study concluded that Bitcoin mining‘s energy consumption was equivalent to that of Switzerland. This will only get worse in time.

Bitcoin fell to almost $US30,000 — less than half the record value it reached last month — before climbing back over $US33,000. In Australia, a Bitcoin you owned at the end of last month on April 30 was worth $75,009.96. Now it is worth around $55,000.

Bitcoin may be still above its level at the start of the year, but if Bitcoin is increasingly shunned for currency transactions, that should signal alarm bells.

Trading in cryptocurrencies has been banned in China since 2019 to prevent money laundering, as leaders try to stop people from shifting cash overseas. The country had been home to around 90 per cent of the global trade in the sector.

With AFP