Near the beginning of the month, Tesla’s purchase of $1.5 billion of bitcoin helped to increase the cryptocurrency’s price by nearly 50% to over $58,000.
However, after Elon Musk tweeted that the price of Bitcoin “seemed a bit high” its price dropped by over $8,000 in a few hours and reaching a low of just over $45,000 on February 23rd. Last week the cryptocurrency totalled $1 billion and that value has now fallen to $900 million.
The price of bitcoin is still up 60% since the start of the year, and volatility is common in the cryptocurrency market. In 2017 for example, bitcoin reached $20,000 for the first time and subsequently lost 80% of its value. So, does this mean bitcoin will bounce back?
With some thinking bitcoin could replace gold as a new digital store of value, US treasury secretary Janet Yellen has deemed the cryptocurrency “Inefficient” and “Speculative”. She is weary of the cryptocurrency’s use in illicit activity and of the fact that it is not controlled by any regulatory body.
Yellen, along with others such as Bill Gates also have concerns regarding the environmental impact of Bitcoin. A large amount of energy is required to produce a coin, and to make transactions go through, high power computers compete to solve complex math puzzles, which requires an extreme amount of energy.
Every year, Bitcoin’s network uses 0.5% of the World’s electricity. That is more than all of Pakistan, the Netherlands and nearly as much as New Zealand. As the price of bitcoin has risen over the years, there has been more and more competition from these computers to make transactions happen and thus, more and more electricity has been used.
The cryptocurrency has an annual carbon footprint of 26.95 megatons. In a world that is in an ongoing shift towards sustainability in virtually every industry, will Bitcoin’s value be able to grow long-term with this egregious impact on the environment?
Analysts at JP Morgan called bitcoin an “economic side show”, warning that because of its complete lack in intrinsic value, Bitcoin could be one of the biggest market bubbles in history. Deutsche bank seem to agree with JP Morgan. The company conducted a survey with 627 industry professionals half of them rated Bitcoin as a 10 on a 1-10 bubble scale.