Opinion
Crypto – light up the dark side of the coin.
The darkness of Bitcoin is the exploitation of its unregulated uses by criminals, but as always, the light shines through.
As the halfway mark of 2021 passes, there a thousand moments to look back upon.
The year will be remembered as the year of re-opening; the year of inflation fears and the year of China flexing its muscles amid the 100th anniversary of the Chinese Communist Party.
Lastly, 2021 will be remembered as the year the price of Bitcoin reached a jaw dropping $ 63 000 and crashed more than 50% to $30 000.
Bitcoin crashes have become a regular feature of cryptocurrency as the world investigates the dark side of Bitcoin.
The collapsed Bitcoin price may be in part attributed to Elon Musk, the South African-born billionaire. The price rose to $60 000 as Musk drove the bullish sentiment with a series of unpredictable tweets.
Retail traders seemed to fall foul as the price of Bitcoin doubled and doubled again. As Musk changed his Twitter bio to #Bitcoin, the price rose by 20% and Tesla announced the purchase of $1.5 billion worth of Bitcoin.
Unfortunately for Bitcoin bulls, Musk’s love was skin deep.
Tesla sold a portion of its Bitcoin holding for a huge profit. It stopped accepting Bitcoin for payments and Musk began tweeting about the damaging environmental impact of Bitcoin.
Bitcoin’s price tumbled as Musk went from cheerleader to doubter overnight.
Perhaps there are deeper questions to be asked around Musk’s actions and Tesla’s trading of Bitcoin. However, as Bitcoin is unregulated no investigation into market manipulation may begin.
Musk is not solely responsible for the collapse of Bitcoin. As with all “bubbles” the burst, is quick and violent.
The price volatility of Bitcoin has discouraged most, but not President Nayib Bukele of El Salvador away as El Salvador announced Bitcoin will be allowed as legal tender.
President Bukele’s stated goal is to generate financial inclusion in a country where 70% of the population does not have access to financial services.
However, Bitcoin’s transaction costs seem to undermine this potential. If one is to buy a coffee with Bitcoin, the cost of the transaction is more expensive than the coffee.
It is questionable how a currency that incurs flash crashes of 20% may be used as a legal tender for daily transactions.
More so, El Salvador is currently reliant on the US dollar as legal tender, introducing Bitcoin does not reduce its dependence on a third party, but rather increases its dependence.
Several experts believe the implementation of Bitcoin will increase corruption and money laundering in El Salvador.
The illegal uses for Bitcoin has not been touted as the reason for its price collapse, yet is truly the biggest short and long-term risk.
Over the past year, the United States has experienced an increase in ransomware hacks. From hack of the biggest industrial meat provider, JBS, to Colonial Pipeline who supplies 45% of East Coast petroleum.
The hackers demand ransom in Bitcoin. The cryptocurrency allows illegal behavior to flourish as the recent hacks shine a light on the dangers of an unregulated currency.
Until now, South Africa has escaped the wrath of major hacks. However, the unregulated nature of Bitcoin lead to the largest Ponzi scheme in the history of cryptocurrencies.
The Cajee Brothers who ran Africrypt have disappeared from Cape Town’s shores with an estimated 69 000 Bitcoin, or R50 billion ($3.6 Billion) of investor’s money. The minimum amount lost per investor is believed to be R1 million ($70 000).
As South Africa faces another lockdown and thousands face unemployment and hunger, this amount of money will be missed.
As the number of illegal incidents increase, if Bitcoin is to be the future, regulation is required.
Major governments around the globe have come to this realization. However, regulation itself is a short to medium-term headwind for the price of Bitcoin.
The UK recently banned Binance (a crypto exchange) from providing crypto services. Japan and Thailand followed. The US and South Korea are clamping down on Bitcoin transactions used to evade taxes.
South Africa’s banking regulator has announced, within 6 months, a crypto framework will be released.
The fastest mover so far is China, which banned crypto mining.
More so, financial institutions are no longer authorized to provide crypto services in China. This follows mass arrests of individuals suspected of using Bitcoin for illegal purposes.
China has clamped down on cryptocurrencies cannot be viewed in isolation. Questions are raised regarding China’s reasoning. Does the Communist Party truly believe cryptocurrencies are dangerous or is it the lack of control of Bitcoin?
The continuous regulation of Bitcoin and cryptocurrency should not be considered a threat. If Cryptocurrencies are the way of the future, intraday swings of 20% and millions stolen from Ponzi schemes are not plausible. Neither is the effect of a single individual’s impact on the price of Bitcoin.
Regulation and a truly free market, not impact by manipulation, should be encouraged to create a long-term sustainable asset class.
For long-term believers, it is time to look through the darkness of the current fear and see the possible light at the end of the tunnel.
