HomeBitcoin – A Speculative Asset and a Dirty Business?

Bitcoin – A Speculative Asset and a Dirty Business?

Since it reached the $40,000 level earlier this year, Bitcoin consolidated above $30k. While its corrections are wild, leading to losses of more than 20% in a single day, most of Bitcoin’s appreciation is due to the holders (i.e., people that do not sell but only buy and hold their positions). 

One of the major critics, and for a good reason, is that Bitcoin is a dirty business. To put this into context, the algorithm’s annualized estimated carbon footprint equals the one of New Zealand – roughly 35 million tons of CO2. This is a fact.

At first, some years ago, many prominent voices called for Bitcoin to eventually go down to zero. Today, some say that its value is even negative due to the environmental damage it is causing. Yet, Bitcoin is here to stay for a simple reason – in the meantime, it became a speculative asset.

Bitcoin – Instrument of Speculation

Human beings always like to gamble, and Bitcoin brings into perspective the “opportunity of a lifetime”  to get rich quick. For as long as this holds true, Bitcoin will attract both “hot money” and “smart money.”

Recently, Bitcoin bulls have enjoyed watching some of the most prominent names in the industry, revealing long positions in the digital asset. It all started with MicroStrategy, a publicly listed company that moved its Treasury to Bitcoin. PayPal followed, announcing that it will allow cryptocurrencies on its online payments platform. Square, another publicly listed company in the United States, moved about 1% of its assets in Bitcoin. These were highly publicized moves.

Under the surface, some smart money also jumped in. On December the 18th, Christopher Wood, the Global Head of Equity Strategy at Jefferies Investment Bank, stunned the community by announcing a 5% Bitcoin allocation to the detriment of gold. More precisely, selling gold (i.e., the traditional hedge against inflation) and buying Bitcoin (i.e., the new alternative hedge against inflation).

On December the 29th, SkyBridge Capital disclosed a $182 million investment in Bitcoin as well. And the list can go on, with prominent names in the market also taking steps to join the crypto market – e.g., On December the 3rd, the S&P Dow Jones announced its plans to launch cryptocurrency indices in 2021.

All these lead to upside pressure on the price of Bitcoin, and fuel even more environmental damage. If Bitcoin is an instrument of speculation, the announced investments are less likely to be a hedge against inflation, a role that gold fulfils perfectly. Instead, they are just hot money in the search of higher returns as other options are limited.

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