The Swedish central bank will not consider Bitcoin a currency

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The cryptocurrency market has been in a constant state of flux for much of 2018. As an emerging asset class, it is still prone to significant volatility, and this has been especially apparent throughout the current year. There are a number of potential explanations for the recent market downturn, including fears over a potential regulatory crackdown on crypto-related activities, as well as the impending implementation of stricter Know Your Customer (KYC) and Anti-Money Laundering (AML) protocols by several exchanges. The recent market turmoil has forced many investors to reevaluate their positions as more cautious voices begin to emerge. In this article, we provide a breakdown of why leading global financial institutions have begun to take an increasingly cautious stance towards bitcoin and other cryptocurrencies—and why they may not be entirely unwise in doing so.

The Relative Lack of Transparency in the Bitcoin Market

As investors wade into the murky waters of the crypto market, the first major red flag that many will encounter is the lack of transparency in many of the world’s leading cryptocurrency exchanges. Exchanges are the gatekeepers of the crypto world: they are responsible for monitoring and recording the flow of crypto assets in and out of the system, and they also provide a valuable service by offering liquidity to crypto investors. While many exchanges have attempted to address concerns that they are operating unethically by introducing new KYC and AML regulations, there is still a clear lack of information surrounding the inner workings of many major exchanges.

As the volume of daily transactions across the top exchanges has skyrocketed, investors have become increasingly concerned that the exchanges are unable to handle the load. While there are many exchanges that operate transparently and ethically, many investors have grown wary of the exchanges that operate in a relative opacity. As a result, there has been a relative shift from buying and selling bitcoin directly to purchasing futures and other crypto-related financial instruments. While this shift may make sense from an investment perspective, it only serves to further complicate the picture for those attempting to determine the true value of bitcoin and other cryptocurrencies.

Bitcoin’s Enormous Energy Usage

As the price of bitcoin reached ever-new heights in late 2017, researchers began to take a closer look at the environmental impact of bitcoin mining. Mining is the process by which new bitcoin is created and added to the system. While mining itself may be an environmentally friendly process, the immense quantities of energy used to power the computers used in bitcoin mining has drawn major concern in recent months. While the exact figures are debated, it is clear that the energy used to power bitcoin mining is staggering. A recent report by the Financial Times suggested that, in a worst-case scenario, the energy used to power bitcoin mining could exceed that of the Netherlands by 2020.

A significant increase in the price of bitcoin would likely see these figures skyrocket even further. While this could be seen as a positive sign, as it would suggest that bitcoin is gaining in popularity, it also highlights the fact that bitcoin is being treated as a commodity rather than a currency. Commodities such as oil and gold are valuable because of their intrinsic properties; bitcoin is valuable only as a medium of exchange. If and when bitcoin loses its appeal as a medium of exchange, it will be rendered worthless.

Cryptocurrency Markets Are Filled With Fraud

As the market for cryptocurrencies has grown, so too has the level of fraud and deceit that has plagued the system. One of the biggest scams to date has been perpetrated by MyCoin, a company based in Hong Kong that allegedly ran a fraudulent bitcoin investment scheme that is estimated to have cost investors as much as $8 billion. While MyCoin is an extreme example, it highlights the fact that investors are at risk at all times. A recent report conducted by the Wall Street Journal found that “more than a dozen people who claimed to have been lured into the scheme by a fraudulent promise of riches” contacted the publication to report their experiences.

With the global market for cryptocurrencies valued at more than $100 billion, it is clear that fraudulent activity is having a major impact on the market. While many blockchain-based startups are legitimate and have been able to raise significant sums of money through the sale of their tokens, the lack of transparency in the cryptocurrency market has created an environment that is ripe for fraud and deception. As more and more people jump on the bitcoin bandwagon, legitimate investors are being forced to compete with scam artists looking to make a quick buck.

Bitcoin Has No Intrinsic Value

One of the core arguments put forward by those who oppose the notion that bitcoin could ever become a legitimate investment asset is the claim that “it has no intrinsic value.” While it is true that bitcoin does not have any inherent or intrinsic value, this is also true of most fiat currencies. While it is true that a dollar or a euro has no inherent value, it is also true that most fiat currencies are backed by government debt.

The same cannot be said of bitcoin, which has no central authority to back it. While bitcoin is an extremely impressive technological innovation, it is also important to note that it is not a new invention. The concept of blockchain technology was initially proposed in 1991, and bitcoin was first mined in 2009. While this is certainly an impressive feat, it also means that the cryptocurrency is relatively old.

While There Is Certainly Value in the Blockchain, It May Not Be Found in Bitcoin

As the hype around bitcoin reached fever pitch in 2017, more and more companies began to claim that their products and services were “blockchain-based.” The reality is that very few products and services can actually be described as blockchain-based. The blockchain is the technology behind bitcoin, and it has a variety of applications in the real world. While blockchain technology has the potential to transform industries ranging from finance to logistics, it is not the same thing as bitcoin. Blockchain technology is decentralized, whereas bitcoin is a centralized digital currency. If the popularity of bitcoin wanes, it is entirely possible that blockchain technology will continue to grow and develop.

Summing up

While there are certainly valid criticisms to be made of the bitcoin and cryptocurrency market, it is important to note that these criticisms apply to all investment assets. Beyond this, the market has seen an increase in the level of institutional investment. As the market stabilizes, it may be well poised to welcome more traditional investors. For anyone considering investing in bitcoin or other cryptocurrencies, it is important to remember that the market is extremely volatile, and there is no guarantee that bitcoin can survive the looming regulatory storm. While there are many reasons to be bullish on cryptocurrencies, there is also a lot of risk that must be carefully considered.