As Bitcoin gains popularity and attracts institutional involvement from the likes of BlackRock (NYSE:BLK), its stability and long-term prospects appear solid. Betting against the world’s largest fund manager doesn’t seem wise, does it? asks Wealth Within chief analyst Dale Gillham.
While Bitcoin has evolved significantly from its origins tied to the Silk Road (a hidden service on the Tor network), its rapid expansion necessitates more resources, presenting two critical challenges that could intersect at a pivotal moment.
Firstly, recent studies indicate that if Bitcoin continues to grow at a pace similar to smartphones and credit cards, it could contribute to a global temperature rise exceeding 2 degrees Celsius by 2033. This conflicts directly with global efforts for net-zero emissions by 2050, potentially prompting governments worldwide to consider drastic measures on Bitcoin to meet climate targets.
Secondly, the sharp rise in energy prices in 2021, driven by challenges in transitioning to clean energy, increased post-COVID-19 demand, and geopolitical tensions like the Russian-German Nord Stream 2 pipeline, have put the viability of Bitcoin mining at risk. Bitcoin’s hash rate, which measures the computational power needed for network security and transactions, becomes more costly with increasing energy prices, and considering over half of its power comes from fossil fuel, it will be crucial for Bitcoin to swiftly adapt to renewable energy sources to avoid potential extinction.
Despite these challenges, Bitcoin’s price broke through to a new all-time high earlier this year. Since then, it has experienced a decline of around 30%. Historically, after reaching new all-time highs, Bitcoin often undergoes corrections of 50-70%, indicating the possibility of further declines is imminent.
Considering the current market conditions and Bitcon’s potential, it’s crucial for investors eyeing this dynamic sector to carefully evaluate risks, particularly as Bitcoin’s rapid growth could be its own undoing in the long run.
Dale Gillham is the Chief Analyst at Wealth Within and the international bestselling author of How to Beat the Managed Funds by 20%. He is also the author of the bestselling and award-winning book Accelerate Your Wealth—It’s Your Money, Your Choice, which is available in all good bookstores and online at www.wealthwithin.com.au