It is possible that bitcoin volatility is being fueled by central banks to sabotage bitcoin and establish their own centralized digital currencies the cbdcs.
This is a theory that has been circulating in certain circles, but how true is it; There is no doubt that bitcoin is volatile since its inception in 2009 bitcoin has experienced significant price swings, only in 2020 the bitcoin price crashed around 5000 in March before climbing to over 29,000 in late December, April 2021 bitcoin reached a record of almost 65,000 to fall to less than 35,000 a month later.
This volatility may be in part due to the speculative nature of bitcoin - unlike traditional currencies which are backed by governments and therefore have some degree of stability, bitcoin's value is largely determined by what investors are willing to do. to pay for it, this makes it susceptible to abrupt price changes based on market perception, however central banks may be actively manipulating the bitcoin price to destabilize it.
In theory if central banks or any entity with sufficient resources were to buy and sell large amounts of bitcoin it could cause price fluctuations, but the question is do central banks have any incentive to do this, this is where the idea comes in. of the cbdc.
The cbdc are in essence the digital version of a country's currency issued and regulated by the Central Bank of that country, unlike bitcoin which is decentralized and operates outside the control of any individual entity, the cbdc are completely under the control of the central banks.
Some bitcoin proponents have suggested that central banks might be trying to sabotage bitcoin to weed out competitors before launching their own cbdcs, some argue that bitcoin is a bubble that is destined to burst while others believe it is the future of money. .
The reality is probably somewhere in between and yes bitcoin has the potential to revolutionize our global economy but it also has serious flaws that we cannot ignore.
From an economist's perspective, bitcoin seems like a puzzle, it has no intrinsic value in the traditional sense, it's not a state-backed currency, it's not a commodity like gold, its value comes solely from what people think it's worth, and that belief has led bitcoin to have a market capitalization of around one trillion as of early 2021.
That is an impressive amount of money but it also begs the question is bitcoin a bubble economic bubbles happen when asset prices rise above their real value the same could happen with bitcoin some argue yes they point to Bitcoin's volatility and rampant speculation surrounding the cryptocurrency as signs of a bubble.
As bitcoin's value has risen and fallen dramatically several times in its short history, however, others argue that bitcoin is not a bubble but rather a new form of money that is destined to transform the global economy, pointing to the utility of bitcoin as a store of value and a medium of exchange that is resistant to censorship and third party interference in a free world.
They also highlight bitcoin's potential to serve as a digital gold a way to protect wealth in times of economic and financial uncertainty, these bitcoin advocates often compare cryptocurrency to the internet in its early days, yes the internet had its ups and downs and yes there was a lot of speculation and bubbles along the way like the aforementioned dotcoin bubble, but despite these setbacks the internet has fundamentally transformed our society and our economy.
Bitcoin's volatility is largely a result of its youth and illiquidity compared to other assets, however it is also fueled by speculation and uncertainty about the future of the cryptocurrency; and this is where concerns about a possible bubble come into play, some analysts argue that this is precisely the case with bitcoin, they argue that most people who buy bitcoin do so because they believe in its potential as a currency or store of value, but because they hope to be able to sell it at a higher price in the future.
These speculations argue that it is inflating the price of bitcoin beyond what its intrinsic value justifies, creating a bubble that will eventually burst another one, however, they argue that bitcoin is not a bubble but an innovation that is in the process of being massively adopted, they compare bitcoin with earlier technologies like the internet or the automobile that were also seen as bubbles in their early days but eventually became fundamental parts of our economy and society.
Bitcoin has real intrinsic value, it is a decentralized and censorship resistant currency, its potential as a store of value in countries with unstable currencies and its importance as an asset may safeguard many from the bankruptcy of rogue states.
What is certain is that we are on the verge of significant change, how we manage this change will determine whether we move towards a brighter economic future or whether we fall into a global financial crisis.
