Does anyone really know where the price of Bitcoin (CCC:BTC-USD) is headed? The cryptocurrency is as volatile as ever and shows no signs of stabilizing anytime soon, as people seem to laud and vilify it in equal measures.
While Chinese regulators have banned the use of Bitcoin in the country, El Salvador has adopted the cryptocurrency as its legal tender. As companies ranging from PayPal (NASDAQ:PYPL) to JPMorgan Chase (NYSE:JPM) rush to expand their cryptocurrency offerings, the Securities and Exchange Commission (SEC) promises to regulate.
All the while, Bitcoin’s price continues to swing wildly — between $30,000 and $50,000 in the past month alone. In such a chaotic environment, investors are right to wonder when, if ever, Bitcoin will settle down and begin trading in a more normal pattern.
While predictions about the long-term prospects of Bitcoin vary widely, there are two trends emerging that are likely to be headwinds for the cryptocurrency for the foreseeable future.
Bitcoin Headwind No. 1: Regulatory Crackdowns
The first major headwind for bitcoin is the ongoing regulatory scrutiny in the United States and all-out crackdown in China.
We’ll start with China since the news is hot off the press. Chinese securities and foreign exchange regulators and its central bank have banned the use of cryptocurrency in the country. This follows a months-long and intensifying crackdown on Bitcoin mining in China. Once the world’s biggest base for cryptocurrency miners, the regulatory clampdown forced many Chinese Bitcoin miners to relocate to the U.S. and Canada or go into hiding within China.
This crackdown has rattled the cryptocurrency market, contributing to the ongoing turmoil in Bitcoin’s price. Following China’s declaration today that all cryptocurrency transactions are illegal, the price of Bitcoin fell as much as 9%, trading back down below $41,000, before rebounding slightly.
At the same time, calls are growing in Washington, D.C., to regulate the cryptocurrency market, ratcheting up pressure on SEC Chair Gary Gensler to take action sooner rather than later.
This week, the U.S. Treasury Department targeted a cryptocurrency exchange amid its ongoing efforts to disrupt and stop persistent ransomware attacks that have crippled American energy and food suppliers this year. The Treasury Department says it is going after cryptocurrencies because that is the preferred payment method of individuals and organizations behind various ransomware attacks around the world.
The threat of industrywide regulations in the U.S. is another factor roiling the price of Bitcoin and other cryptocurrency assets.
Bitcoin Headwind No. 2: Environmental Concerns
The other big headwind that has emerged for Bitcoin and other digital tokens is the environmental impact of cryptocurrency mining, which uses a massive amount of power.
Research has found that Bitcoin mining uses more electricity in a year than the Philippines and produces more electronic waste (e-waste) in a year than the Netherlands — 30,700 tons of e-waste, to be precise. Furthermore, computers used to mine Bitcoin have an average lifespan of just over a year, meaning that exhausted computers are being thrown out at an accelerated rate.
In short, mining for Bitcoin and other cryptocurrencies is a disaster for the environment at a time when pressure is growing for companies to temper their support for the practice as they manage their environmental, social and corporate governance (ESG) obligations.
Of course, some prominent Bitcoin bulls have not been deterred. Ark Invest CEO Cathie Wood recently predicted the price of Bitcoin will hit $500,000 within five years. But other high-profile Bitcoin bulls, such as Elon Musk, have reined in their support of the cryptocurrency, citing concerns over the environment.
Bitcoin Is For Gamblers
Cautioning against buying Bitcoin at this point seems futile. In many respects, the genie is out of the bottle. Investors who are determined to gamble on Bitcoin and other digital coins will do so. More cautious investors are likely to continue waiting on the sidelines.
The bottom line is that putting money into Bitcoin right now is a gamble, one that is for the brave and the bold.
Investors who are willing to take that gamble will have to live with the ongoing price swings that show no signs of abating. But some people are natural gamblers and like to live on the edge. As late comedian Norm Macdonald, a self-confessed gambler who claimed to have lost all his money gambling more than once, said: “Better sorry than safe.”
On the date of publication, Joel Baglole did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Joel Baglole has been a business journalist for 20 years. He spent five years as a staff reporter at The Wall Street Journal, and has also written for The Washington Post and Toronto Star newspapers, as well as financial websites such as The Motley Fool and Investopedia.
