The cryptocurrency market is hit by tighter regulation and record outflows in more than a year. Is Bitcoin truly a currency or just a digital asset?
Bitcoin and other digital assets have recovered from Sunday’s lows. One may say that they even rallied yesterday, fueled by Tesla’s Elon Musk saying that he had a discussion with North American miners to increase the use of renewable energy in Bitcoin mining. He called the discussion “promising”, and so the cryptocurrency market rallied.
This is not surprising coming from Tesla’s CEO. After all, Elon Musk is an investor in Bitcoin, and, like it or not, as the CEO of Tesla, he strives to maximise shareholder wealth.
But besides the optimism surrounding Musk’s statements, a quick analysis of what happened lately in the cryptocurrency market should trigger some warning signals to bulls. The total weekly crypto flows turned negative for the first time in more than a year. Moreover, Bitcoin led the outflows.
Bitcoin – A Cryptocurrency or Just a Digital Asset?
There appears to be some confusion among Bitcoin fans and critics in regards to what Bitcoin is. Since its inception, Bitcoin has been illustrated mostly as having a yellow colour, just like gold.
To many Bitcoin fans, or holders, as they are also called, any association with gold is welcomed. But gold is not a currency, at least not anymore.
In the 21st century’s financial system, gold is just a financial asset. Therefore, what if we stop referring to Bitcoin as a currency and instead just call it a digital asset? Truth be told, it will have more chances of survival if treated as an asset just like gold, instead of a currency.
One of the reasons for the crypto market’s recent decline came from tighter regulation from China and the United States. In the first case, the Chinese want to set the stage for the digital yuan, thus increasing the regulation of cryptocurrencies. In the second case, the Americans just announced that any transaction in the crypto space that exceeds $10,000 must be reported for tax purposes.
Increased regulation is one of the major concerns of an industry that is famous for facilitating illicit transactions. Together with tighter regulation, asset volatility is poised to decline.
As an asset, Bitcoin and other crypto-assets resemble gold – the holders believe that they are durably secure and have a relatively limited supply. But most of the interest surrounding the cryptocurrency market is the expectation that, as a new thing, the price will increase faster and provide a quick profit. With authorities stepping in, from China to the United States, the flows out of the crypto market may continue.