Bitcoin fall a reality check

The fall in the value of Bitcoin is a reality check for investors and demonstrates the ongoing challenge for governments and regulators, according to an expert from Monash University. 

According to Google Finance, Bitcoin reached $83,119 per coin on 12 April, 2021, but now was worth $52,285. 

Dr Michael Duffy, Monash University – director of corporate law, organisation and litigation research group, said legal regulation of digital currency as an investment product was beset by uncertainties, yet digital currencies came with considerable investment risk given that they were not linked to underlying assets.  

“Their value is based on confidence in the currency itself, ultimately as a means of exchange – that confidence can be highly variable,” Duffy said. 

“Risks also include the need for so-called ‘miners’ to verify the system, while incentives for mining through the creation of new Bitcoins reduce over time – as part of the system of limiting overall Bitcoin supply.  

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“Further, the large amount of energy required to mine and run the system is problematic in a world looking to cut, rather than increase, carbon emissions.” 

Duffy said only time would tell whether these were inherent contradictions within the system. 

“Certainly, the novelty of these products and systems – and lack of close historical precedents – mean that digital currency markets are operating on highly imperfect information,” Duffy said. 

“Better disclosure laws might improve this a bit but may have a somewhat limited effect, as all disclosable risks may still not be completely known or understood.”