With Bitcoin sliding on Monday after surging Sunday night, Treasury Secretary Janet Yellen admonished investors about the pitfalls that Bitcoin creates for both investors and the general public, even as many see the crypto as a viable digital currency.
After failing to hit the $60,000 level, the notoriously volatile cryptocurrency continues to trade above $53,300. Tesla recently made a major purchase thanks to supporter Elon Musk, and the automaker has said it will accept Bitcoin for transactions.
“I don’t think that bitcoin … is widely used as a transaction mechanism,” she told CNBC’s Andrew Ross Sorkin at the New York Times’ DealBook conference. “To the extent it is used I fear it’s often for illicit finance. It’s an extremely inefficient way of conducting transactions, and the amount of energy that’s consumed in processing those transactions is staggering.”
The energy Yellen is referring to is the mining of Bitcoin, which demands that users to solve complex mathematical equations using high-powered computer setups. The process has a huge electric demand, generating an annual carbon footprint equal to the nation of New Zealand, according to Digiconomist.
In addition to consumption concerns, Bitcoin also is considered highly speculative and is a popular vehicle for illegal activities because its use is challenging to track, something that has also deterred the SEC from approving a Bitcoin or crypto ETF.
“It is a highly speculative asset and you know I think people should be aware it can be extremely volatile and I do worry about potential losses that investors can suffer,” Yellen said.
“I think that there are criminal investigations that have taken place that I’m sure will continue to take place that demonstrate it very clearly,” ECB president Christine Lagarde told Reuters in January.
Bitcoin and Gold
While there is now some debate over whether a new digital currency should be promoted, many still favor traditional assets like gold.
“My vote would be for gold because it has thousands of years of a historical record as a store of value, has one-fifth the volatility of bitcoin, and doesn’t face the same competition risk,” said David Rosenberg of Rosenberg Research, former Chief Economist and Strategist for Merrill Lynch Canada and Merrill Lynch in New York. “The day that Queen Elizabeth trades in the five pounds of gold in her crown for crypto is the day I’ll shift course.”
Meanwhile, Meltem Demirors, the chief strategy officer at CoinShares, said on Twitter last year:
“So where does bitcoin sit in the economic cycle? During periods of economic uncertainty and dollar weakness, Bitcoin is likely to benefit in the same way as gold. If bitcoin’s financialization continues, it will be unable to remain insulated from the financial system.”
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