Goldman Sachs returned to the emerging cryptocurrency market earlier this year, when it relaunched its Bitcoin trading desk after a short hiatus. Earlier this month, the Bank of Wall Street began offering an investment service that allows its high net worth clients to profit from rising bitcoin prices without having to own the digital currency.

“It’s a good time to be in space,” said John Chow, an executive at cryptocurrency trading firm Cumberland DRW, who is working with Goldman on his new bitcoin investment effort. Bloomberg.

Goldman is hardly alone. Fidelity recently filed for regulatory approval to launch a bitcoin fund that the mutual fund giant and 401 (k) says is aimed at wealthier retail and institutional clients.

Regulate the cryptocurrency industry


Crypto for the people

Other big financial players catering to less wealthy clients also jumped on the bandwagon as cryptocurrency prices skyrocketed. A recent PayPal promotion offered $ 25 to the first 48,000 customers who purchased at least $ 25 worth of bitcoin using the payment company’s app. And last month, PayPal-owned Venmo began allowing users to buy and sell bitcoins and other cryptocurrencies in increments as low as $ 1.

Robinhood, the popular trading app for young investors, said its digital currency offering had 9.5 million users in the first quarter of 2021, up from 1.5 million at the end of last year. As with stocks, Robinhood allows users to buy bitcoin and other cryptocurrencies without commission, including dogecoin, the digital currency originally launched as a joke, which is among the riskiest digital currencies. . Robinhood’s website says, “Crypto trading comes with significant risk.”

The timing couldn’t have been worse. In the past month, bitcoin and others cryptocurrencies have plunged. This week, the price of bitcoin fell to $ 30,000. Although it has rebounded to $ 40,000, the value of bitcoin remains more than a third below its all-time high of $ 63,000 reached in April.

The top-down draw reduced the total value of bitcoin by around $ 450 billion, according to Coinmarketcap.com, while ethereum and other cryptocurrencies also fell. The sudden decline undermines the case where bitcoin bulls explain why even average investors should take a chance on cryptocurrencies.

Crypto does not replace the dollar

One of the main arguments made by bitcoin proponents is that digital currencies are a cheaper and more efficient way to do business. The problem: Only a very small number of people use bitcoin to buy goods and services.

In 2016, the average number of purchases made with Bitcoin cracked 200,000 per day for the first time. Five years later, that figure is only slightly higher. According to Blockchain.com, there has been an average of 270,000 bitcoin transactions per day over the past month, and that likely includes many transactions in which one bitcoin investor exchanges bitcoin with another.

It’s hard to say how this compares to the number of daily transactions made in dollars. However, there are nearly 110 million credit card transactions in the United States per day. This suggests that the number of Bitcoin transactions represents a tiny fraction of overall consumer spending.

At first, bitcoin supporters used to say that transactions would increase as more companies started accepting cryptocurrencies for payment. And today, a growing number of retailers are using bitcoin: Square, Venmo, and Paypal all support bitcoin as a payment method, while Mastercard has said it will allow crypto payments soon.

So far, however, that hasn’t moved the needle much.

“I don’t see a wide adoption of bitcoin as a currency,” Dan Dolev, who covers the fintech and cryptocurrency industry for Mizuho Securities, told CBS MoneyWatch. “I think it will be an uphill battle to make it something that people use to buy things.”

Crypto is not a good store of value or a hedge against inflation

Another reason why some boosters predicted the popularity of bitcoin, and therefore its price, would take off, is because it was supposed to be a safe place to put your money. The logic was that the total number of bitcoin available, which is finite and capped at 21 million, is much less than the dollar supply. This, according to many crypto enthusiasts, would cause the price of bitcoin to steadily increase over time.

But bitcoin has been anything but stable, with its price subject to booms and busts. While the value of bitcoin and other cryptos has risen, the huge price swings – up and down by thousands of dollars a day – highlight their risks as an investment.

Other people have said that bitcoin, like gold, is a good hedge against inflation. But in recent weeks, as inflation fears have grown, the price of bitcoin has plummeted.

“I am neither a believer nor a disbeliever,” Dolev said. “Today there are a lot of people who have bought cryptos at a higher price and are underwater. The question is, are they prepared to wait or will they cut their losses?

Crypto is not really global

Another common refrain from Bitcoin bulls: Cryptocurrencies are a global financial asset. This, in theory, should make it easier and cheaper to do business with anyone in the world.

In reality, the cryptocurrency market has encountered the same issues as other currencies, namely that different countries have different rules governing permitted transactions. This week, China banned domestic banks and other financial institutions from supporting bitcoin. This means that they are not allowed to process payments made in cryptocurrency or allow bank customers to keep bitcoins in their accounts. Chinese banks are also not allowed to convert bitcoins to yuan or any other currency.

Elsewhere, banks are also prohibited from trading bitcoin in much of the Middle East. In the United States, regulators appear to be moving towards more active oversight of cryptocurrencies. On Thursday, the Treasury Department said it would require companies to report any bitcoin payments over $ 10,000, citing an effort to fight tax evasion.

Gary Gensler, the new chairman of the Securities and Exchange Commission, recently told CNBC that if he understands why people want to invest in bitcoin, the cryptocurrency market needs to be better regulated before that can happen more widely. “I think we need more investor protection there,” he said.