The five major risks threatening bitcoin in the second half of the year, are presented by a CNBC report.

Regulations

Regulatory regulation is one of the biggest risks for bitcoin today. In recent weeks, China has cracked down on cryptocurrencies, shutting down energy-intensive cryptocurrency companies and urging major banks and payment companies, such as Alipay not to trade cryptocurrencies.

 

Last week, the baton was taken by Britain, where regulators banned the leading Binance digital currency exchange from trading.

 

Simon Yu, co-founder of crypto startup StormX, told CNBC that China’s moves should be seen as positive for bitcoin and other cryptocurrencies, such as ether, as they would lead to greater decentralisation. However, he added that excessive regulatory framework in the US could be a problem. US Treasury Secretary Janet Yellen and other officials recently warned against the use of cryptocurrencies for illegal transactions.

Volatility

Another big risk is the large fluctuations in the price of bitcoin and other digital currencies. Bitcoin rallied, reaching a record high of $64.829, but then plummeted to $28.911, losing its gains in 2021 to rise above $34.000.

 

Bitcoin bulls see bitcoin as a kind of “digital gold” – an asset that has little correlation and could offer high returns in times of economic turmoil. However, although volatility can be good when the price of an asset increases, it goes both ways.

Environmental concerns

Questions about the impact of bitcoin on the environment can be another major problem for the cryptocurrency.

 

Bitcoin mining equipment requires a large amount of electricity and energy consumption has increased significantly in recent years along with rising prices. Although critics of bitcoin have long warned of its strong environmental footprint, it was Tesla CEO Elon Musk who raised the issue this year.

Control of stablecoins

So-called stablecoins, whose prices are tied to assets such as the US dollar, are now facing increasing controls.

 

Last week, Boston Central Bank President Eric Rosengren said tether, a stablecoin among the world’s largest digital currencies, posed a threat to the financial system.

 

What tether publishers claim is that all of its “currencies” are backed by dollar-denominated stocks, with a ratio of 1:1. Crypto investors often use tether to buy cryptocurrencies as an alternative to the dollar, but some investors worry that its issuers do not have enough dollars to justify linking its price to the price of the dollar.

«Meme coins» and scams

Increasing speculation in crypto markets may prove to be another risk factor for bitcoin. Dogecoin, which started out as a joke, skyrocketed to record highs this year as a growing number of small investors rushed to the cryptocurrency market in search of big profits. At some point, dogecoin had more capitalisation than Ford and other major US companies, thanks to the support of celebrities such as Musk. Its value has declined significantly since then.