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Yellen Warns That Bitcoin Is Extremely Inefficient

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Treasury Secretary Janet Yellen said that Bitcoin is extremely inefficient as a way to conduct transitions. She issued a warning Monday about the dangers that bitcoin poses both to investors and the public.

RELATED: Bitcoin’s Value Dropped 20% As Investors Sold Off

Trading Above $50,000

Despite a recent slide, Bitcoin continues to trade above $53,000 as it received boosts from multiple sources. EV maker Tesla recently made a substantial $1.5 billion investment and started accepting bitcoin for transactions.

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Beginning late last year, Bitcoin began climbing like crazy. Then, it traded less than $20,000 by December 15 and climbed to $29,388 by January 1. The cryptocurrency breached the $40,000 barrier by February 8. It peaked at $57,489.10 earlier this week on February 21.  

Bitcoin Is Extremely Inefficient

However, the Treasury Secretary said that there are important questions about legitimacy and stability. Yellen, who talked to CNBC’s Andrew Ross Sorkin, said she doesn’t think Bitcoin is widely used as a transaction mechanism. “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,” she said. 

Acquiring actual bitcoin requires mining, where high-powered computers solve complex equations. According to Digiconomist, the energy requirements are sizable, and bitcoin mining generates an annual carbon footprint equal to what New Zealand generates. 

Bitcoin’s Volatility 

Another reason why Bitcoin is extremely inefficient is its volatility. The cryptocurrency’s price fluctuated wildly since last year, with sudden highs and drops at any given time. “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 added.

In addition, bitcoin earned a reputation as the currency of choice among shady personalities. Given, it’s difficult to trace, many illegal and suspect transactions use bitcoin for settling payments. 

It’s Still Trading HIgh

Despite Yellen’s concerns, bitcoin continues its wild climb towards $60,000. Regulatory concerns surrounding the cryptocurrency likely won’t derail its present momentum. “The regulatory issues have been around for a long time, we’ve been dispelling them for a long time. At this point, our belief is: Bitcoin is not a question of if, but when,” said Meltem Demirors, chief strategy officer of CoinShares. “We certainly believe, you know, the best time to invest in bitcoin was yesterday — the second-best time to allocate is today,” she added. 

Demirors’ comments came after bitcoin hit $1 trillion in market value last week. It’s been on a tear since the start of 2021, rising by more than 90% so far this year. Those strong gains came from increased interest in bitcoin by mainstream companies such as Tesla and the Bank of New York Mellon.

Failed Currency 

NYU Stern School of Business Aswath Damodaran remains skeptical about investing in bitcoin. While he admits that the cryptocurrency is an “incredible show to watch,“ he said it’s definitely not an investment. He said that bitcoin remains a speculative game and a horrifically bad currency. “It’s not an asset class. It’s a failed currency, at least into this moment. Let’s see whether they can fix it,” Damodaran said. However, he doesn’t see any further action. “I don’t think that they have an incentive to do so,” he added. 

Instead, various government agencies proposed making an alternate digital currency. This can help open up global payments to those without access to one. The Federal Reserve studied the issue and recognized the feasibility of a new digital currency along with a payments system. However, it will take a few years to roll out a system. “I think it could result in faster, safer, and cheaper payments, which I think are important goals,” Yellen said.

Watch the Yahoo Finance news video reporting how Bitcoin dropped Elon Musk and Janet Yellen tweets:

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