Why Bitcoin Could Plummet Soon

Bitcoin (CRYPTO: BTC) is now around 30% below its highs from early November. But it will bounce back, right? Not according to Cornell University senior professor and author Eswar Prasad.

Prasad recently said in an interview with CNBC, "Bitcoin itself may not last that much longer." Why does he think Bitcoin could plummet soon? And could the professor's warning actually be right?

Bitcoin symbol on top of a chart trending downward.

Image source: Getty Images.

Prasad's pessimistic prediction

Prasad told CNBC that he doesn't think that Bitcoin will "have any fundamental value other than whatever investor's faith leads it to have." That's a harsh take for a cryptocurrency that some view as a store of value and a good hedge against inflation.

The Cornell professor's pessimistic prediction is based primarily on his negative view of Bitcoin's underlying blockchain technology. He believes the blockchain is inefficient and is deficient when it comes to scalability.

In addition, Prasad thinks that Bitcoin "uses a validation mechanism for transactions that is environmentally destructive." Tesla stopped accepting the cryptocurrency earlier this year due to similar environmental concerns.

It's important to note that Prasad isn't bearish about cryptocurrency, in general. He's a firm believer in the promise of blockchain technology to transform finance. His view, though, is that newer cryptocurrencies use blockchain in a much better way than Bitcoin does.

Hold the doom and gloom?

For the most part, Prasad's criticisms of Bitcoin are justified. Its blockchain is certainly much less efficient and less scalable than that of many rivals. For example, Solana can process up to 65,000 transactions per second, while Bitcoin can handle only seven transactions per second.

There's no disputing that Bitcoin isn't great for the environment, either. Bitcoin's carbon footprint is roughly the same as that of the entire country of Uzbekistan, according to Digiconomist. The cryptocurrency also uses a similar level of electrical energy as Thailand and produces as much electronic waste in a year as the Netherlands.

However, none of these negative aspects of Bitcoin are new. And yet the digital coin's price has skyrocketed nearly 5,800% over the last five years. Even with the recent pullback, Bitcoin is still up almost 60% in 2021.

More importantly, Prasad didn't articulate any compelling reason why investors will suddenly prioritize the downsides to Bitcoin much more in the near future than they have in the past. There's a big difference between pointing out legitimate issues with the cryptocurrency and forecasting its demise in the not-too-distant future.

An alternative prediction

I'll offer an alternative prediction for Bitcoin. My prediction is that Bitcoin won't practically disappear as Prasad expects, or even plummet in the near future to only a fraction of its current value. However, I think that it will continue to deliver returns that are much lower than many other cryptocurrencies'.

The first part of my prediction is actually based on something Prasad told CNBC. He thinks that Bitcoin's value will depend on what investors think its value should be. I agree 100%. But that's true for any cryptocurrency.

My view is that Bitcoin's resiliency has shown that investors won't abandon the coin because of its weaknesses. Bitcoin remains the largest cryptocurrency in the world based on market cap. It has one of the highest daily trading volumes. Those aren't signs of a digital coin that's on its last legs.

At the same time, Prasad is absolutely correct that there are other cryptocurrencies that are more attractive than Bitcoin. Blockchains such as Ethereum and Solana that support non-fungible tokens (NFTs) offer considerably more real-world utility than Bitcoin does. I anticipate that these (and other cryptocurrencies) will continue to outperform Bitcoin just as they have in 2021.

Could my prediction be wrong? Sure. But if Bitcoin does plunge, I suspect that it will be part of a major overall cryptocurrency sell-off rather than due to anything unique to Bitcoin itself.

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Keith Speights has no position in any of the stocks mentioned. The Motley Fool owns and recommends Bitcoin, Ethereum, and Tesla. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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