Major challenges for Bitcoin (BTC) in the near future

Bitcoin has remained the dominant player in the crypto space but still lacks official recognition.
Here’s are a few factors affecting Bitcoin usability and hindering larger investor participation.

It’s been a month full of market volatility and turbulence for Bitcoin (BTC) and the overall crypto space. Over the last month, the world’s largest cryptocurrency continues to trade under pressure. As of press time, Bitcoin (BTC) is down by 3.79 percent at $42,426 and a market cap of $480 billion.

Bitcoin has seen a flood of institutional money flowing this year. Some of the world’s biggest financial and hedge funds have also gained exposure to Bitcoin. However, BTC will still continue to face some significant challenges going ahead. Here’s what we think could be the major challenges for Bitcoin.

1. The regulatory pressure

The SEC has decided to go all funds blazing at the crypto space with the newly appointed SEC Chair Gary Gensler calling it as a “wild west”. However, regulatory pressure is nothing new to Bitcoin and its investors. But considering the fact that big institutions are in the game, the SEC can approach it more stringently and seriously.

Furthermore, the fate of the first U.S. Bitcoin ETF still continues to hang in the balance. There have been dozens of Bitcoin ETF applications at the SEC’s door, however, the securities regulator has refused to budge. But there’s still some kind of optimism that the U.S. SEC could approve a Bitcoin ETF as early as next month. A Bitcoin ETF will be crucial to further boost institutional participation in Bitcoin.

2. Bitcoin mainstream adoption

Of course, Bitcoin adoption over the last year and so has increased to an extent. Also, retail participation is growing but yet isn’t quite there. Recently, we have been seeing that bitcoin whales and other large buyers have been consolidating BTC supplies at their end.

Fidelity Digital Assets has been working over the last two years to bring BTC to daily use. It has partnered with players like Starbucks to make BTC spending easy for retail users. But this experiment continues to be in the very early stage. Probably, it could be also because of the fact that Bitcoin is seen more as a Store-of-Value than as a currency for daily use.

Recently, Anthony Scaramucci, founder of global investment firm SkyBridge Capital said that institutional adoption of Bitcoin is not up to the mark. He recently said:

The institutions are not there. Anybody who’s telling you there’s institutional adoption into this space is not being honest — or they’re seeing something that I’m not seeing.

3. Volatility

Bitcoin has been a highly volatile asset class showing wild price fluctuations since its inception. New-age investors fall into Bitcoin glory very fast but find it difficult to sustain its brutality. Furthermore, there are few rules for investor protection when it comes to BTC price manipulation.

As a result, most of the retail players remain at the mercy of the big. Although Bitcoin has always been profitable in the long run, its rapid price volatility has been a deterrent for investors.

4. Scalability

The fact remains that the Bitcoin network isn’t as scalable as other players in the market, and this puts a question on the long-term utility of Bitcoin. The Bitcoin Lightning Network, a “layer 2” stability solution has made significant progress recently.

But the Bitcoin network isn’t quite attractive to host financial applications, unlike other blockchain networks. The BTC blockchain doesn’t support smart contracts which keeps it averse to the emerging world of decentralized finance (DeFi). However, Twitter CEO Jack Dorsey has taken up the challenge of introducing Defi to the bitcoin blockchain.

5. Tax Issues

Bitcoin has been subjected to capital gains tax under the definition of intangible property. Thus, if investors buy and sell Bitcoin at a higher price, they have to pay tax every time. Considering the fact that Bitcoin is highly volatile, it also limits Bitcoin usability.