Bitcoin network breakdown seems imminent – reckons head of Bank for International Settlements

  • The General Manager of BIS Austin Carstens says Bitcoin could soon break due to attacks.
  • Central banks have been advised to take the responsibility of issuing digital currencies.
  • Stablecoins raise the issue of governance because one entity has control over its fiat backing.
  • Bitcoin price rebounds after testing $30,000 but still faces resistance at $32,000.

The head of the Bank of International Settlements (BIS), Agustin Carstens, has warned that Bitcoin is getting closer to the risk of total breakdown. He advised central banks around the world to take the responsibility of issuing digital currencies.

Bitcoin could suffer a major breakdown as it nears maximum supply

Carstens asked investors in the digital space to "be cognizant that Bitcoin may well break down altogether." In his opinion, the network's vulnerability to attacks increases as Bitcoin draws closer to its maximum supply of 21 million coins.

The General Manager of BIS, the central bank for global central banks, made the remarks in a Hoover Institution speech on January 27. Carstens has, however, for a long time criticized the pioneer cryptocurrency.

Bitcoin soared over 300% in 2020 and continues the rally in January to record highs around $42,000. At the moment, BTC is holding above $30,000 amid a push for recovery back to price levels beyond $40,000.

Stablecoins bring forth governance issues

Facebook is still working on launching its global digital currency, a stablecoin that will be backed by a basket of fiat currencies. Nonetheless, the BIS general manager says that such currencies are controlled by a private entity (which ensures proper asset backing) brings forward governance issues. Carstens added:

Sound money is central to our market economy, and it is central banks that are uniquely placed to provide this.

If digital currencies are needed, central banks should be the ones to issue them.

Central banks worldwide are either studying or testing digital currencies for use as a modern means of exchange. China is at the frontline, having begun testing in 2020 and planning major trials in its larger cities this year.

Gold has no utility – Warren Buffet

In spite of the comments regarding Bitcoin's possible breakdown, the asset has, like gold, been fronted as a store of value. Investors often use gold to hedge against volatility in financial stock markets. However, Warren Buffet, the CEO of Berkshire Hathaway and a renowned investor, says that gold has no utility.

It gets dug out of the ground in Africa, or someplace. Then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility.

Although Buffet says gold has no utility, he maintains that he will not touch Bitcoin as an investment asset.

Bitcoin bounces off critical support amid rising overhead pressure

The pioneer cryptocurrency has revisited the key area around $30,000. Recovery has also ensued, sending BTC above $31,000. However, immense selling pressure is anticipated at $32,000. Additionally, the 50 Simple Moving Average on the 4-hour chart will likely prevent significant action above $32,000, thus delaying recovery to the next formidable hurdle at $34,500.

BTC/USD 4-hour chart

BTC/USD 4-hour chart

On the downside, support at $30,000, if not $28,000, must continue to hold firmly to ensure that Bitcoin sustains the uptrend. Otherwise, if lost, prices may tumble to $25,000. Moreover, bearish calls in the market say that Bitcoin could revisit $20,000 before it recovers substantially.

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