How you can apply a PESTEL-Analysis in understanding chances and risks of the bitcoin

The PESTEL (Political, Economic, Sociocultural, Technological, Environmental, Legal) analysis is a tool used to analyze the macro-environment in which a business operates. It is often used to identify potential opportunities and threats that a business may face, as well as to assess the potential impact of external factors on the business.

The PESTEL analysis consists of six categories:

• Political: This category includes factors related to the political environment in which a business operates, such as government policies, political stability, and the regulatory environment.
• Economic: This category includes factors related to the economic environment, such as economic growth, inflation, and exchange rates.
• Sociocultural: This category includes factors related to the sociocultural environment, such as social trends, consumer behavior, and cultural values.
• Technological: This category includes factors related to technology, such as technological advancements, the adoption of new technologies, and the impact of technology on the industry.
• Environmental: This category includes factors related to the environmental impact of a business, such as environmental regulations and the impact of climate change.
• Legal: This category includes legal factors that may impact a business, such as employment laws, consumer protection laws, and intellectual property laws.

The PESTEL analysis is used by businesses to identify potential opportunities and threats, as well as to assess the potential impact of external factors on the business. It can be used to inform strategic planning, market analysis, and risk management.

Now, let’s apply this tool for the bitcoin:

Political:

• The political landscape can significantly impact the acceptance and regulation of bitcoin. In some countries, bitcoin may be seen as a threat to the traditional financial system and banned or heavily regulated as a result. In other countries, bitcoin may be more accepted and lightly regulated, allowing it to operate relatively freely.
• For example, in 2013, the Chinese government banned financial institutions from using bitcoin and prohibited initial coin offerings (ICOs). In 2017, the government also shut down bitcoin exchanges in the country. However, in 2020, the Chinese government announced that it was considering the development of a digital currency, potentially signaling a shift in its stance towards bitcoin and other cryptocurrencies.
• In contrast, countries such as Switzerland and Japan have taken a more accepting approach to bitcoin and have implemented regulatory frameworks to support its use. In 2017, the Swiss Financial Market Supervisory Authority (FINMA) issued guidelines for ICOs, and in 2020, the Swiss National Bank announced that it was exploring the potential use of a digital currency. Similarly, in 2017, the Japanese government passed a law recognizing bitcoin as a legal form of payment, and in 2020, the Bank of Japan announced that it was studying the use of digital currencies.

Economic:

• The value of bitcoin is often influenced by economic factors, such as interest rates, inflation, and the strength of a country’s economy. For example, an increase in interest rates or inflation may lead to a decrease in the value of bitcoin, as investors may turn to other assets that offer a higher return. On the other hand, a strong economy may lead to an increase in the demand for bitcoin, as investors seek out alternative forms of investment.
• In addition, the stability of a country’s currency can also impact the demand for bitcoin. In countries with unstable currencies, investors may turn to bitcoin as a hedge against currency depreciation.

Sociocultural:

• The sociocultural environment can significantly impact the acceptance and use of bitcoin. In some societies, bitcoin may be seen as a valuable and legitimate form of currency, with a strong community of users and supporters. In other societies, bitcoin may be viewed with skepticism or mistrust, leading to a slower adoption rate.
• The level of financial literacy and technological adoption in a society can also impact the use of bitcoin. In societies with high levels of financial literacy and technological adoption, bitcoin may be more readily accepted and used. In societies with lower levels of these factors, bitcoin may be less popular.

Technological:

• The technology used to create and transact with bitcoin, such as blockchain, can impact its adoption and use. For example, improvements in blockchain technology may make it easier for people to use bitcoin and increase its popularity. On the other hand, issues with blockchain technology, such as scalability challenges, may lead to a slower adoption rate.

Environmental:

• The environmental impact of bitcoin mining, which requires a significant amount of energy, has been a topic of debate. Bitcoin mining requires powerful computers to solve complex mathematical problems in order to validate transactions and add them to the blockchain. This process consumes a large amount of energy, and there have been concerns about the environmental impact of this energy consumption. Some critics argue that the energy used for bitcoin mining could be better used for other purposes, such as powering homes or businesses. On the other hand, proponents of bitcoin argue that the energy used for bitcoin mining can come from renewable sources, such as solar or wind power, and that the decentralization of the bitcoin network makes it more resilient to attacks and censorship.

Legal:

• The legal status of bitcoin can vary significantly by jurisdiction. In some countries, bitcoin may be legally recognized and regulated, while in others it may be illegal or only partially recognized.
• For example, in the United States, the Internal Revenue Service (IRS) has issued guidance stating that bitcoin and other cryptocurrencies should be treated as property for tax purposes. In 2013, the US Financial Crimes Enforcement Network (FinCEN) issued guidelines stating that bitcoin exchanges and administrators should be subject to anti-money laundering and counter-terrorism financing regulations.
• In contrast, countries such as Bangladesh and Bolivia have taken a more restrictive approach to bitcoin and have banned it outright. In Bangladesh, the use of bitcoin is punishable by up to 12 years in prison, while in Bolivia, the use of bitcoin is illegal due to concerns about money laundering and financing terrorism.

The following table summarizes the main insights:

Overall, the bitcoin is subject to a variety of political, economic, sociocultural, technological, environmental, and legal factors that can impact its acceptance and use. Understanding these factors can help investors and users of bitcoin to make informed decisions about their involvement with the cryptocurrency.