Although it is doubtful, there is a possibility that Bitcoin's price would depreciate to zero. Some experts claim the run-up in Bitcoin's price is a bubble that might soon come to a halt. The only issue for critics regards the Bitcoin price crash and its impact on users and the crypto industry. The following article will discuss the possibility of a Bitcoin crash and some of the expected implications if its price goes to zero.
Can Bitcoin Crash to Zero?
In 2018, a team of Yale researchers released a report examining the risk of Bitcoin's price collapsing to zero in a day. They used Bitcoin's historical returns to calculate its risk-neutral disaster probability. The researchers established the likelihood of an unspecified disaster crashing Bitcoin price to zero was between 0% and 1.3%.
Others argue Bitcoin can crash to zero because it lacks intrinsic value. However, proponents say Bitcoin enjoys the backing of mathematics and consumer confidence. They say Bitcoin is not very different from fiat currencies such as the USD and Pound Sterling, which also do not have the backing of a physical commodity.
Some critics say a better cryptocurrency or alternative payment system could supersede Bitcoin, rendering it obsolete. However, such a situation would take several years, perhaps, even decades to play out since Bitcoin is the most valuable and popular cryptocurrency. Even so, Bitcoin would still retain some value for future generations.
The Projected Impacts of a Bitcoin Crash
Many financial experts have repeatedly indicated that virtual currencies like Bitcoin have minimal impact on global financial stability. Among the reasons for that is because digital currencies still account for a relatively small fraction of the global financial ecosystem. Bitcoin hasn't overcome its renegade status in international finance.
Bitcoin's price surges have taken place within unregulated crypto exchanges such as bitiq.org, yet to start scrutiny through regulatory authorities. Recent reports indicate individual investors and bots are the leading players on those platforms, with larger banks and investment firms still skeptical about the crypto market.
Bitcoin's price has increased by over 1,800% over the past year, with its stocks gaining a significant surge in valuation. However, the numbers are still relatively low. Therefore, economists believe a collapse in Bitcoin prices would have a limited impact on the global economy since serious financiers have stayed away. A Bitcoin crash would undoubtedly trigger a quick sell-off but affect a tiny fraction of people.
According to one publication, Axios, a Bitcoin crash would contribute to a monetary impact of about $250 billion. However, experts criticize such an estimate as incorrect based on the cryptocurrencies markets and utility. They argue Bitcoin's underlying blockchain technology has attracted substantial investment. Besides, Bitcoin's price movements indicate its emergence as a store of value and an established payment method.
Bitcoin is still in the early adoption stages, and it would take time to realize its full potential in mainstream applications. The current surge in most digital currencies' prices results from a domino effect from Bitcoin's growth. Thus, a crash in Bitcoin price would likely correlate to the costs of other digital currencies.
The majority of virtual currencies in the current market would also likely disappear if Bitcoin's price went zero. Experts warn only the virtual currencies with defined business models, and straightforward mainstream utility would survive Bitcoin's crash.
Overall, economists and financial experts remain divided on whether Bitcoin price would crash to zero. However, they all agree that such a phenomenon, though highly unlikely, would severely impact the global cryptocurrency ecosystem.