Published on March 10th, 2023 | by Dr. Jerry Doby0
What Happens if Bitcoin Loses All Its Value?
Cryptocurrencies are touted as investments for the future. These are not lined with real-world assets and are a completely different class of instruments. Cryptocurrencies saw the light in the aftermath of the economic depression of the early 2000s. The inherent nature of cryptocurrencies, including Bitcoin, is very volatile. The upwards movement of prices can be fast and steep, but the same is true for the downward.
This brings us to the question; what would happen if the price of Bitcoin crashes and hits zero?
Though Bitcoin is the oldest cryptocurrency, it is prone to severe price fluctuations. A sharp downfall in Bitcoin is possible, but a value that becomes zero is unlikely yet possible.
As we mentioned earlier, Bitcoin is not tied to tangible assets. This makes it very volatile, and severe price fluctuations are commonplace. Bitcoin price can be seen riding the crests of a wave one day, and soon it can hit the trough. Bitcoin may be the oldest and the biggest, but it can fall and fall hard. Many people assume that Bitcoin is so big that it cannot become zero. However, this belief is incorrect, and several factors can bring its price down to zero, even if that is highly unlikely.
Why and when do people buy Bitcoin?
To understand how the price of Bitcoin can become zero, we have to grasp why people buy Bitcoins. Bitcoin is an investment for people. Some people buy Bitcoin as a short-term investment, whereas others for the long term. A price fall often causes buying in the case of Bitcoin because people think the cryptocurrency can increase again to its previous highs.
The Bitcoin network and its strength.
The Bitcoin network is also very robust, with over a hundred thousand nodes. Even if most countries ban Bitcoin, it will be impossible to abolish the network unless all the nodes lose faith in the cryptocurrency or stop caring about it. Dismantling the Bitcoin network is not like taking down a website because it is decentralized. There are nodes all over the world. Many big investors and institutions have also invested heavily in Bitcoin. They will not feel comfortable letting the price of Bitcoin go down severely. They will do everything to stop Bitcoin from going to zero in value.
The threats to Bitcoin.
There are quite a few threats to Bitcoin, and we shall look into them one after another. These threats can be the reasons which can cause severe falls in the price of Bitcoin.
- The primary threat to Bitcoin is it does not have anything tangible to back it up. Today, we do not see Bitcoin being used enough to be called a grand success, and the people who are a bit circumspect about it always fear bad outcomes. When widespread use is considered, a national currency comes way ahead of Bitcoin at this point in time.
- Another danger to Bitcoin in the future is its network’s weakness in handling large chunks of data. Currently, Bitcoin is not being used on a large scale, but in the future, more people will buy Bitcoins. This will cause the number of transactions on the blockchain to grow. There will be a latency or delay on the network, causing a delay for miners when they check transactions. The block size is small for a Bitcoin block. Therefore, it can only handle a certain number of transactions at a given time. This latency or delay is considered a weakness for Bitcoin and may detest people from buying it in the future.
- Media and influential people also affect the price of Bitcoin. The cryptocurrency is not backed by anything tangible, as we have mentioned before. Market sentiment drives the value to a great extent. Even a piece of wrong information in the media about Bitcoin or a Tweet by an influential person can affect the prices and alter the mindset of investors causing Bitcoin to crash.
If the price of Bitcoin really becomes zero, what will happen?
Let us assume an imaginary scenario. All countries have banned Bitcoin, and its price is now zero. Even with the network in place, this would be disastrous for many people. Many people depend on Bitcoin in some way or the other for their survival. The owners of Bitcoin will not be able to sell their holdings, and their investments will be gone. The mining industry will be hit hard as about a million miners will lose their source of living. Businesses that facilitate Bitcoin lending and payments will have to close. In short, the crash of Bitcoin will probably lead to the demolition of all other cryptocurrencies.
Finally, the effect of such a Bitcoin crash is not easy to predict. Its impact on the global financial markets is also a matter of doubt. However, many analysts believe that if the value of Bitcoin becomes zero, it will not have a major impact on the global financial markets.