Will Bitcoin Crash to Zero?

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Kane Pepi

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Kane Pepi

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Kane Pepi is a financial, gambling and cryptocurrency writer with over 2,000 published works, including on platforms like InsideBitcoins and Motley Fool. He specializes in cryptocurrency guides,...

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Last updated:

September 25, 2024 23:11 EDT

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Bitcoin is a volatile cryptocurrency that often witnesses wild pricing swings. It also goes through extended bear cycles, shedding over 70% of its value on multiple occasions.

So that begs the question, will Bitcoin crash to zero, or does it have a long-term future? Read on, we explore Bitcoin’s potential, expected life cycle, key risks, and the feasibility of it becoming worthless.

What Are the Biggest Threats to Bitcoin’s value?

Now we’ve covered the Bitcoin price history, we can take a closer look at the question; Will Bitcoin crash to zero? To begin, we’ll examine the biggest threats to the cryptocurrency’s existence.

Security Threats

Bitcoin is a secure network backed by the proof-of-work (PoW) consensus mechanism. This is why it takes 10 minutes to verify Bitcoin transactions, considering Bitcoin’s highly advanced cryptographic framework. However, no network is 100% secure; threats and vulnerabilities must be considered.

• This includes the ‘51% Attack‘, which provides control of the Bitcoin network when nefarious actors have over 51% of its hashing power.
• A successful 51% Attack would enable ‘double spending’, meaning the same Bitcoins can be spent an unlimited number of times.
• However, in reality, the 51% Attack theory is impracticable.
• For a start, obtaining 51% of Bitcoin’s hashing power would cost several billion dollars.
• What’s more, it would only provide control for the respective block, meaning just 10 minutes.
• A 51% Attack would delegitimize Bitcoin’s security, so it doesn’t make sense considering the vast capital requirement.

External security threats should also be considered. For example, large-scale exchange hacks can result in significant losses. So can malpractice, such as the FTX saga, which saw billions of dollars worth of client-owned funds disappear. Grand fraud is also a risk to Bitcoin’s legitimacy, such as widespread cybercrime and ransom demands.

Quantum Computing

Quantum computing, while further in the future, could also be a threat to Bitcoin’s legitimacy. This is because quantum computing will have significantly greater capabilities than we currently experience, meaning, it could supersede the PoW mechanism.

For instance, quantum computing could be capable of deriving private keys from their public keys. This would mean Bitcoin wallets are no longer safe. It might also have the potential to bypass Bitcoin mining requirements, allowing quantum computing to manipulate blocks and all respective transactions. This would first have a major impact on Bitcoin mining operations and could even cause Bitcoin to crash completely.

However, most experts agree that these capabilities are likely decades away.

Scalability Issues

Bitcoin is perhaps the worst blockchain for scalability. It can handle about 7 transactions per second. In contrast, many blockchains can facilitate thousands of transactions in the same time frame. This means Bitcoin isn’t suitable as a medium of exchange. It’s simply not feasible for merchants to wait 10 minutes before transactions are confirmed.

However, there are some counter-arguments to consider. First, Bitcoin is largely considered a store of value rather than an everyday currency. This is because of its scarcity and limited supply. Second, layer-2 networks provide an immediate solution to Bitcoin’s scalability woes.

This includes the Lightning Network, a side chain that initially stores transactions offline. This increases scalability to thousands of transactions per second. Plus, the Lightning Network reduces fees and increases confirmation speeds to milliseconds.

Regulatory Crackdowns

Regulations could be a threat to Bitcoin’s existence. However, crackdowns have had limited impact, even in the world’s second-largest economy, China. The Bitcoin price witnessed a small and brief correction when China banned all forms of crypto ownership in 2021. However, the price recovered a few days later, continuing its bullish trajectory.

Bitcoin trading volumes are still significant even in China, even though they’re prohibited. A regulatory crackdown in the US would likely be more catastrophic for Bitcoin. However, the US has proven to be crypto-friendly, with regulations going in its favor. After all, the SEC recently approved a wave of Bitcoin and Ethereum ETFs.

Central Bank Digital Currencies (CBDCs)

Some analysts claim that Central Bank Digital Currencies (CBDCs) will be a major threat to Bitcoin’s existence. CBDCs are digital assets backed by Central Banks, and they’ll likely represent domestic currencies like the US dollar and euro.

However, it could also be argued that the opposite will happen, meaning the introduction of CBDCs could drive increased Bitcoin adoption. This is because CBDCs are considered draconian by some; they would provide central banks with complete control over individual wealth. Put otherwise, they could freeze accounts and block transactions at any time.

This isn’t possible when owning Bitcoin in a non-custodial (self-custody) wallet. Only the user has access to the private keys. This means not even the wallet provider can access the funds. Let alone government agencies. Therefore, Bitcoin enables people to build and store wealth away from third parties.

What Would Happen if Bitcoin Crashed to Zero?

Global assets rarely, if ever, go to zero. For example, consider Safemoon. This crypto project once carried a market capitalization of $8 billion before being exposed as a scam. While its founders were prosecuted by the U.S. Department of Justice, Safemoon still trades with a market capitalization of about $19 million.

The likelihood of Bitcoin going to zero is also non-existent — even if a catastrophic event occurred, such as a 51% Attack or global regulatory crackdown. However, while improbable, it’s not impossible.

Let’s consider the unlikely aftermath of Bitcoin crashing toward zero.

The Immediate Aftermath

Panic selling is certain if Bitcoin crashes at unprecedented levels. This means anyone left holding Bitcoin would offload their tokens. This would likely cause an immediate liquidity crunch, meaning exchanges and brokers wouldn’t be able to facilitate sales. After all, to sell Bitcoin you need buyers. Without them, orders simply can’t be matched.

Similar to the FTX saga, exchanges would likely suspend trading. It’s also probable that exchanges wouldn’t have enough capital to handle fiat withdrawals. These market issues would also impact financial institutions, including those behind Bitcoin ETFs. Ultimately, the knock-on effect would be catastrophic.

Long-Term Economic Implications

Bitcoin is a trillion-dollar asset. This means it plays a vital role in the broader economy, just like Apple and Amazon stock. A Bitcoin collapse would have severe economic implications. We could see bankruptcies at an institutional level, especially those involved fully in the digital asset sector.

Coinbase, which trades on the NASDAQ with a $41 billion market capitalization, would likely be the first major stock to go under. This is because panic selling wouldn’t just impact its exchange. But also its circulating stock. Bitcoin ETF providers could also face bankruptcy issues, considering they hold billions of dollars worth of digital assets.

The Future of Crypto

Bitcoin has, and likely always will be, the de facto cryptocurrency. When Bitcoin performs well, profits drip down to other cryptocurrencies, known as altcoins.

And when the Bitcoin value struggles, losses are often far greater for the wider altcoin space. As such, if Bitcoin crashed toward zero, it could spark the end of the wider cryptocurrency market. All confidence would be lost, from both a retail and institutional perspective.

Bullish Arguments for Bitcoin’s Value Growth and Success

Will Bitcoin crash to zero? We’ve covered some of Bitcoin’s greatest threats. Now let’s explore Bitcoin’s bullish investment thesis.

Institutional Adoption

It’s hard to imagine Bitcoin crashing to zero when you consider how much institutional adoption we’re seeing. Bitcoin ETFs, for instance, are backed by some of the world’s largest investment houses.

This includes BlackRock and Fidelity, which manage trillions of dollars of client-owned wealth. This provides Bitcoin with a stamp of approval.

Digital Gold Narrative

Bitcoin is the ideal asset class for stores of value. This is why it’s often called ‘digital gold’. Bitcoin has a limited supply of just 21 million, which will be reached in about 2140. New Bitcoins enter circulation every 10 minutes, ensuring the supply is predictable. What’s more, the 10-minute mint is reduced by 50% every four years.

In addition, Bitcoin is easily stored and transferred. Transactions are executed on a wallet-to-wallet basis, without needing third-party approval. Bitcoin can also be divided into micro-units, ensuring it’s available to the masses.

Global Economic Instability

Economic instability could help Bitcoin become a mainstream asset. Especially as central bank policies continue to damage the financial system. For instance, consider that traditional money is devalued whenever central banks engage in quantitative easing (money printing). Over time, this makes products and services more expensive, just like we saw after the COVID-19 pandemic.

In contrast, we mentioned that Bitcoin’s supply is predictable, limited, and fixed. This means Bitcoin can never suffer from hyperinflation like traditional currencies. This is why Bitcoin demand in Argentina, Turkey, Venezuela, and other inflationary countries continues to rise;

Bearish Arguments for Bitcoin Going to Zero

Government Bans

Some analysts claim that government bans will cause severe issues for the Bitcoin price. However, this wasn’t the case with China. As mentioned, Bitcoin has been banned since 2021 in China — a country with over 1.4 billion people.

This has done little to Bitcoin’s value. However, a ban in the US or European Union could be more impactful.

Tax and Compliance Burdens

Another bearish argument is tax burdens for everyday investors. Beginners often make the mistake of believing Bitcoin sales aren’t taxable. However, this couldn’t be further from the truth in most jurisdictions.

Most countries view Bitcoin profits like other tradable assets, such as stocks and ETFs, meaning capital gains will be liable for tax. Moreover, even spending Bitcoin, or swapping it for another cryptocurrency, triggers a disposal. This means capital gains could be due if the transaction resulted in a profit.

Competition from Other Cryptocurrencies

While unlikely, Bitcoin could also face competition from other cryptocurrencies. Especially those with more tangible use cases. Ethereum, for example, is one of the best layer-1 projects for decentralized applications. It supports every utility imaginable, from decentralized trading and savings accounts to loans, play-to-earn games, and metaverses.

There are also cryptocurrencies offering complete anonymity, which Bitcoin doesn’t provide. This includes privacy coins like Monero and Zcash. However, most experts agree that Bitcoin will always be the dominant cryptocurrency.

Preparing for the Worst – Strategies for a Bitcoin Downturn

Still asking the question; Will Bitcoin ever crash to zero? While not impossible, it’s highly unlikely to happen. That said, Bitcoin frequently goes through market downturns. This often turns into a prolonged bear market, where Bitcoin sheds 70-80% from its previous all-time high.

Here are some strategies used by seasoned traders when Bitcoin enters bearish territory:

Understand Why Bitcoin is Dropping

First, spend some time understanding why the Bitcoin price is dropping. Has there been a major news development, such as a regulatory crackdown? Or perhaps a large-scale exchange bankruptcy?

Alternatively, the downturn might be related to a broader economic situation, such as an impending recession. Bitcoin’s price decline could also be due to technical findings, such as key resistance levels.

Buy the Dip

Buying the dip is a solid strategy if you believe in Bitcoin’s long-term potential. It simply means buying Bitcoin when prices decline. This enables you to enter the market at a discounted price.

For instance, some traders will buy Bitcoin if the daily candle closes in the red. This will be the case regardless of how much it has declined by. Others will buy the dip if it declines by a certain percentage from the previous peak, such as 5%.

Dollar-Cost Averaging

Long-term Bitcoin investors might also consider dollar-cost averaging their investments. This means buying Bitcoin at the same amounts and frequencies, regardless of short-term volatility.

For example, buying $250 worth of Bitcoin every Monday. Or $1,000 once per month. This strategy means you can avoid worrying about short-term dips.

Short-Selling

If you believe Bitcoin’s downturn will be prolonged, you might even consider short-selling. This means you’ll make a profit if the Bitcoin price declines. For instance, suppose you risk $2,000 on a Bitcoin short-selling position. Bitcoin declines by 20%, so you make $400 (20% of $2,000).

Short-selling requires derivative products like leveraged futures. You can read about the best crypto leverage trading platforms here. You might also consider Bitcoin options or CFDs.

Consider Buying Risk-Off Assets

If you’re overly concerned about the Bitcoin price, consider diversifying into risk-off assets. This includes US Treasuries and other low-risk securities.

You can easily convert these assets into cash, and subsequently Bitcoin at any time. Keep an eye on broader crypto sentiment for the perfect time to re-enter the market.

Conclusion – Why We Don’t Think Bitcoin Will Crash to Zero

In summary, it’s highly improbable that Bitcoin will crash to zero. It’s a global asset class not only held by millions of retail clients but an increasing number of institutions.

Tier-one investment houses like JPMorgan Chase, Fidelity, and BlackRock continue to increase their exposure to this emerging marketplace. Ultimately, Bitcoin adoption rates are rising year-on-year. We expect its value to appreciate over time.

FAQs

Will Bitcoin go to zero?

While it’s highly unlikely that Bitcoin will ever go to zero, major bear markets have historically shed 70-80% of its value. Bitcoin has, however, always recovered and recorded new all-time highs.

Can Bitcoin go to zero overnight?

Bitcoin is a trillion-dollar asset, so going to zero overnight, or over any time frame, is highly improbable.

What could cause Bitcoin to crash to zero?

Bitcoin would need to suffer an unprecedented security issue to go to zero, such as a 51% attack.

What would happen if Bitcoin lost all its value?

Bitcoin holders would be left with worthless digital assets if its price went to zero. But the likelihood of this happening is almost non-existent.

Does Bitcoin have a future?

Yes, Bitcoin is still an early adopter asset, even with a market capitalization of over $1 trillion. Some analysts believe that the Bitcoin price could surpass $1 million by the end of the decade.

References

1. 51% Attacks (Digital Currency Initiative, MIT)
2. ‘Old-fashioned embezzlement’: where did all of FTX’s money go? (The Guardian)
3. Bruised by stock market, Chinese rush into banned Bitcoin (Reuters)
4. Founders and executives of digital-asset company charged in multi-million dollar international fraud scheme (U.S. Department of Justice)
5. Bitcoin could soar 266% to $250,000 next year if ETF inflows stay strong, Standard Chartered says (Business Insider)
6. Bitcoin supply squeeze? ARK Invest’s Cathie Wood predicts $1M+ Bitcoin price (Benzinga via Yahoo! Finance)