The first cryptocurrency is often predicted to collapse. Why such a scenario is impossible, and what in theory would happen to the digital asset industry if it did happen
To assess the risks, we need to break down the very essence of the issue. The price of any asset or liability is solely determined by the balance of supply and demand – bitcoin costs exactly as much as people are willing to pay for it.
Another matter is that the demand itself depends on different factors: investors’ faith, infrastructure development, number of participants, market volume and many other things. In fact, the price of any asset will not be zero as long as there are at least two people interested in it.
Another matter is that the demand itself depends on different factors: investors’ faith, infrastructure development, number of participants, market volume and many other things. In fact, the price of any asset will not be zero as long as there are at least two people interested in it.
It is very difficult to imagine an instant loss of interest in bitcoin from millions of people and thousands of companies around the world.
“Bitcoin’s collapse would eliminate an entire industry of the new global economy”
Another possible scenario for devaluation of an asset is its destruction. For example, by deleting the database of all mutual settlements. But such a plan cannot be implemented in the case of decentralised cryptocurrencies. In other words, as long as there is at least one copy of the blockchain in the world on any of the nodes, bitcoin will continue to exist, although its liquidity will decrease by several orders of magnitude.
For these two main reasons, even a theoretical devaluation of bitcoin is somewhat pointless to discuss today. Except solely in terms of examining the current impact on other areas of life.
If we consider such a hypothetical situation, such a collapse would effectively eliminate an entire branch of the new world economy. Bitcoin as a “trendsetter” and the main provider of liquidity in exchange trading will drag 99% of other cryptocurrencies down with it. Along with it, the profitability of mining, stacking, and trading will disappear – the industry will simply liquidate itself. Stable coin issuers would also be affected.
What are the implications for companies that have already invested in bitcoin? Cryptocurrency indirectly related companies such as Nvidia, AMD, CME, Digital Power and others will get a few months of stagnation on the back of losing some revenue from the crypto industry.
Companies with direct exposure to cryptocurrencies, such as Coinbase, Binance, Kraken and others, are likely to go into liquidation after lengthy and high-profile bankruptcy proceedings.
Investor companies such as MicroStrategy, Tesla, Square and others will suffer more specifically reputationally, but the depreciation of their investments will not hit the companies themselves much, as the core business of these companies will not be affected in any way, only the book value of their tangible assets will decrease.
How might this affect the economies of El Salvador and other countries that are on the road to legalising cryptocurrency? “What is dead cannot die”. Most such decisions are dictated by PR rather than the real economic benefits of countries. The mere fact that one of a country’s official currencies is gone will not destroy its economy, especially given the fact that bitcoin in its current form cannot become an everyday means of payment. Another issue is that a country’s large percentage investment in cryptocurrencies, rather than building up traditional liquidity reserves – gold and global reserve currencies – could trigger hyperinflation if the bitcoin price collapses.
Blockchain technology itself will continue to exist in hybrid information systems, regardless of the future of cryptocurrencies, especially the NFT direction (but not the collection component, but as a replacement for databases in maintaining public registries) will be especially promising.
Cryptocurrencies, on the other hand, as they exist today, could be abolished altogether. However, they could continue to exist as corporate staplecoins as exemplified by today’s electronic payment systems like Qiwi, WebMoney, YouMoneu, Skrill, etc. But after such a bitcoin collapse, confidence in the entire industry would be undermined and the value of cryptocurrencies relative to fiat currencies would be low.
