20.10.2021

Could Bitcoin Fall To Zero: Economists’ Comments

Bitcoin has been in an uptrend for most of its existence, and its price has surged from near zero to a record $ 29,869. Cryptocurrency is one of the largest assets in the world and has become one of the most profitable investments of all time in a short period of its existence.

However, is there a chance that BTC will depreciate and collapse to zero?

Despite this rise, BTC haters have long argued that it is only a matter of time before it drops to zero again. For example, former Bitcoin Cash supporter Calvin Eyre said in July that Bitcoin was supposedly worthless, while American business tycoon Warren Buffett often criticized the cryptocurrency and even called it “rat poison squared.”

So, is a complete collapse of Bitcoin’s value down to zero even possible?

Is Bitcoin’s death worth waiting for?

In the second half of 2020, Bitcoin advocates like Michael Saylor invested huge sums in cryptocurrency. Sailor, CEO of MicroStrategy, has invested over $ 1.3 billion in BTC since the summer. He is convinced that Bitcoin will change the world just like Facebook, YouTube and Amazon, Decrypt reports.

Many other institutions have followed suit. MassMutual, an investment company with 169 years of history, invested $ 100 million in the coin. The hedge fund SkyBridge Capital, founded by former Trump public relations manager Anthony Scaramucci, has invested $ 25 million in a crypto-related fund.

That is, now the driving force for the growth of the asset is precisely the large investors, who have hundreds of millions of free dollars at their disposal. Their investments not only allow them to make money, but at the same time improve the reputation of the first cryptocurrency. As a reminder, thanks to the efforts of bankers, officials and the already mentioned Warren Buffett, it is considered by many people unfamiliar with the blockchain industry exclusively as a tool of fraud and extortion. This, of course, is not the case.

It would seem that with such a high popularity of Bitcoin among large investors, its complete depreciation is impossible. However, BTC has not always been so popular with institutions. In 2018, two economists at Yale University, Yukun Liu and Oleg Tsyvinski, published a report in which the authors investigated the risk of Bitcoin dropping to zero within a day.

Using the historical yield of the cryptocurrency to calculate its risk-neutral probability of disaster, the authors found that the probability of a “disaster” ranged from 0 to 1.3 percent and was about 0.4 percent at the time of publication. By comparison, in an interview with YaleNews, Tsyvinski said the euro has a 0.009 percent chance of the same event.

Since the first cryptocurrency has not only not depreciated since then, but also set a lot of all-time highs, the percentage of probability has hardly increased. At least now, BTC is entering a new phase of mass popularity, which over time will be comparable to the scale of 2017. Recall that now the interest in Bitcoin on Google and Twitter is still very far from its historical maximums. And this is even despite the course.

Of course, these are all just assumptions based on theories. In reality, Bitcoin is a distributed decentralized system, the functioning of which is possible even without the presence of the Internet. BTC, for example, can be transmitted using conventional radio. Previously, we could have said that the collapse of cryptocurrency is possible if it is completely banned by governments, but given its increased popularity on Wall Street, such a scenario is already unlikely.

We believe that in the case of Bitcoin, the so-called Lindy effect will apply. We are talking about the theory of Albert Goldman, who established that the popularity of a certain phenomenon is proportional to the duration of its life. This means that if BTC has been working perfectly since 2009, then it will be able to hold out for at least another twelve years.

In addition, the cryptocurrency industry is currently in its infancy. Every year, developers open up new opportunities and allow blockchain assets to change the world. For example, the previous year 2020 was clearly the year of the decentralized finance niche, which allows the use of banking services without any personal identification and other well-established rules. This means that even more interesting things await us further.

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