Often, the first cryptocurrency is predicted to collapse. Why such a scenario is impossible, and what, in theory, will happen to the digital asset industry if it does happen, experts from RBC Crypto explain.
«Bitcoin crash will liquidate an entire branch of the new global economy»
To assess the risks, you need to understand the very essence of the issue. The price of any asset or liability is determined solely by the balance of supply and demand – Bitcoin costs exactly as much as they are willing to pay for it.
Another question is that the demand itself depends on various factors: here is the faith of investors, and the development of infrastructure, and the number of participants and the volume of the market, and much more. In fact, the price of any asset will not be zero as long as there are at least two interested parties 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.
Another possible scenario for the depreciation of an asset is its destruction. For example, if you delete the database of all settlements in the Central Bank of the Russian Federation, then a non-cash ruble will cost nothing. But such a plan cannot be implemented in the case of decentralized 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, today it is somewhat pointless to discuss even the theoretical depreciation of bitcoin. Is that only from the point of view of the study of the current impact on other areas of life.
If we consider such a hypothetical situation, then such a collapse will actually liquidate an entire branch of the new world economy. Bitcoin as a «trendsetter» and the main provider of liquidity in exchange trading will pull 99% of other cryptocurrencies with it. Along with this, the profitability of mining, staking , and landing will disappear – the industry will simply self-liquidate. Including, issuers of stablecoins will be under attack.
What are the implications for companies that have already invested in bitcoin ? Indirectly related to cryptocurrencies, such as Nvidia, AMD, CME, Digital Power and others, will receive several months of stagnation amid the loss of some of the income from the crypto industry.
Investor companies such as MicroStrategy, Tesla, Square and others will rather suffer from reputation, but the depreciation of their investments will not hit the companies themselves hard, since the main activities of these companies will not be affected in any way, only the book value of their tangible assets will decrease.
The effect will be strong, emotional and lightning fast, but short-lived. Companies will be able to recover very quickly from such a blow to their reputation, the further behavior of the share price will not be related to the fate of the cryptoindustry and the companies will remain afloat.
Companies whose activities are directly related to cryptocurrencies, such as Coinbase, Binance, Kraken and others, are likely to be liquidated after long and high-profile bankruptcy processes. Some companies that operate somewhat broader than cryptocurrencies such as Grayscale or FTX are likely to survive, although the consequences for them will be serious.
How can this affect the economy of El Salvador and other countries that are on the way to legalize cryptocurrency? «What is dead cannot die.» Most of these decisions are dictated by PR, and not by the real economic benefits of countries. The very fact that one of the country’s official currencies disappears 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 large percentage investments of countries in cryptocurrencies, instead of building up traditional reserves of liquidity – gold and world reserve currencies, can provoke hyperinflation in the event of a collapse in the price of bitcoin.
The blockchain technology itself will continue to exist in hybrid information systems, regardless of the future of cryptocurrencies, the NFT direction will be especially promising (but not a collection component, but as a replacement for databases maintained by state registries).
Cryptocurrencies in the form in which they exist today can be completely liquidated. However, they can continue to exist as corporate stablecoins on the example of today’s electronic payment systems like Qiwi, WebMoney, YuMoney, Skrill, etc. But after such a collapse of bitcoin, confidence in the entire industry will be undermined and the cost of cryptocurrencies relative to fiat currencies will be low.
«Bitcoin depreciation scenario is unrealistic»
The price of bitcoin cannot immediately collapse to zero due to the presence of a huge mining infrastructure , which leads to the presence of an imputed value through the cost of obtaining (mining). Bitcoin already represents a monopoly, this is a protocol that has proved its stability for almost 10 years, that is, it is almost impossible to replace Bitcoin with something else.
If we imagine that this happened, and everyone agreed to replace BTC with an alternative protocol, then the transition process will be slow. BTC will lose value for several years, and the price of another cryptocurrency will increase accordingly. This will not have a strong impact on the stocks of crypto companies, because the cryptocurrency business will remain, there will only be a change in top assets, and it will not affect the economy of El Salvador and other countries, because they will just slowly introduce another asset and withdraw BTC. Because of this, the world crisis will not happen either.
At the moment, such a scenario is unrealistic, because BTC is on the way to gaining market share of the defensive asset, which is currently held by gold and no other protocol has the necessary characteristics and support to compete in terms of the properties of the defensive asset.
«The fall in the price of bitcoin to zero will look like a natural process»
It is only possible to talk about the possibility of a drop in the value of bitcoin to zero if a quantum computer appears that will be able to perform the complex mathematical calculations necessary to decrypt private keys . At the moment, there are no such quantum computers, and it is difficult to imagine when they will appear. Prototypes of such computers are capable of performing only the most primitive operations, but they do it super quickly.
I am convinced that if a full-fledged quantum computer appears, large companies will receive insider information about this in advance and will be able to get rid of bitcoins without significant financial losses. Therefore, a potential drop in its value to zero will not affect their welfare. The legalization of cryptocurrency by El Salvador and other states will lead to the legalization of other cryptocurrencies.
It may also turn out that bitcoin will become technologically obsolete, and people will use more advanced blockchains, including more cryptographically secure ones, taking into account the prerequisites for the emergence of quantum computers. In this case, the value of bitcoin may approach zero, but most likely it will look like a natural gradual process.
«The consequences of the bitcoin collapse will not be catastrophic»
I do not consider the scenario with the fall of bitcoin to zero, since I do not see any fundamental reasons that could lead to this. The depreciation of bitcoin is in theory possible, however, none of the activities of global regulators can lead to the fact that bitcoin will not be worth anything. Currently, bitcoin is provided with significant volumes of fiat assets that turn into cryptocurrency, as well as a multibillion-dollar mining sphere, and therefore it cannot lose its value and value now.
Of course, a significant Bitcoin collapse will lead to negative consequences for market participants, but they will not be catastrophic, since the capitalization of the crypto market is rather small, and the investments of institutional participants are now very limited: sovereign and large investment funds do not buy cryptocurrency directly, that is, they are practically not involved in CFA market.
Thus, in the event of a collapse in the price of BTC, only retail investors and those private and public companies that have entered the cryptocurrency market will suffer, but, again, for a small fraction of the capital. Thus, I do not expect anything negative for Tesla or MicroStrategy: losses will not ruin these market players.
At the same time, a significant collapse in the BTC price will negatively affect the cryptocurrency market, since it is obvious that the main investments of market participants still continue to be directed to bitcoin. It is obvious that if it falls, altcoins will also fall, as has happened more than once. But given the fact that at present the correlation between assets is gradually decreasing, and alternatives to bitcoin or competitors appear, then in the future, participants may move to other digital assets, for example Ethereum , and, as a consequence, the collapse of bitcoin will lead to the destruction of the entire market.
