Wednesday, August 21, 2019

Alarming Hypothesis: Could Bitcoin Reach Zero?

Bitcoin and the cryptocurrency market are in the process of consolidating as the new asset class. With so much money in it, one would think that the market is not going anywhere. But there are always doubts, and people that capitalize on those doubts. But could bitcoin reach zero in today’s market? We try to find out if in the current conditions that could be possible.

From Hero To Zero: Could Bitcoin Reach Zero?

This Tweet from Nouriel Roubini serves as an introduction to the issue of bitcoin going to zero. He describes an apocalyptic future that has been fueled by the latest developments of the bear market. This event brought bitcoin prices below 5K, a level that is considered to be under the break-even price of mining.

This would be one of the first conditions to make bitcoin get to zero. The inability of miners to keep mining due to operative costs. This is already happening. Of course, big mining companies and pools can afford to mine at a loss for certain amounts of time. When this happens they are operating on the idea that the price will go up and that they will recover these costs when they sell at a higher price.

Alarming Hypothesis: Could Bitcoin Reach Zero?

Another thing that would happen is that the network would experience a loss of functionality, and transactions times will be longer, with fees higher. Eventually, unconfirmed transactions will pile up due to network congestion produced by the lack of hash power to operate the network. And from here the collapse could happen.

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People desperate to cash out would start paying irrational fees and whales would be the ones to cash out first. Micropayments would be impossible to do because transaction fees would be way higher than the amount of the withdrawal. However, all of this is hypothetical and highly unlikely to happen.

Bitcoin Resilience

Bitcoin has exhibited volatile behavior as an asset class: there is no doubt about it. But every time that is has lost a big amount of its value, it has retrieved it again. It does not matter if it appeals to the greater fool theory, but bitcoin has lost and regained its value cyclically through the years.

We cannot predict what will happen in the future, but bitcoin does have clear use cases and it has an intrinsic value that makes it useful for some, even if for others it is just a speculating tool to generate profit. So summarizing, it is really unlikely that bitcoin could reach zero now, given the circumstances.

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