Bitcoin’s journey from an obscure whitepaper to a trillion-dollar asset class has been remarkable, but questions about its long-term viability persist. These objections to Bitcoin’s staying power come mostly from those who feel they missed the boat. Bitcoin derangement syndrome is a potent and toxic state of mind and can get you to rationalise avoiding Bitcoin for the strangest and most obscure reasons.
When speaking to those who suffer from this strange affliction super-powered by their ego, it reminds me of those guys who will ask a girl out, and when she says no, they’ll respond with, “You’re ugly anyway, and nobody wants you”.
While many see Bitcoin as “digital gold,” there are several scenarios that could potentially drive its value to zero or near-zero levels. This analysis explores these possibilities and their likelihood.
Can Bitcoin theoretically go to zero? Yes, it can! Ah ha, confirmation bias approved; you can now run off and tell people it’s a scam. Bitcoin can go to zero like the sun could supernova and cook us all.
Is it possible, yes? Is it likely, no?
But let’s take a look at some of the possible scenarios! Since saying it won’t isn’t enough for detractors, the burden of proof is on the Bitcoiner to justify its existence.
I don’t make the rules, I just respond to the feedback!
Can Bitcoin Go to Zero? A Look at the Risks
Like ANY monetary asset, there is a chance of it becoming worthless; the question shouldn’t be, can it go to zero? It should rather be; what are the chances of it going to zero?
- Can a stock go to zero?
- Can a bond go to zero?
- Can a property go to zero?
- Can a collectable go to zero?
- Can a fiat currency go to zero?
The short answer is Yes to all five.
Bitcoin is yet another asset class introduced to the world, but it does have some strange characteristics that make it hard to wrap your head around. Its decentralised nature, existence solely as code and data, and limited supply freaks out the Luddite brain in all of us the first time we come into contact with it.
How can something I can’t touch, see, smell or lick, something that only exists on a 100,000+ reachable computer worldwide, buy me a house?
It’s unbelievable!
Surely, there has to be a catch; surely this all goes belly up; there’s no way we can be living through the creation of a brand new asset class, can we?
Technical Catastrophes
The first place everyone heads to on the subject of Bitcoin going to zero is the question of its technical nature. Normally, these critiques come from people who have no idea how computers work, cryptography or distributed ledgers, but they’re going to give you their opinion with no basis in reality.
It reminds me of that obese aunt who will tell you it’s healthy to throw turmeric and cayenne pepper in your orange juice while she munches down on three doughnuts.
Your BMI should disqualify you from being a reliable source of health information, but it won’t stop you from providing your opinion.
Anyway, back to the technical Achilles heels, many claims will kill Bitcoin.
Quantum Computing Breakthrough
While still in its early stages, quantum computing has the potential to break the cryptographic algorithms that secure Bitcoin’s blockchain. This could allow malicious actors to steal funds or disrupt the network.
Developing sufficiently powerful quantum computers could break Bitcoin’s cryptographic foundations.
While current quantum computers are far from this capability, a breakthrough could render Bitcoin’s security model obsolete unless the protocol successfully implements quantum-resistant cryptography. This would require widespread consensus and coordination among the Bitcoin community.
If nothing is done and quantum computers do break Bitcoin, Satoshi’s funds would be the warning sign; they’re 1 million coins and would be the best use of resources to attack.
If those wallets are breached, it will act as a warning sign, and patches can be deployed. The Bitcoin community is actively researching and developing quantum-resistant algorithms to mitigate this risk.
If a day comes when commercially viable quantum chips are available, you can be sure someone will try to stuff it into a new range of ASICS and generate a hash rate with it. If you start moving from semi-automatic to automatic weapons, your enemy will also have access to automatic weapons, checkmate.
Critical Protocol Vulnerability
While Bitcoin’s core protocol has proven robust over 15+ years, an undiscovered critical vulnerability could emerge.
This could range from:
- Flaws in the proof-of-work mechanism resulting in a 51% attack
- Vulnerabilities in the cryptographic primitives
- Bugs in consensus rules
Such vulnerabilities would need to be severe enough to undermine fundamental trust in the system before emergency patches could be implemented to resolve the issue, hopefully without the need for a fork, and the network would continue running.
If it does fork, so be it; there will be two chains, and the best one may win.
Bitcoin does have a block height bug that needs fixing since it will run out of block numbers after block number 5101541, but this hiccup will only show up years into the future, so there’s plenty of time to resolve it.
The likelihood of a killer bug finding its way into Bitcoin is mitigated by the extensive scrutiny Bitcoin’s code receives from a global community of developers and security researchers. While the decentralised nature of the network makes it difficult for any single entity to control or manipulate it since other versions of the node software can be run, one doesn’t have to accept changes in core pushes, and rogue clients can emerge to combat malicious code and changes.
“A scenario where there literally is no functioning blockchain around and that the industry literally goes to zero is unlikley, This is because, unlike a company, there is minimal overhead to keeping some basic lights on for a blockchain and Bitcoin would likely live on through a surviving fork ”
Lyn Alden – Lyn Alden Investment Strategy – Coin Telegraph
Regulatory and Government Actions
Governments worldwide are grappling with the regulatory implications of Bitcoin. A severe crackdown, such as outright bans or excessive restrictions, could significantly impact Bitcoin’s adoption and value.
National Bitcoin Bans do exist; one can only look to the China mining ban to see how deep a discount Bitcoin traded, but you can also see that it soon recovered from it.
While many countries are exploring ways to regulate Bitcoin, a complete ban seems unlikely, given its potential benefits. Furthermore, the decentralised nature of Bitcoin makes it difficult to suppress entirely. Even if a single government were to ban Bitcoin, it could still thrive in other jurisdictions.
A synchronised ban by major economies (US, EU, China, etc.) could effectively cut off Bitcoin from the traditional financial system. While Bitcoin would likely survive underground, its black market price may take a knock in the short term as regulated holders would have to sell it off, as well as KYC’d coins, but that doesn’t mean there is a total removal of global demand.
This scenario would require unprecedented international cooperation and enforcement capabilities.
Good luck convincing every country in the world to avoid Bitcoin because it only takes one to accept it for that country to reap all the benefits.
Energy Usage Restrictions
Growing environmental concerns could lead to strict regulations on proof-of-work mining. If major nations implement and enforce energy usage restrictions specifically targeting cryptocurrency mining, Bitcoin’s security model could be compromised by significantly reduced hash power.
Hash power would indeed decrease dramatically if commercial miners were shut down, but it would provide a massive incentive to ordinary plebs to purchase those ASICs and run them at home.
In this scenario, Bitcoin prices will drop, and so will the machines that mine them; as they are redistributed to everyone interested in mining, the hash rate will be distributed to households, become harder to take down, and the hash rate will recover, as well as the price.
As a result, those early pleb miners will also net massive rewards in securing blocks when the network is less competitive, redistributing funds to smaller operations that can run for longer on the value one block reward provides.
Market and Economic Factors
While Bitcoin maintains first-mover advantage and network effects, a superior cryptocurrency or financial technology could emerge that offers:
- Better scalability and throughput
- Enhanced privacy features
- Improved energy efficiency
- Greater programmability
- Improved robustness
If such an alternative, in theory, could be created and receive widespread adoption, Bitcoin could face obsolescence, but something like this doesn’t exist; there won’t be a second Bitcoin and good luck to anyone who thinks they can replicate it.
There have been plenty of altcoin attempts to prove this theory is false, and there will be plenty more in the future.
Loss of Market Confidence
Perhaps the most significant risk to Bitcoin’s price is a loss of confidence among investors. A major security breach, a series of negative news stories, or a significant market downturn could trigger a panic sell-off, driving the price down.
While such events can be unpredictable, the growing institutional adoption of Bitcoin suggests a degree of resilience. Moreover, the limited supply of Bitcoin could act as a floor, preventing a complete collapse.
Several factors could trigger a catastrophic loss of market confidence:
- Major exchange collapses or hacks
- Systematic manipulation exposure
- Failure of key infrastructure providers
- Mass liquidation by large holders
These are all failures of centralised entities creating on-ramps into Bitcoin, and since Bitcoin has survived such events before, Bitcoin will survive it again in the future. The network is even bigger now, more robust, and more liquid, so it can take even larger hits.
I argue the earlier exchange failures were far more impactful to the network than any exchange failures today; even if the spot ETF were to fail, I doubt it would have the same impact as something like Mt Gox had on a relative basis.
If the market dumps drastically, it will eventually find a floor price; anyone with disposable income and a desire to increase their Bitcoin holdings will step in and take those coins off the market.
Bitcoin wouldn’t go to zero because a buyer will always be willing to take it off your hands, even if it is for $1 per coin. Sellers would eventually be drained of their holdings, and the market would trend upwards as the holders refused to sell.
Global Economic and Political Uncertainty
A range of global economic and political factors influences Bitcoin’s value; it’s becoming a macroeconomic asset now.
A major geopolitical event, a global recession, or a significant shift in monetary policy could negatively impact investor sentiment and drive down the price of Bitcoin.
While some see Bitcoin as a risky asset and would divest in times of uncertainty, others see it as an escape from this uncertainty. Its decentralised nature and limited supply make it an attractive asset during times of economic turmoil.
Some will think the event requires less exposure to Bitcoin; others will think the opposite, which will reflect in the price of the coin, but that price will not be zero.
The Danger of Fiscal Responsibility
Governments acting fiscally responsibly can indeed have a negative impact on the price of Bitcoin, although the exact mechanisms and the extent of the impact are subject to debate.
As Saifedean Ammous says:
“The way for them to kill Bitcoin is for them to make the economic incentive to use Bitcoin irrelevant — to make the demand for using Bitcoin go away at the source,” explained Ammous. “They need to offer a technology that is better than Bitcoin — that can obviate the need for Bitcoin. Or, at least, they need to try.”
Saifedean Ammous – Forbes
Reduced Demand for Risk Assets:
Fiscal responsibility often involves measures like reducing government spending and increasing taxes. These measures can slow economic growth and reduce investor confidence.
In such an environment, investors may shift their focus from assets like Bitcoin to traditional, safer havens like government bonds or gold.
This reduced demand for Bitcoin can lead to a decline in its price.
Reduced Inflation Expectations:
One of the primary reasons for Bitcoin’s appeal is its perceived ability to hedge against inflation. If governments curb inflation through responsible fiscal policies, the demand for Bitcoin as an inflation hedge may diminish. This reduced demand can also contribute to a decline in Bitcoin’s price.
Increased Competition from Traditional Assets:
If governments successfully manage their finances, traditional assets like stocks and bonds may become more attractive to investors. This increased competition from traditional assets can divert investment away from Bitcoin, negatively impacting its price.
Reduced Demand for Decentralised Finance:
If governments improve the efficiency and stability of their financial systems, the demand for decentralised alternatives like Bitcoin may decrease. This reduced demand can also put downward pressure on Bitcoin’s price.
Now, this is all pure fantasy; there is no way a government will not continue to tap into inflation; most governments are leveraged far beyond the point of reversing this trade.
Accepting the deflationary effects of good monetary and fiscal policy would see a massive unwinding of debt, which would be painful in the short and medium term; no government wants that under their watch, and so inflation remains the lesser evil.
As long as this remains true, the government will continue to provide more than enough reasons to own Bitcoin.
The Potential of Bitcoin Going to Zero
While each of these risks could potentially impact Bitcoin’s value, a complete collapse seems unlikely. The decentralised nature of the network, the growing institutional adoption, and the limited supply all contribute to Bitcoin’s resilience.
Its ability to facilitate secure and borderless transactions, its potential to disrupt traditional finance, and its role as a hedge against inflation all contribute to its long-term appeal.
- Distributed Nature: Bitcoin’s decentralised architecture makes it resistant to single points of failure. Even after catastrophic events, some network value would likely persist.
- Adaptation History: The Bitcoin community has demonstrated ability to adapt to challenges through soft and hard forks when necessary.
- Infrastructure Maturity: Growing institutional adoption and infrastructure development create stabilising network effects.
- Cultural Entrenchment: Bitcoin has achieved significant mindshare as a concept and store of value, making total abandonment less likely.
Moreover, the potential growth of Bitcoin is significant; while 1 trillion seems like a large market, Bitcoin isn’t even 1% of the world’s monetary base and has room to grow.
What are the chances of zero?
Bitcoin is an evolving asset class, and while it continues to monetise and grow as a monetary base and store of value, it will always have detractors who fail to see its purpose. But just because you don’t see Bitcoin as valuable doesn’t mean you’re right, there’s a global 24/7 market where the world decides how valuable Bitcoin is in real time.
As with any investment, it is crucial to conduct thorough research and understand the risks involved before investing in Bitcoin; if you haven’t built the conviction, you might get shaken out or do something you’ll regret later on.
Remember, No one is forcing you to acquire and hold Bitcoin; you can ignore it and live without it.
If you are fortunate enough to have net wealth that can protect you against inflation and allow you to consume at a rate that provides you with a decent quality of life, you have more power.
But for those of us who wish to see a new monetary standard based on savings instead of debt, based on producing marketable goods and services to accumulate wealth instead of seigniorage and the Cantillon effect, Bitcoin is more than an investment; it’s a bridge towards a new known and fixed rule-based economy.
Remember that while total failure scenarios exist, they represent tail risks rather than probable outcomes in Bitcoin’s future trajectory.
