Bitcoin is the largest cryptocurrency. According to TradingView, Bitcoin’s dominance as of mid-September 2023 is approximately 50%. Bitcoin’s cap at the time of writing exceeds $502 billion with a total crypto market capitalization of $1.04 trillion.
Bitcoin holds not only economic but also psychological significance. BTC has the highest level of decentralization and trust among investors and users. It isn’t for nothing that the first cryptocurrency is called “digital gold.” This is a benchmark of sorts, and its complete devaluation will almost certainly trigger the crypto market collapse. But is the breakdown of Bitcoin possible? Let’s break it down.
Is Bitcoin Collapse Possible?
Purely theoretically, the collapse of Bitcoin is possible. However, BTC currently has the greatest stability among all cryptocurrencies, so its crash seems to be the least likely scenario.
The key factors contributing to Bitcoin’s resilience are:
- Limited supply. BTC is a deflationary asset, its total supply is limited, which creates a scarcity that can maintain or increase the value of the asset while keeping the level of demand constant.
- Decentralization. The Bitcoin network is highly decentralized, meaning it’s relatively independent of governments, corporations, and other organizational structures, making it difficult to regulate and restrict.
- Security. The Proof-of-Work consensus algorithm and large decentralized network allow BTC to remain one of the most secure cryptocurrencies.
- Community. Due to the peculiarities of the Bitcoin concept and open-source code, a large community has formed around the first cryptocurrency that actually manages and develops the project, which ensures a high level of trust in the system.
- Network effect. The more people that use BTC, the more popular, useful, and in demand it becomes.
- Global nature. Bitcoin is available and used in many countries around the world, making it less susceptible to economic or political crises in specific regions.
- Diversity of participants. Bitcoin is used in investments and trading and is increasingly being introduced into E-Commerce. Moreover, BTC is already the official currency in El Salvador and Próspera, the free economic zone of Honduras. These factors increase the economic relevance and sustainability of the first cryptocurrency.
In a nutshell, Bitcoin is a unique economic and technological phenomenon, but the possibility of its collapse can’t be completely ruled out.
Bitcoin’s Collapse: What Scenarios Are Possible?
In theory, Bitcoin could completely devalue under several conditions:
- Loss of trust. Discovering a critical vulnerability in the first cryptocurrency’s protocol or a prolonged technological failure in the blockchain network could undermine trust in Bitcoin.
- Centralization. Large corporations are making certain moves to take control of the computing power of the first cryptocurrency, and if successful, they could seize control of it.
- Regulation. If most major countries or states impose strict bans or restrictions on the use of BTC, it could erode demand for the asset.
- Competition. Theoretically, it’s possible that other cryptocurrencies or financial technologies may emerge that could replace BTC, offering higher quality of services, reliability, etc.
At present, all the factors mentioned above look unrealistic. Bitcoin’s technological simplicity compared to more modern cryptocurrencies and its management model minimize the likelihood of critical failures. Centralization issues are also solved by collective management, and the possibility of a global ban on Bitcoin at the state level only exists in China, which has already taken advantage of it. Yet, BTC mining is still a thing in the country.
The loss of interest in the first cryptocurrency isn’t threatening, given that Bitcoin is the most profitable asset in history. Furthermore, BTC is gradually transforming from a means of payment to an element of fixed capital. Bitcoin is in a very advantageous position — it’s the most well-known, trusted, expensive, respected, and decentralized cryptocurrency. There are no obvious competitors, and the prospects for big capital to seize control of the blockchain network look ephemeral for now.
On the other hand, the situation is constantly changing, and the emergence of a black swan can’t be ruled out. In addition, Bitcoin’s complete devaluation is possible in case of catastrophic events on a global scale, namely natural disasters or nuclear war. But such events will be accompanied by the physical destruction of digital infrastructure and the complete collapse of civilization, so the depreciation of Bitcoin will look like the lesser evil.