Will A Crash in Bitcoin's Price Lead to Its Demise? - Master The Crypto (2024)

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This article takes a look at the possible scenarios to answer the important question of whether will a crash in Bitcoin's price lead to its demise.

The creation of Bitcoin in2008has kickstarted a technological revolution, one which aims to reshape the monetary system as well as disrupting a wide range of industries. Thanks to open-source decentralisation, individuals are empowered to participate in a monetary system that is transparent, secure and immutable. More importantly, the advent of cryptocurrencies allows for fast and cheap financial transactions on a global scale.

Evolution of Bitcoin

Bitcoin has come a long way since its inception in 2008. From a price of USD $0.003 in March 2010 to an all-time high of close to USD $20,000 in early 2018, one cannot simply ignore its exponential price growth. Not only does Bitcoin – and the entire cryptocurrency market – promises a disruptive technological wave, but it has made many people rich along the way. Therefore, it is of no surprise that many have jumped on the cryptocurrency bandwagon in the hope of increasing their wealth. (Read also:)

There is traditionally 3 main ways that one can acquire cryptocurrencies:

Will A Crash in Bitcoin's Price Lead to Its Demise? - Master The Crypto (1)

  1. Purchase coins from a cryptocurrency exchange
  2. Investing in an Initial Coin Offering (ICO)
  3. Mining, a process of validating transactions using advanced computing hardware

Mining: A Vital Part of The Network

Given its decentralized, open source nature, Bitcoin miners play a huge role in validating the network. The incentive structure in Bitcoin’s architecture ensures that miners are compensated with additional supply of Bitcoins for their hard work in securing the network. Therefore, there is a financial incentive for miners to act in the best interest of the network.

However, this incentive is only as strong as the market value of Bitcoin. If Bitcoin’s value deteriorates, the financial incentive for miners would diminish. Therefore, the main question is:

What will happen if Bitcoin’s price plummets for a prolonged period?

Risk of Bitcoin Price Crash

Due to the extreme volatility of cryptocurrency prices, there is always a risk that Bitcoin’s prices would be suppressed. When this happens, there is a real risk of destabilization. Let’s explore the possibilities of what might happen if prices crash.

Will A Crash in Bitcoin's Price Lead to Its Demise? - Master The Crypto (2)

1. Economics of Mining

A core component of Bitcoin's properties – security, immutability and decentralisation – relies on miners to validate transactions on the network. There are 2 main expenses when it comes to mining:

  • Hardware Costs: One needs to acquire specialized computing hardware (called Application-specific integrated circuit[ASIC] miners)
  • Electricity Costs: Bitcoin’s mining algorithm requires a huge amount of energy – in the form of electricity – to be used. Electricity costs is perhaps the main, constant expenditure for miners

The average cost of mining one Bitcoin globally is approximately $5,000. Therefore, it wouldn't make sense for miners to mine Bitcoin if it's price goes below the cost of mining.Here is a look at the cost of Bitcoin mining across different countries:

Will A Crash in Bitcoin's Price Lead to Its Demise? - Master The Crypto (3)

(Source: Elite Fixtures)

If the price of Bitcoin goes below the cost of mining Bitcoin, then the network can be compromised. Once mining is unprofitable, the financial incentive to validate transactions and secure the network diminishes, thereby leading to an exodus of mining activity.Miners may explore mining other coins with greater profitability or even stop mining completely. The reduction of mining activity may jeopardize the security of the Bitcoin network.

Will A Crash in Bitcoin's Price Lead to Its Demise? - Master The Crypto (4)

(See also:)

2. Security

Since mining is an essential part of securing the network, the absence of mining incentives will lead to a high risk of a ‘51% attack'. If it is unprofitable for miners to continue mining, then there will be less miners in the network performing a vital part of Bitcoin's network: validating transactions.

‘51% attack' occurs when a single party gains control of more than 50% of the computing power of a blockchain, giving them full control in engaging in malicious activities such as preventing new transactions from being added and double-spending the coins.

The strength of Bitcoin's decentralized network lies in the diversity of miners that validate transactions and secure the network. The exodus of miners may open up an opportunity for bad actors – that has the capacity to generate a great deal of hashing power – to ‘game' the system. In the event of an attack, Bitcoin would be compromised, and this will debase it's usefulness.

Will A Crash in Bitcoin's Price Lead to Its Demise? - Master The Crypto (5)

(Read more:Guide to Cryptocurrency Security: Activating 2FA)

Bitcoin will Never Die

As with 2 sides of the coin, there are those in the opposite side of the argument. Let’s take a look at them.

Will A Crash in Bitcoin's Price Lead to Its Demise? - Master The Crypto (6)

1. Utility

Ultimately, Bitcoin is a currency and in order to remain valuable, a currency needs to be used by the masses. The absence of consumer adoption and merchant acceptance would mean the death of a currency. Currently, it's utility is still relevant as it is much faster and cheaper to use Bitcoin to transfer value as comparative traditional banks.

Not only that, Bitcoin is the gateway for the entire cryptocurrency market; in order to buy other coins and tokens, one would have to own Bitcoin first. This role as being the base currency of the crypto world ensures that Bitcoin's relevance will remain strong in the long-term, assuming there is strong interest in cryptocurrencies as a whole.

Will A Crash in Bitcoin's Price Lead to Its Demise? - Master The Crypto (7)

2. Store of Value

Even if Bitcoin's role of being a currency is compromised (due to the lack of adoption & acceptance), its role of being a store of value is still strong given that Bitcoin is a deflationary currency. Given its fixed supply at 21 million BTC, prices are likely to increase in the long-run assuming demand is constantly growing since there's a finite amount of Bitcoin's in circulation. That is why Bitcoin is also referred to as ‘digital gold'.

Will A Crash in Bitcoin's Price Lead to Its Demise? - Master The Crypto (8)

(Read also:Crypto Beginners Guide: 5 Things Crypto Newbies Should Know)

3. Lower Mining Difficulty

In the event of a price crash and the possible exodus of miners away from the network, it will adversely be a great opportunity for new miners to enter the scene or even current miners (especially centralized entities) to increase their influence. This is because the exodus of miners in a crash would lead to a reduction in Bitcoin's cumulative hashing power, thereby lowering the mining difficulty level.

Mining difficulty is a unit of measurement designed to indicate the difficulty level of finding a hash below the given target. The higher the mining difficulty, the more difficult it is for a single miner to successfully mine blocks.

A reduction in mining difficulty would be a great time for new or existing miners that fundamentally believe in the long-term value of Bitcoin to enter the scene. Even though they'd be mining at a financial loss, they would reckon that the price dive would be temporary and prices would recover on the long-run. It is important to note that Bitcoin's difficulty changes every2016blocks, which is approximately 2 weeks. Therefore, it will take a while before the mining difficulty reduces after the reduction in hashing power.

Will A Crash in Bitcoin's Price Lead to Its Demise? - Master The Crypto (9)

(See also:Understanding Cryptocurrencies: Game of Thrones Edition)

4. Ideological Attachment

Perhaps a strong reason why Bitcoin will never die is the strong ideological support that the Bitcoin, and by effect, the greater cryptocurrency community subscribe to. The creation of Bitcoin allowed for an alternative monetary system that is devoid of any government of third party control. This is an attractive philosophy that many hold dearly and would go all out to prevent its destruction. For the first time in history, the masses are empowered and included in a monetary system that is transparent and immutable.

Beneath this mask there is more than flesh, Beneath this mask there is an idea, Mr. Creedy, and ideas are bulletproof.
– V

Will A Crash in Bitcoin's Price Lead to Its Demise? - Master The Crypto (10)

(See also: Is it Too Late to Buy Bitcoin and Is It too Late to Invest in Cryptocurrency?)

What’s in Store for Bitcoin?

Though no one can predict the future, it’s interesting to look at the different possibilities on Bitcoin’s future in a scenario when prices crash. Though there is always a theoretical possibility that Bitcoin would one day cease to exists, it is hard to envision such a revolutionary technology being extinct. Given the absence of any fundamental defects since its inception as well as a strong, ideological community, it is unlikely that a temporary price crash would deter the majority of network participants.

Beneficial Resources To Get You Started

If you're starting your journey into the complex world of cryptocurrencies, here's a list of useful resources and guides that will get you on your way:

Will A Crash in Bitcoin's Price Lead to Its Demise? - Master The Crypto (11)

Trading & Exchange

  • Crypto Guide 101: Choosing The Best Cryptocurrency Exchange
  • Guide to Bittrex Exchange: How to Trade on Bittrex
  • Guide to Binance Exchange: How to Open Binance Account and What You Should Know
  • Guide to Etherdelta Exchange: How to Trade on Etherdelta
  • Guide To Cryptocurrency Trading Basics: Introduction to Crypto Technical Analysis
  • Crypto Trading Guide: 4 Common Pitfalls Every Crypto Trader Will Experience

Wallets

  • Guide to Cryptocurrency Wallets: Why Do You Need Wallets?
  • Guide to Cryptocurrency Wallets: Opening a Bitcoin Wallet
  • Guide to Cryptocurrency Wallets: Opening a MyEtherWallet (MEW)

Read also:Crypto Trading Guide: 4 Common Pitfalls Every Crypto Trader Will Experienceand

Enroll in our Free Cryptocurrency Webinar now to learn everything you need to know about crypto investing.

Get our exclusive e-book which will guide you on the step-by-step process to get started with making money via Cryptocurrency investments!

You can also join our Facebook group at Master The Crypto: Advanced Cryptocurrency Knowledge to ask any questions regarding cryptos!

Will A Crash in Bitcoin's Price Lead to Its Demise? - Master The Crypto (12)

Aziz, Master the Crypto Founder

I'm Aziz, a seasoned cryptocurrency trader who's really passionate about 2 things; #1) the awesome-revolutionary blockchain technology underlying crypto and #2) helping make bitcoin great ‘again'!

Will A Crash in Bitcoin's Price Lead to Its Demise? - Master The Crypto (2024)

FAQs

What happens if the price of Bitcoin crashes? ›

It is quite likely that a bitcoin price crash will result in a correction in their prices as well. It is also certain that the vast majority of cryptocurrencies that populate the current listings will disappear.

Will crypto go down if the market crashes? ›

Nolan Bauerle, research director at CoinDesk, says 90% of cryptocurrencies today will not survive a crash in the markets. Those that survive will dominate the game and boost returns for early investors.

What is the main reason for the crypto crash? ›

Recession Fears

This is most likely the main driver of the latest sales pressure. The specter of a U.S. (and global) recession is looming large, and economic indicators are flashing warning signs. As a result, risk assets like crypto are taking a hit as investors flock to safer havens.

How bad is the crypto crash? ›

2021–2024 crash. After its peak, the crypto market began to fall with the rest of the market. By the end of 2021, Bitcoin had fallen nearly 30% from its peak down to $47,686.81, and Ethereum had fallen about 23% to $3,769.70.

Can Bitcoin go to zero? ›

A reasonable assumption that Bitcoin could hypothetically reach the null state of it's value is worth the thought. Even-though such an event is very less likely to take place, there are some factors that could theoretically lead to Bitcoin price crashing to zero.

Can Bitcoin lose all its value? ›

To lose all the invested money, the price of bitcoin should drop to a level equal to the fees paid to the exchange, which is only a small fraction of the transaction amount. Let's illustrate this with an example: Suppose you bought 1 BTC for $70,000 and paid a 1% fee, which is $700. So, the total money paid is $70,700.

When should I sell my Bitcoin? ›

You might want to sell your crypto under some specific circ*mstances. If there is a lack of blockchain development progress or a string of negative news, you might want to sell your cryptocurrency. If you've reached your investing goals or want to reallocate your holding, you might want to sell your cryptocurrency.

Will Bitcoin survive a recession? ›

As investors weigh the possibilities of a recession, many are looking for assets to protect them from the potential storm. But experts say crypto isn't the place to find it. “I'm not sure crypto can be considered a safe haven given its volatility,” says Scott Sheridan, CEO of online brokerage firm tastytrade.

Should I buy crypto when its down? ›

If an investor thinks prices are about to go down — but are likely to recover in the long term — they can use DCA to invest cash over the period of time they think a downward movement will happen. If they're right, they'll benefit from picking up assets at a lower price.

What is the future of the Bitcoin? ›

Analysts expect: Bitcoin ETFs to represent approximately 7% of Bitcoin in circulation by 2025 and about 15% by 2033. They project that spot Bitcoin ETFs will reach around $190 billion in assets under management (AuM) by the market peak in 2025 and $3 trillion by 2033.

Will crypto ever recover? ›

The year 2023 gave a fresh start to the crypto world, showing positive signs of recovery. Crypto investors believe that in situations like this, investing in stable digital currencies like Bitcoin and Ethereum in SIP format is a safe choice.

What to do when crypto crashes? ›

Don't invest more than you can afford to lose: This is perhaps the most important rule of all when it comes to investing in cryptocurrencies. Crashes can be unpredictable, so it is important to only invest money that you can afford to lose.

Should I buy Bitcoin right now? ›

Unfortunately, it's also incredibly volatile. For that reason, while current market conditions are favorable for anyone considering buying Bitcoin, it is an asset you should purchase only at your own risk. Because while Bitcoin may have the potential for significant returns, you may also lose most of your investment.

What happens to crypto if stock market crashes? ›

Crypto prices can be dramatically affected by major events, such as exchanges or coins crashing. They can also sink with higher interest rates, rising inflation and other macroeconomic factors that can affect how confident people feel investing their money in risky alternative assets.

What happens if your Bitcoin goes down? ›

If you've invested in Bitcoin and its value goes down, the monetary loss is realized when you sell or exchange your Bitcoin for traditional currency. However, if you hold onto your Bitcoin despite the decrease in value, you won't incur a loss on paper unless you sell at a lower value than your initial investment.

What to do if Bitcoin crashes? ›

Don't invest more than you can afford to lose: This is perhaps the most important rule of all when it comes to investing in cryptocurrencies. Crashes can be unpredictable, so it is important to only invest money that you can afford to lose.

What happens to price when Bitcoin runs out? ›

When all bitcoin have been mined, miner revenue will depend entirely on transaction fees. The price and purchasing power of bitcoin will adjust to the lack of new supply. The scarcity of Bitcoin will make it more attractive to investors and users.

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