Bitcoin has been on an uptrend for much of its existence, with its price climbing from essentially zero to as high as $20,000 in under a decade. Even trading at half of its all-time high, the cryptocurrency is one of the largest currencies in the world, and in its short lifespan has become one of the most profitable assets of all time.
Despite this growth, Bitcoin’s detractors have long argued that it’s only a matter of time before it collapses back to zero; former Bitcoin Cash proponent Calvin Ayre recently stated that Bitcoin is worthless, while American business tycoon Warren Buffett has frequently lambasted Bitcoin, and recently told CNBC that all cryptocurrency (Bitcoin included) is worthless.
hahaha….and many likely will as BTC drops to zero since it is worthless unless it can scale and I don't see this ever happening.
— Calvin Ayre (@CalvinAyre) July 14, 2020
But what would it actually take for Bitcoin to lose 100% of its value? As it turns out, a lot.
Could Bitcoin really crash to zero?
In 2018, two Yale University economists (Yukun Liu and Aleh Tsyvinski) published a report titled ‘Risks and Returns of Cryptocurrency,’ in which the authors examined the risk of Bitcoin collapsing to zero in the span of a day. By using Bitcoin’s historic returns to calculate its risk-neutral disaster probability, the authors found that the likelihood of an unspecified disaster crashing Bitcoin to zero ranged from between 0% to 1.3%, and was around 0.4% at the time of publication. For comparison, Tsyvinski stated that the euro (EUR) has a 0.009% chance of the same, in an interview with YaleNews.
Others argue that Bitcoin will eventually crash to zero because it lacks intrinsic value. However, although it doesn’t have any intrinsic value, Bitcoin is backed by consumer confidence and mathematics. This is somewhat similar to fiat currencies like the US dollar (USD) and Pound sterling (GBP), which were once backed by gold (which has intrinsic value), but are now backed by the government—though some would argue that the US dollar, at least, is actually backed by debt.
Fringe case scenarios
If Bitcoin were to truly crash to zero, it would mean that it would be either impossible to trade Bitcoin or exchange it for goods and services, or that buy-side liquidity had fallen to zero for some reason. Realistically, one of the only plausible scenarios that could cause this is Bitcoin being banned by all world governments, potentially rendering it illegal to own or use—as is the case in a handful of countries.
This would also require taking down the entire Bitcoin network, rendering all nodes offline—including the ones in space—and making it impossible to set up new ones. This would, theoretically and unless a workaround is discovered, make it impossible to transfer Bitcoin and would prevent underground trading, likely rendering Bitcoin worthless—but this would be nearly impossible to accomplish.
Another possibility is that Bitcoin might simply be superseded by a better cryptocurrency or a similar alternative payment system, rendering it obsolete (and therefore worthless as a payment method or store of value). This scenario would, however, likely take several years—perhaps even decades—to play out.
Whatever the case, it is likely that Bitcoin will always retain some value, either as a collector’s item or as a historic artifact for future generations.
A similar phenomenon was observed relatively recently, when when the Reserve Bank of India (RBI) demonetized Rs 500 and 1,000 notes in November 2016 due to a massive increase in counterfeit notes. Although authentic Rs 500 and 1,000 notes can no longer be used as legal tender in India, they still retain some value as works of art or as a curiosity.