Marc Serafino
Some people think that Bitcoin must crash. They say it doesn’t produce much value but it does use a ton of resources, read: electricity, to do its “thing.”
Others disagree. Bitcoin is like any other money; it is used to pay for goods and services, making it a universal item that can exchanged for other items. We are in that other group, thinking that the global world needs a global currency. Nonetheless, sometimes we do ponder — is Bitcoin going to crash?
So we decided to give that question an extra thought by analyzing some of the potential risks and how Bitcoin (and other cryptocurrencies) may be able to overcome them. Let’s start by looking at potential crisis of the cryptocurrency space…
Four potential cryptocurrency crisis
We think that Bitcoin, and all other cryptocurrencies, could face four different crisis. Let’s look at each one of them:
1. Technical crisis
This is the crisis that is / could be looming in the “inner circles” of the Bitcoin community. For instance, some developers would like to see new features that would a change in algorithm in the form of either hard or soft fork. One hard fork has recently happened when we saw the emergence of Bitcoin Cash. Also, as it’s getting harder and harder to complete blocks, mining pools could start battling each other, which could produce a few big winners and a lot of losers.
2. Crisis of trust
Right now, you can buy many, but not too many, things with your bitcoins. What if we don’t get many new merchants accepting cryptocurrencies? If the promise of cryptocurrencies is to replace the fiat currency at some point, we should see new vendors joining this trend on a daily basis. And we do see it, but what if that trend stops? Big merchants that sell physical goods work with slim margins and they are not able to keep up with bitcoin’s volatility. Which leads us to the next point…
3. Regulation crisis
So far, the lack of regulation has worked in Bitcoin’s favor, but things could change in the future. However the same factors have caused the price of Bitcoin to go in both directions. While those holding bitcoins and those accepting cryptocurrency payments like to see bitcoin appreciating in value, they hate to see it going in the opposite direction. And that’s what happened recently when China decided to (temporarily) ban ICOs in the country. Governments all around the world want to have a role in the emerging cryptocurrency space…
4. Too many ICOs
These are not directly related to Bitcoin but will undoubtedly have an impact on the entire cryptocurrency market. As we see many Ethereum ICOs failing, the market will react and we could see it going south for a few months. Once a few people think other people will start to pull out, then that could lead to a general panic. If that happens, it will shake out all but the most hardcore investors who really believe in the technology.
All this leads us to the next point…
We’ll have several crashes, not just one…
And we have already seen a few…
Back in 2013, bitcoin dropped more than 50 percent when the Chinese government asked a local exchange, BTCChina, to stop accepting deposits in Yuan. The government changed its mind later on, and Bitcoin thrived ever since.
Today, we have something similar happening, though the effect isn’t as drastic yet — on the news that China wants to regulate cryptocurrency exchanges, Bitcoin lost less than 10 percent of its value.
So it’s not a crash per se but it is significant, nonetheless.
And I have no doubts we’ll be hearing similar news in the upcoming years, which will have a smaller or bigger impact on the value of Bitcoin and other digital assets.
Philosophically speaking, at some point everything is going to crash. Your phone will crash, humans will crash, and the universe will crash. As the famous economist John Maynard Keynes once said: “In the long run we are all dead.”
In the meantime, we think that…
Bitcoin will prevail…
And the same goes for some other cryptocurrencies, like Ethereum. They will only get stronger with time.
People used to say the internet would never be used for shopping, and let’s not forget all those “analysts” that said Apple won’t succeed in the mobile phone market.
There will always be skeptics, who will just wait for the moment to say “I told you so.”
In the cryptocurrency space — and in the stock market, as well — the panic is your friend. When everyone’s selling, you should buy (if you can). That’s when you can get the best deal; Warren Buffett does like that and we know his track-record.
People do need a global trustable digital store of value, and Bitcoin has what it takes to fulfill that need. It is, after all, considered a digital gold, right?
Now you may want to avoid this space (for some time), or you can dive in and reap the benefits afterwards. It’s all up to you…
