Suppose Bitcoin crashes hard and has no value anymore. What will be the consequences of this…
More and more people are investing in cryptos. And Bitcoin remains one of the favorite coins to put money into. The coin has had some ups and downs, but the fact remains that the crypto has grown tremendously in value. Experts expect an increase in the future, but what if the coin and/or the entire crypto market crashes?
Bitcoin crashes
For many people this would mean losing money, which makes sense. But the consequences are more far-reaching. The Economist has prepared a ‘worst case’ scenario in a report. The outcome is not rosy and the collapse of the digital currency could have consequences for the entire financial system. Just like with the previous banking crisis. This is mainly due to leverage, either investing or trading with borrowed money. So you can invest more.
The report describes that just a year ago, there were about 6,000 currencies listed on CoinMarketCap. Today there are 11,145. Their combined market capitalization has exploded from $330 billion to $1.6 trillion. This is roughly equivalent to Canada’s nominal GDP.
A crash would have huge consequences. Private investments in crypto companies such as exchanges ($37 billion since 2010, estimates PitchBook, a data company) are wiping out, as is the value of publicly traded crypto companies (worth about $90 billion). Companies like PayPal and Visa would lose some of the growth and value.
Financial market
The global market will also notice. Infection can spread through all kinds of channels. For example, to other assets. The leverage mentioned earlier is also a significant risk. A significant portion of the money invested in Bitcoin is spent on derivatives such as “perpetual” swaps – bets on future price swings that never expire.
These are mainly traded on exchanges that are not supervised. Like Binance or FTC. Customers can borrow there, modest price fluctuations can cause large margin calls; when these conditions are not met, the exchanges liquidate their customers’ assets, causing prices to fall.
The chances of this happening in the short term are slim. But there is a chance that it can.
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