Follow up to my last article on the idea that governments will ruin Bitcoin if it becomes a real threat to the status quo. So, three basic points on this idea.
First point, Bla Bla Bla. People like Warren Buffett say Bitcoin is bad and is not going anywhere but down. Great point... except that is worth about 50,000 dollars right now. Since we don’t have a time machine to go fifty years in the future and plenty of people (including myself) have reamed Buffett over this take, I will just break this down to this IT IS WORTH 50,000 DOLLARS RIGHT NOW.
Next point, the Yale report. I know this report I am about to quote is from 2018, but, I am more interested in the idea of what they were studying, not the actual final numbers.
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.
Now, I don’t know if any of this study is realistic as it essentially tries to look at risk with crypto in the same way you look at risk with fiat or precious metals. You can read all 40 plus pages yourself if you want to follow the link below. It is interesting that they put an actual number to the risk.
One other idea before we reach the last point is that Bitcoin is essentially a giant Ponzi scheme. This is actually one of the most realistic ideas as it would explain why we all blindly defend Bitcoin, because we are either at the top pf the scheme or the suckers at the bottom that have no choice to believe because we are already invested.
Finally, how hard would it be to bring crypto to zero. Good news, nearly impossible. If Bitcoin were to truly crash to zero, it would mean either that it became impossible to trade Bitcoin or exchange it for goods and services, or that buy-side liquidity fell to zero for some reason. 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 already the case in a handful of countries.
This would also require taking down the entire Bitcoin network, rendering all nodes offline and making it impossible to set up new ones. Theoretically, this would make it impossible to transfer Bitcoin and would prevent underground trading, likely rendering Bitcoin worthless—but this would be nearly impossible to accomplish. The decentralization and global spread of network nodes is the entire value proposition of the Bitcoin blockchain.
Another possibility is that Bitcoin could 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). But this scenario would likely take several years—perhaps even decades—to play out.
Whatever the case, it appears 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 the Reserve Bank of India (RBI) demonitized 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.
So, the upside is even if it is only pennies, Bitcoin will probably always be worth something.
Resources
https://www.nber.org/system/files/working_papers/w24877/w24877.pdf
