Bitcoin's price in the past several months has been going one way, and that is up. The currency’s latest surge to $63,729 has brought the crypto market cap to $2.25trn.
Naturally, the question of how long the currency can continue climbing before crashing is now front of mind for many.
When Bitcoin first surged to eye-popping levels in 2018, it was driven mostly by a FOMO sentiment, which eventually culminated in a crash from nearly $20,000 to $5,415 in the space of a few months.
Back then, the tumbling price prompted many trigger-happy consumers to unload, which in turn led to even greater devaluation of the tokens. Today, though, things look different. Institutional investors have rallied to invest copiously in Bitcoin.
Morgan Stanley is advising private wealth clients on crypto investments and JPMorgan has withdrawn its objection to cryptocurrencies in full. It seems big firms are willing to “hodl” onto their currency too, meaning that Bitcoin is slowly, but steadily shaping up as a digital reserve currency.
However, the recent institutional interest is not enough to definitively assure us of the longevity of a currency that is not backed by a central authority. Regulation is on the way, though, so this may come to change.
The most data we have about Bitcoin ever crashing to zero, outside of speculation and wishful thinking, is a report produced by two Yale University economists, Yukun Liu and Aleh Tsyvinski, titled: “Risks and Returns of Cryptocurrencies”. Writing back in 2018, they calculated that the chance of Bitcoin ever hitting zero was around 0.4%.
That was when no major player showed interest in the currency. To put this into perspective, using the same historic modelling, Tsyvinski argued that the Euro has a 0.009% chance of crashing.
Consumer backing and intrinsic value
While many see Bitcoin as an opportunity to get rich, change the investment game or even upend the stock market (see Coinbase's recent IPO) the question of the currency's value remains. Some argue that interest shown by investors and consumers is enough to keep Bitcoin not just afloat, but prospering.
Others, such as billionaire Calvin Ayre and investment legend Warren Buffet have repeatedly dismissed Bitcoin, arguing that there is no intrinsic value and as such, the bubble is going to burst sooner or later.
All speculation aside, there are some real-world scenarios where Bitcoin may end up crashing to zero. Such scenarios include being unable to trade Bitcoin for any sort of service or good, thus devaluing it in its entirety.
This is unlikely to happen as more vendors, including Tesla, are now accepting Bitcoin payments and sports teams are even considering paying salaries and bonuses in BTC.
Another scenario is if all governments around the world agreed to ban the currency, but specifically if Chinese, American and European authorities all decided to clamp down on it at the same time.
Of course, there is also the lingering danger of a better, faster and more reliable currency coming up and winning over today's BTC hodlers. The chances of Bitcoin crashing are slim, but then again, no-one really imagined Bitcoin reaching the all-time highs it has today.
Chances back then were slim too.