What could be the end of bitcoin, what would happen on trading floors in this case, who would benefit from it, and why the whole world would suffer Crypto-community is familiar with many scenarios of how bitcoin could be destroyed.
For example, economist Alex Krueger suggested that the cryptocurrency could be killed by governments by “crushing” it with short positions. Another option is an order from China that would force all miners to unite and take over the BTC network with a 51% attack. The most controversial plot is the death of bitcoin at the hands of its creator, Satoshi Nakamoto.
Right now, however, bitcoin is fine. It has been running almost uninterrupted since 2009, even though the media, according to 99bitcoins.com, has buried the cryptocurrency at least 380 times. But what if one of those scenarios actually happens? Everything written below is just fantasy on a given topic, not a proven theory. Bans, bans, bans What the end of cryptocurrency will be and whether it will come to anyone is unknown. But if it happens, the governments of large countries will probably play a significant role in it. It could happen if they prohibit one by one all forms of interaction with digital assets.
You can’t trade, you can’t store. The crypto industry is unlikely to collapse instantly, as evidenced by China’s experience. Since 2014, banks in the Middle Kingdom are forbidden to service accounts related to cryptocurrency trading, and since 2017. – There is a taboo on ICOs. However, these restrictions do not prevent Chinese traders from being a significant part of the cryptocurrency community. Nevertheless, such bans, backed by harsh sanctions, will not go away. First and foremost, it will lead to capital outflows from the crypto industry. Small traders will withdraw their savings, fearing that their savings will turn into souvenirs for their great-grandchildren. Large investors will also try to withdraw funds invested in startups that previously showed great promise. However, they are unlikely to get their money without losses.
The most common ways to cash out cryptocurrencies are through exchangers or directly from exchanges. If governments ban digital money, most of the companies and services that provide services in this area will immediately stop working. The rest will probably be located in jurisdictions where cryptocurrency trading is not yet prohibited, or will go against the law. One way or another, we can assume that these exchangers will significantly increase the fees for the services provided. And it will get bigger the stricter the regulation will be.
Many will lose money… maybe all
But high withdrawal fees are only one of the problems. Another is the sharp decline in the price of digital assets. A ban on cryptocurrencies may well make them an extremely unattractive investment, including due to cash-out problems. As a result, coin holders will sell coins en masse. This will lead to multiple liquidations of traders’ long positions. The result will be a repeat of the cascading collapse that happened on March 13, when bitcoin lost more than 50% of its price within a day. However, this time the crisis of the crypto market will be many times more critical. Back in March, there were investors who bought digital assets that helped keep their prices from going into negative territory. If cryptocurrencies were to be banned everywhere, there would be far fewer buyers. Of course, they won’t pay to take cryptocurrency away. However, it is likely that traders will have a second chance to buy bitcoin at $1. Ad on exchanges Exchanges will be key players in the case of a complete ban on digital money.
Trading floors must hold large volumes of cryptocurrency in their accounts. This is the operating capital that companies use to maintain liquidity, a safety cushion, and savings. Because of this, once the global government raises a red flag, some of the venues … will simply shut down. They will need to convert their existing cryptocurrency into legitimate money as soon as possible before it depreciates. And customers will only be left to reload the exchange’s web page in the hope that it’s a bad prank. In the meantime, the owners of exchanges whose operations have suddenly turned out to be a crime will collect their own and their clients’ digital coins and send them to other trading platforms that have not yet suffered at the hand of the law. The platforms have enormous stocks of cryptocurrencies. Therefore, selling them will lead to sharp and unpredictable drops in token prices.
We already observed a similar situation on Binance on March 12. Then the rate of altcoin Link momentarily fell from $2.2 to $0.0001. The situation will be aggravated by industrial miners, who put aside mined bitcoin, expecting it to rise in price to $40,000 after halving (this forecast was made by Tom Lee, co-founder of Fundstrat Global Advisors). A speculator’s nightmare To imagine what will happen on exchanges after the sudden ban of cryptocurrency, the experience of dying trading platforms will help. When a platform shows the first signs of financial difficulties, its users start withdrawing capital from it. And that only worsens the company’s situation. If the exchange’s clients withdraw their funds, it means that the trading volume on it decreases. And it is the main source of income – platforms earn on traders’ commissions for transactions. When the situation becomes critical, the platform usually shuts down the withdrawal of cryptocurrencies, and then its representatives can, for example, report bankruptcy. Such a case occurred in November with the Canadian exchange Einstein Exchange.
Not being able to withdraw cryptocurrency from their account is always a big surprise to most traders. Therefore, users, not understanding what is happening and trying to preserve capital, start to panic and buy all coins in a row and try to withdraw them from the exchange. As a result, the price of digital assets fluctuates randomly up and down, completely disregarding the market average. In the case of a total ban on cryptocurrency, this chaos will affect most exchanges. And, on the one hand, such a storm is an ideal opportunity to multiply your capital in a matter of hours. But only in cryptocurrency.
A speculator remains a speculator
As practice shows, even in the most desperate situation a cold-blooded speculator remains himself. In the fall of 2018, the small Bitflip exchange went bankrupt. Intermittent disruptions to cryptocurrency withdrawals began back in the spring. However, closer to September, the ability to withdraw funds disappeared for good. When this became known to the general public, chaos began on the site. Bitcoin was rising to $20,000, when the market average for the coin was around $6,000. Some cryptocurrencies went up in price by hundreds of times. The reason-speculators were reporting in chat that a particular token could still be withdrawn from the exchange. Users, clinging to the last opportunity to save their savings, bought up the coin, pushing its price much higher. Of course, there was no way to withdraw the money. Perhaps someone can still benefit from this situation. For example, if a trader manages to buy bitcoin at $1 on one exchange and transfer it to another exchange based in a country where the cryptocurrency is not yet banned. But even if the site’s withdrawal is not disabled, the question is: Who will conduct the transaction? Will miners spend thousands of dollars to mine the ghost of an independent payment system? This is unlikely, so the blockchain of the first cryptocurrency, and all others, will freeze, and most likely forever. In addition, the miners will have their own concerns. As soon as cryptocurrency will be banned and it will become unprofitable to mine it, all mining equipment will lose its value. And if the video cards can still be sold, earning at least some money, the ASIC-mainers and other devices that specialize exclusively in mining digital coins, will not be needed. On April 17, scientists from Oxford University said in a blog post that cryptocurrencies could threaten the entire financial system. If the digital asset market and the stock market are linked, the collapse of one could affect the other, experts said. “As history teaches us, in times of crisis it is especially important to reduce systemic risk, that is, the risk that the collapse of one firm or market will lead to the complete collapse of the system. Thus, identifying weak links is critical…If the collapse in the cryptocurrency market is related to the collapse in traditional financial markets, perhaps we should be concerned about systemic risk,” according to Oxford.
As February and March showed, the cryptocurrency market is very sensitive to what happens in the stock market. The price of bitcoin has fallen following the quotations of the world’s leading indices, the U.S. S&P 500 and the German DAX. However, from an economic perspective, there is an inverse correlation, and it will get higher the more capital comes into the crypto industry. The reason is as follows: The average citizen is the main engine of the economy. First, he buys goods and uses services. In this way, income is generated from businesses, which then become wages for employees. Companies also allocate part of their profits to the development of production, so that their products grow in quality and quantity. Secondly, people use the services of banks. These include transfers, loans, and most importantly, deposits.
When an entity lends its savings to a financial institution for safekeeping, it gives it operating capital. Banks use it, for example, to give loans to entrepreneurs. They direct this capital to business development, so that the products and services produced become better in quality and quantity (again, in theory). In this way households help the development of entrepreneurship. Third, citizens and companies pay taxes. These funds, in turn, go to the development of financial and social infrastructure, the military-industrial complex, and so on. To put it differently, when a citizen spends or invests in a bank, the funds work for him and for the state as a whole. For this reason, if the cryptocurrency suddenly depreciates, it will boomerang on the global economy: ordinary people will lose some of their savings, due to which the spending will decrease, and GDP growth will slow down.
Fantasy or preparation for the future?
We can speculate a lot about how cryptocurrency will die and why it will happen. However, the described scenario is unlikely to happen. Governments of different countries are also competitors. Therefore, if one prohibits bitcoin, the other may take advantage of this and, on the contrary, legalize crypto-assets. This will help the development of digital technologies and attract capital, both monetary and mental. At the same time, one cannot deny that cryptocurrency itself is, by design, a competitor for governments. Bitcoin was originally conceived as a payment system independent of anyone. Because of this, it is likely that states will put more and more pressure on barely controlled crypto-assets as they issue their own national digital currencies. Time will tell where this will lead. – Commissions and rates. How to Predict Exchange Bankruptcy and Save Your Money – Regulation and Taxes. What will happen to bitcoin after halving – Destroying bitcoin is real.