What will happen if Bitcoin dies?

While Bitcoin has enjoyed significant visibility and widespread adoption, some experts state that there is a good chance its price will go to zero. Is it possible and what will happen, if Bitcoin really dies?

Cryptocurrencies themselves aren’t going away, and they will likely remain part of the financial landscape indefinitely. Here’s why Bitcoin will never die in a long term.

The crypto community is familiar with many scenarios of how Bitcoin can be destroyed. For example, economist Alex Kruger suggested that the cryptocurrency could be killed by governments “crushing” it with one big short trading position. Another option is China’s intervention in the Bitcoin ecosystem, which would force all chinese miners to unite and capture the BTC network using a 51% attack. The most controversial scenario is the death of Bitcoin from the hands of its creator, Satoshi Nakamoto. However, there’s nothing wrong with Bitcoin now. It’s been working almost smoothly since 2009, despite the fact that the media have buried cryptocurrency at least 380 times. But what if one of these scenarios actually happens?

Government vs. Bitcoin

What will be the end of cryptocurrency and whether it will come to this point is unknown. But if it does, large governments are likely to play a major role in it. This may happen if they prohibit any way to interact with digital assets. You can’t trade, you can’t store cryptocurrency — you can’t make any profit out of it.

This is unlikely to lead to an immediate collapse of the crypto industry, as evidenced by China’s experience. Since 2014, it has been forbidden to service accounts related to cryptocurrency trading in local banks, and since 2017 a taboo has been in place for ICO. However, these restrictions do not prevent Chinese traders from being a significant part of the crypto community.

And yet, such bans, backed by severe sanctions, will not go away without consequence. First and foremost, it will lead to an outflow of capital from the industry. Savings will be withdrawn by small traders who are afraid that their digital money will turn into dust. Large investors will also try to take back the money invested in start-ups that had previously shown great potential.

But it’s unlikely that they’ll get their money without losing it. The most common ways to cash out are through exchangers and trading platforms. If governments prohibit the use of cryptocurrencies, most companies and services that provide crypto conversions will instantly stop working. If any of them will somehow manage to stay operational during the crisis, they are likely to set up their withdrawal fees for a very high level.

A lot of people will lose their money

But high fees is just one of the problems. The other is a sharp drop in the price of digital assets. Banning cryptocurrencies is quite capable of making them an extremely unattractive investment, also due to problems with cashing out process. Coin holders will start to sell them in large quantities. This will lead to multiple liquidations of traders’ long positions. As a result, a cascade collapse will occur, something like what happened on March 13, when Bitcoin lost more than 50% of its value within a day.

This time, however, the crypto market crisis will be many times more critical. In March, there were investors who were buying Bitcoin, which helped to keep its price from going “into the negative zone”. If cryptocurrency is banned everywhere, there will be significantly fewer buyers. However, it is likely that traders will have a second chance to buy Bitcoin for $1.

Hell of the exchanges

Exchanges will become key players in case of complete Bitcoin ban. Trading platforms must keep large amounts of cryptocurrencies in their accounts. This includes operating capital, which companies use to maintain liquidity, savings and funds.

Therefore, as soon as the government raises the red flag, some of the platforms will simply shut down. They will need to convert existing cryptocurrency into legal money as soon as possible before it is devalued. And clients will only have to reload the exchange’s web page in the hope that it’s a bad joke.

The owners of crypto exchanges, whose work has suddenly turned out to be a crime, will collect their and clients’ digital coins and send them to other trading platforms that have not yet been affected by the law enforcement agencies. The massive Bitcoin sale will lead to sharp and unpredictable drops in price.

A trader’s terrible dream

To imagine what will happen on the crypto exchanges after the sudden ban of the cryptocurrency, the experience of dying trading platforms will help. When the platform shows the first signs of financial difficulties, its users start withdrawing capital from it. And that only makes everything worse.

If clients withdraw their funds from an exchange, it means that trading volume on it decreases. And it is the main source of income — trading platforms earn on traders’ fees for transactions. When the situation becomes critical, the platform, as a rule, disables the withdrawal of cryptocurrencies, and then its representatives can, for example, report bankruptcy. The similar case occurred in November with the Canadian exchange Einstein Exchange.

The inability to withdraw crypto from your account is always a big surprise for most traders. Therefore, users, not understanding what is happening and trying to save capital, start panicking to buy up all the coins trying to withdraw them. As a result, the price of digital assets fluctuates randomly up and down, completely disregarding the average market value. In case of a total ban on cryptocurrencies, this chaos will affect most exchanges.

Perhaps someone could still benefit from this situation. For example, if a trader manages to buy Bitcoin for 1$ on one exchange and transfer it to another one, based in a country where cryptocurrency is not prohibited yet. But even if the withdrawal function is not disabled, the question is: who will conduct the transaction? Will the miners spend thousands of dollars to get the ghost of an once independent payment system? This is unlikely, so the blockchain of the first cryptocurrency, and all the others, will freeze, and most likely forever. Besides, the miners will have their own worries. Once the cryptocurrency is banned and it is unprofitable to mine it, all the mining equipment will lose its value.

Thinking about how cryptocurrencies will die and why it will happen can take a long time. However, the scenario described is unlikely to happen. Governments of different countries are competitors among them. So if one forbids Bitcoin, the other can take advantage of it and legalize crypto assets. This will help develop digital technology and attract capital, both monetary and intellectual.

As of now Bitcoin is not banned completely in most countries. The cryptocurrency still has little to no exposure to laws, which should regulate it. For some crypto enthusiasts it is a clear advantage — they can trade and store BTC without paying taxes. You can also use this for your favour by getting daily Bitcoin payments with our cloud mining platform Hashmart.io!