Bitcoin shook the world last year after its value exponentially increased and peaked at $20,000. It was only sitting around the $1,000 mark at the turn of 2017. Who knew its price would rise 20-fold within 11 months?
But since reaching its peak, Bitcoin’s price fell and settled at the $7,000-mark last February. As of now, 1 BTC is equal to $11,400 — proof of how volatile this cryptocurrency (and all cryptocurrencies) can be.
Because of this extreme volatility, many people believe that Bitcoin is a bubble waiting to burst. With the lack of regulation and unpredictable trends, you might think this theory has grounds. Though naysayers neglect to see the truly revolutionary potential of Bitcoin and cryptocurrencies. Potential, that could improve our financial system and put power in the hands of everyday people.
So, worst case scenario, what will happen if Bitcoin is indeed a bubble, and that bubble happens to burst? Will it usher in a new age of economic rediscovery? Or will the world just continue as if nothing happened?
Mass Exodus to Fiat
If Bitcoin’s bubble bursts, this sudden fall in price will put insurmountable pressure on crypto exchanges as users exit their crypto positions to fiat. Hordes of owners will cash out as much Bitcoin as possible. This will make the crash worse as most exchanges lack liquidity.
Little-to-No Effect to Global Economy
The previous scenario will only happen inside the crypto world. If the Bitcoin bubble were to burst, it wouldn’t pose any risk to the global economy, as the entire crypto market cap is still too small. The number one recipe for economic breakdown is when people borrow to buy a commodity, in this case, Bitcoin. But too little has been borrowed to have much effect on the general economy. It would be a similar situation to the Tulip Mania and the Dot-com Bubble.
A Temporary Diversion
Bitcoin’s “bubble” has burst many times before. This Youtuber’s tongue in cheek video does a good job of explaining this:
Prices of Other Cryptocurrencies Will Crash
Most other cryptocurrencies follow Bitcoin’s price. When Bitcoin goes down, the whole market gets dragged down. Cryptocurrencies like Litecoin, Ethereum, and Monero will all follow Bitcoin down in the event of a crash.
Bitcoin is decentralized in nature, free from any authority that governs it. After every historical Bitcoin crash, the price has recovered. If another Bitcoin crash comes, we can hope that a recovery is just around the corner.