- Bitcoin dropped below $30,000.
- Crypto obviously right now getting crushed.
- Digital currencies have now lost $2 trillion in value.
- Is crypto facing an existential threat?
We all know things could get worse for
the crypto market, but just how much worse?
Could all crypto lose all of its value?
I mean, sure, crypto is big, ever expanding,
made up of numerous coins, mining companies, exchanges.
But is it big enough?
and according to coinopsy.com, at least 2400 of those are already dead.
But it wasn't the death of those coins
that caused the last two major crashes.
Crypto is healthy enough where the extinction of
a few smaller coins has no real impact
on the industry as a whole.
So the issue at hand when it comes to
the concept of too big to fail is really
the big daddy of them all - Bitcoin.
The industry and media tend to use the
price of Bitcoin as an indicator of the
health and viability of the whole crypto market.
Bitcoin could survive the death
of thousands of other coins.
But how many coins could survive the death of Bitcoin?
If Bitcoin goes down, like all the way down, it would
take the whole industry with it,
which means that within the world of crypto,
But you're a subscriber.
You're a subscriber, right?
So you already knew that.
The bigger question: What would happen to
the global economy if Bitcoin and therefore
crypto, dropped to essentially zero?
Even if you're into altcoins, heck, even if you're
into stocks and you hate crypto, you still need to know,
Is Bitcoin too big to fail?
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Too big to fail is this snappy phrase the
Obama administration used to justify the 2008 bailouts.
The logic was, sure, we could let these mega
banks and automakers collapse, but they probably pulled out
other industries with them, and that just might lead
to the ruin of pretty much everything else.
We'll never know if they actually
made the right choice or not.
If Bitcoin fell to essentially nothing,
would that ruin everything else?
According to Nasdaq.com, 300 million people
in the world own crypto.
That's basically the population of the US.
minus Florida.
The value currently floats around $1 trillion, and
Bitcoin tends to make up about a third
of the total crypto market cap.
If Bitcoin would have somehow fall to zero,
this would absolutely destroy faith in the industry.
And this wouldn't likely happen in a vacuum.
It could easily lead to some amount of selling
of more traditional assets, like real estate and stocks,
but there's no way to put a number on that
nor predict how quickly that could happen.
But it wouldn't be great.
And it's not just about the coins
themselves or the owners of those coins.
The bailout of the auto industry
in America wasn't senators worried,
what if there's no more PT cruisers?
It was more like, what if all these people
who make PT cruisers were to lose their jobs?
And it doesn't stop there.
What about the people at body shops,
dealerships or car washes?
According to Forbes, there are
nearly 600 cryptocurrency exchanges worldwide.
Zeroing out their most traded product would make those
exchanges more or less useless, which would undoubtedly lead
to the loss of thousands of jobs.
And then there's mining companies.
If Bitcoin were to become worthless, almost a million
miners would be forced to find another revenue stream.
And maybe you're thinking, well, sure, you know, Bitcoin
crapping out would be bad for the crypto industry,
but for the rest of the world?
I mean, maybe you're thinking Bitcoin didn't
even exist until 15 years ago.
Maybe you're thinking Beyonce already had put
out three solo albums before the first
Bitcoin was ever even created.
So how bad could it be for the
global economy if some project that was nothing
not that long ago became nothing again?
How bad could that possibly be?
Those are fair questions.
But the thing is, Bitcoin may be new, but so is Tesla.
And the crypto industry as a whole is
worth about $100 billion more than Tesla.
And it's not far off from Amazon either.
So while a crypto meltdown wouldn't destroy the world
economy the way a banking meltdown could, losing a
chunk of the economy that's between the size of
a Tesla and an Amazon would certainly bring down
more than just the general vibes.
And it would definitely have at least
some impact on just about everything.
It sounds pretty bleak, but before we determine
if the government would step in and save
a crypto-collapse, we need to dive into the
fascinating way a currency collapses.
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but they do so much more.
Like, let's say you wanted 50 shares of CryoLife
and 20 shares of Sensata Technology and thousand shares
of Alliance Mining Corps, plus one Ethereum coin.
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Hey, it works for Walter White, right?
I don't know how to transition out of this, so
Now, would we be able to see a crypto collapse coming?
Kind of.
Bitcoin is a currency, and the stability
of any currency depends on consumer confidence,
the political state, and economic performance.
When a currency bottoms out,
like the Hungarian Pengo did in 1945,
or more recently, the Venezuelan Bolivar,
it usually happens after a period of hyperinflation.
We're talking about inflation rates of not 10, not 20, but
50% over a period of wait for it,
How do things get that out of control?
Simply put, economy bad.
Government print money.
Bank lend money.
Economy still bad.
Business raise price, people pay price.
Price inflated, economy still bad.
Repeat this cycle enough times, and inflation
can grow fast enough that it reaches
the dreaded status of hyperinflation.
If the value of the currency isn't
tied to any commodity like gold, then
there's no natural constraints to its value.
This is called a fiat currency.
The value of a fiat currency is
determined by the government that prints it.
In a fiat system, governments can literally make as
much money as they can dream of, and this
can go on and on and on.
How many ons, you ask?
Well, the worst hyperinflation
ever occurred in Zimbabwe in 2008,
when the monthly inflation rate reached 78 billion%,
they actually had to print a $1 trillion bill.
Hold on a second.
What does this have to do with Bitcoin?
Well, take a seat.
Sitting?
Brace yourself. Big breath.
When it comes to Bitcoin, hyperinflation is impossible.
The biggest threat currencies face
literally cannot happen to Bitcoin.
This is wonderful.
Absolutely wonderful.
Now, just to be clear, technically, the value
of Bitcoin can fall to essentially zero.
But the whole idea behind cryptocurrency is
to overcome the failure of traditional currencies.
I'm sure you've heard the story that Bitcoin came
about as a result of the 2008 housing bubble,
that the bailouts were the radioactive spider bites that
created your friendly neighborhood spider crypto.
But crypto's story goes back much further than that, and
I think it's fair to say that the failure of
dozens of currencies in the last century are sort of
the death of uncle Ben Parker from Spiderman.
You know what I'm talking about?
They're like 20 movies. You know what?
Let's just move on.
The point is that crypto is designed
to solve the currency failure problem.
And unlike any national fiat currency, there are
only so many Bitcoins that can even exist,
even though it's called a currency.
But you might say Bitcoin is less
like a dollar and more like gold.
It's extremely unlikely that some evil
force could ever take over Bitcoin.
And since Bitcoin and virtually all other
they can't really be compromised by overprinting,
military coups, food shortages, or natural disasters.
The biggest threat to Bitcoin is
if people stop caring about Bitcoin.
Stop caring enough to hold it, to use it,
stop pushing for the right for financial privacy.
Again, it's possible for Bitcoin to fall to near zero,
It would take measures literally never
before seen to even try.
We're talking about world governments and corporations
working together to overregulate and outright ban
Bitcoin on a global scale.
Again, technically possible, but even then, making
Bitcoin illegal wouldn't necessarily make it worthless.
Twice this year, the White House has suggested heavy
regulation and even a total ban on Bitcoin.
And both times, Bitcoin prices actually went up.
What does that tell you?
Heavy regulation, especially by the US,
really just legitimizes Bitcoin.
Banning it might actually make Bitcoin more valuable
than ever, as a black market currency.
So in the end, it's not really
that Bitcoin is too big to fail.
It's literally built to not fail.
But let's go back to the original question.
If it were to fail, let's say there
was some huge hack on the network or
something happened where the whole market collapsed.
Is crypto big enough to where
governments step in and save it?
I don't want this to be the answer, but I believe no.
in this kind of collapse.
Just take a look at history.
In 2008, the massive 150 year old financial services firm
Lehman Brothers collapsed and filed for bankruptcy.
This tanked global markets and meant at
least 25,000 people lost their jobs.
Guess what?
No bailout,
even though the week before this collapse,
the government had taken over the mortgage
guarantee companies FannieMae and Freddie Mac.
Even worse, the same week Lehman collapsed,
another finance company, AIG, got bailed out.
So why did Lehman get left in the dust?
Two reasons.
First, it was determined that
Second,
It was determined that AIG was so
interconnected that it could have hurt the
entire global economy should it fail.
So the question,
really comes down to two things
The first question.
Well, I do believe a total crypto collapse would
hurt other markets just due to its sheer size.
At this stage, crypto is still
in its infancy, business wise
it doesn't do a whole lot
of interacting with the real world yet.
Eventually, sure, but just not yet.
So the governments care enough to keep the prices
up and keep this thing alive should it collapse.
Well, governments do use Bitcoin and
other cryptos to track criminals.
It's way more transparent than cash, but they could still
do that whether it's priced at $50K or $5.
And even though they use crypto, it
doesn't really mean they like it.
Governments can't control crypto like they
can just about everything else.
Crypto collapsing or people losing interest
at this point, just kind of means one
less thing for the government to worry about.
So we have good news and bad news.
Bad,
should something dramatic ever happen, at least at this point.
But the good is Crypto, especially Bitcoin,
eliminating the risk of traditional currencies.
You know, when I started this project, I really
wanted to find reasons why Crypto would be protected,
why it was too big to fail.
I wanted to feel like there was
some kind of safety net here.
And I came out of this reminder that crypto
was built to not need external safety nets.
And that's a good thing.