Bitcoin sounds like a cool idea. Uncensorable, global, digital cash that leverages cryptography to send value anywhere in the world at the speed of light. All you gotta do is buy some and you'll get rich.
Eventually.
But what if it doesn't work out?
There's a common hesitation to buy any Bitcoin because people think it might ‘go to zero', meaning it would be worth absolutely nothing. 1 BTC = $0.00 USD.
At earlier points in Bitcoin's history, that was a real possibility. Nothing like Bitcoin had ever existed. Previous projects that aimed to do the things Bitcoin was trying to do had all failed (or never started). It was vulnerable to attack. It wasn't clear if anyone would even care.
Over a decade later, the story is much different.
Everyone has heard about Bitcoin. It survived technical challenges. It survived attacks from both outside and inside, and it's still producing blocks every 10 minutes. People are using it to store and send value around the globe. It's been integrated into the global financial system so much so, that I even struggle to think of a scenario where it could actually be worth nothing at all.
I'm sure that in 20 years there will either be very large transaction volume or no volume.
Satoshi Nakamoto, 2010
If a catastrophic bug in the code were discovered and exploited, it could be fixed, forked, and continue on. We saw that in 2010 and in 2018.
If there was global coordination of every single nation state to make owning and transacting in Bitcoin illegal, a core group of idealistic Bitcoiners would continue to run the code. Buying and selling drugs on the Silk Road back in 2012 wasn't legal – but it happened.
Plus, that's assuming that a global coordination of more than a handful of nations would actually be possible. This isn't the Olympics. It's making criminals out of your citizens.
What about an AI quantum computer stealing all the Bitcoins? OK, now we're getting crazy.
Even if these, or some other kind of catastrophic scenario happened that rocked the Bitcoin world, I don't think it would go to zero. Sure, there would be some violent price action. Scary news would spook newcoiners, then the drop in price would liquidate leveraged longs, then market sentiment would turn bearish, and the price could drop 80% in a week.
It's happened before.
Then we came back.
Every new cycle there are more hardcore Bitcoiners who don't sell into FUD, who buy the dip, and hodl. It's pretty unlikely we go to zero and this point.
Nothing is for certain, but when something survives seven or eight separate 50%+ drawdowns and continues pushing towards new highs in terms of value, the burden of proof begins to shift to the detractors.
Lyn Alden
5 Reason Bitcoin Is Not Likely “Going To Zero”
1. Companies Are Building On Bitcoin
Let's start out strong here and look at my favorite reason Bitcoin isn't going to zero. Companies are building on Bitcoin, which means they need Bitcoin to operate. This ensures continual use of Bitcoin the asset, and Bitcoin over time. As these products gain adoption, so does Bitcoin.
Bitcoin mining companies and Bitcoin exchanges are obvious ones to think about. Generating, buying, and selling Bitcoin is their business model. They are investing hundreds of millions of dollars to make money from Bitcoin, and as a side benefit, are securing the network.
Their investor pitch decks and advertising dollars make your Bitcoin more valuable.
Plus, it's in the best interest of these companies to promote the adoption of Bitcoin, like MicroStrategy opening up their Bitcoin For Corporations playbook, or Ark Invest hosting a 1-day virtual conference for institutions called The B-Word. What's good for them is good for all Bitcoin holders.
The use that these companies get from Bitcoin is the buying, selling, and holding of the asset.
Then there are companies that build for Bitcoin and Bitcoin users. Blockstream is a great example. They are building out Bitcoin infrastructure. They host miners. They built a mobile wallet. They built a hardware wallet. They sell a kit that allows you to stream the Bitcoin timechain from the Blockstream satellite (yes, really from space), and use Bitcoin even without internet access.
Companies like Bitmain and Whatsminer are building Bitcoin miners. Companies like Upstream data are building mobile mining rigs. Companies like Bitcoin Magazine are hiring journalists to report on Bitcoin and tell Bitcoiner stories (because we certainly can't rely on legacy media to do that!).
Then, there's a whole other type of company – a company that uses Bitcoin to do something else other than buy, sell, and hold.
For example, Zeebedee, which is integrating Bitcoin into online games like the incredibly popular CSGO, or even making their own games like Bitcoin Rally.
You can also use Podcasting 2.0 apps to stream Bitcoin payments per minute, listen and pay for content in a “value for value” model (could something like this be developed for music?).
Have you heard of Strike? It's an app that lets you send fiat value using Bitcoin rails, so you use the Bitcoin network without actually holding any Bitcoin!
These companies are working day and night to see Bitcoin succeed. Every new founder, investor, and employee of a Bitcoin company is on Team Bitcoin.
2. Investors, Institutions, & Politicians Are Staking Their Reputation On Bitcoin
You are not the first person to invest in Bitcoin, and that's a good thing. In fact, some very high profile investors have stamped their seal of approval on investing in Bitcoin by being very public about it.
Firstly, you have some legendary investors such as Stanley Druckenmiller and Paul Tudor Jones who have publicly stated that they own Bitcoin. These guys are not known for making wild bets and YOLOing into positions because they read an article on Yahoo! News.
They do the research, and they aren't investing just a few hundred dollars to see how it pans out. For guys like this to publicly endorse an investment means that they have some conviction in it. After all, if it tanks then that hurts their reputation as an investor.
Second, let's look at some institutional investment.
I think it's really interesting to read that state pension funds are investing in Bitcoin companies, such as the New Jersey pension fund buying $MARA and the California pension fund CalPERS buying $RIOT. Though they aren't buying and holding Bitcoin the asset, they are investing into Bitcoin infrastructure, which helps secure the network for everyone.
Another investment firm you may not have heard of is Aker out of Norway. They typically invest in green energy infrastructure, so if you only listened to the mainstream media, you might be confused about why they started the Seetee company specifically to invest in Bitcoin companies and infrastructure.
Actually, bitcoin can be mined with a variety of energy sources. Where abundant green energy like hydro or geothermal is available, Bitcoin miners can turn on their machines at cheap electricity prices and provide additional revenue to local jurisdictions, pay for maintenance (great for safety!), or even fund the building out of expanded infrastructure.
It's no wonder that a green energy focused company would throw some weight behind Bitcoin.
Lastly, politicians are buying, holding, and promoting Bitcoin.
At the Bitcoin 2021 conference, we saw El Salvador announce that they would be making Bitcoin legal tender in the country, paving the way for other countries to do the same. Soon, politicians in countries like Panama, Ecuador, and Mexico turned on their laser eyes (a Bitcoin meme from this year), and either gave vocal support or even introduced legislation in their country related to Bitcoin.
Even in the USA, we have senators like Cynthia Lummis, who has publicly stated that she owns Bitcoin and even advocates for it within our government. Current SEC Chairman Gary Gensler has said some very nuanced things about Bitcoin, and Tom Emmer has said some positive things about Bitcoin as well.
I will admit that you could make the argument that other politicians or investors on the other side of the debate are risking their careers by speaking out against Bitcoin (and there are plenty of naysayers!), so you can make your own decision on this point.
3. Individuals Are Planning On Retiring & Dying With Bitcoin
People are planning on a future that includes Bitcoin, which means, obviously, they expect Bitcoin to exist in the future. If Bitcoin was a short-term investment, there wouldn't be products and services catering to folks who want to retire and die with their Bitcoin holdings.
Not only are there individuals who are thinking of a future where they have to manage their estate planning so their children or grandchildren are able to access their Bitcoin, but there are also services that are cropping up that facilitate this.
One such service is Casa, which has an inheritance product that allows for a multisig setup where an attorney controls one key, Casa controls another, and a third is stored in a safe. You personally control 3 other keys. This way, you could leave your keys to an heir directly (you control 3 keys yourself) or have your attorney + Casa + one more key access your funds when you die.
There are also services such as KeyKeeper IRA which allow you to invest in Bitcoin using tax optimized structures such as self-directed Traditional or Roth IRAs.
Bitcoin inheritance planning is going to be serious business if things play out in the future as Bitcoiners imagine them playing out. Even from a conservative outlook, your current investment could be 10x or 100x or even 1000x in the next 30 years.
This is something that separates Bitcoin from a lot of different investments, let alone “cryptocurrencies”. Nobody is worried about leaving their Amazon stock to future generations. Bitcoin is a lot more like land in a sense, in that ownership comes with a sense of pride. That pride of ownership encourages long-term thinking and responsible management.
In my own experience, the idea of stewardship of this asset leads to things like contributing to the Bitcoin network in positive ways. For example, I started a Bitcoin website. I've also talked positively about Bitcoin to friends and family. Someone else might build their own Bitcoin wallet or donate to Bitcoin development.
Even something as simple as paying for a Bitcoin-related service helps keep Bitcoin companies in business, and then those companies advocate for Bitcoin indirectly by paying taxes in their local jurisdiction, or even directly by helping to shape laws that are favorable to Bitcoin owners.
4. Bitcoin Has Been “Derisked”, So More Money Is Coming
Buying Bitcoin in 2013 was crazy for most people. In 2021 it's normal. You can own Bitcoin in an IRA. Bitcoin companies are traded on the stock market. Companies have Bitcoin on their balance sheet. Yahoo! Finance has a Bitcoin ticker. You can download Bitcoin wallets in the app store. State retirement funds own Bitcoin-related stocks.
There's more coming though.
Banks are getting approved to hold and transfer Bitcoin for customers. Bitcoin companies are getting bank charters. Cities are considering buying Bitcoin for their balance sheet.
We're just getting started.
One interesting framework to think about is that some people and companies are not allowed to invest in Bitcoin right now, and it usually has to do with the size of investment legally allowed. Paul Tutor Jones has a great explanation of it, which basically shows that if the biggest hedge fund managers all put 1% of their assets into Bitcoin, it would be worth about $800 billion dollars, which at the time he said that, was greater than Bitcoin's entire market cap.
The amount of money that hedge funds control means that they could outright buy the entire Bitcoin network multiple times over (assuming everyone sold their coins). Of course, that would never play out like that, but the point is that a massive hedge fund can't buy any Bitcoin because it's too small.
As Bitcoin gets more widely adopted and used, however, the price will continue to rise. It already hit a 1 trillion dollar market cap earlier this year. If the price goes 10x, we'd be at a 10 trillion dollar market cap. Suddenly, these massive investors can participate in a meaningful way. While you or I might buy $1,000 worth of Bitcoin, these guys will be buying $100 million dollar positions.
Then maybe bond traders get in on the action and reduce their exposure to low-yielding sovereign bonds and take a small Bitcoin position. As the market cap and adoption rate continue to grow, this opens to door to countries and even central banks to buy and hold Bitcoin.
We aren't there yet, but we may be heading there. Bitcoin has been de-risked for the everyday investor, and we are trending towards its de-risking for institutional investors as well. Though it's pretty unlikely that Bitcoin would go to zero at this point, once it gets on the balance sheets of these larger entities, it's even less likely to do so.
https://bitcoinmagazine.com/markets/in-2020-bitcoin-was-significantly-derisked
5. Bitcoin Is Useful
You might be surprised to learn that Bitcoin actually does stuff. It's not just an investment that you buy and hold (although that's a good way to use it too). Bitcoin is built like the internet. It's a base layer communication protocol, meaning you can use it to transfer information. What's more, you can build stuff on top of it, and we are just starting to see applications appear.
You can actually pay directly for podcasts or music through an app and pay creators for content via the lightning network. This is a very cool use case that is just starting to develop through apps like Breez or Sphinx.
You can send remittances abroad to family for extremely cheap rates, rather than pay huge fees to Western Union.
Though we typically feel safe with our banking system in the USA, the same is not true in many countries around the world. Some people may be concerned about currency devaluations or confiscation of wealth by criminal gangs (police included), and I think it's a pretty decent backup plan to have a seed phrase memorized with a little bit of Bitcoin in those cases. Someone can dig up a gold bar or take cash from under the mattress, but they can't extract a seed phrase if they don't know it even exists!
The fact that Bitcoin is useful means that people will continue to use it. It's even necessary in some cases and there's no viable alternative.
Will Bitcoin Go To Zero If The Government Bans It?
If you were going to speculate about the reasons that Bitcoin might go to zero and worked through all the ideas we covered above, it might still seem like a possibility that the government could ban it. After all, they make the rules, right? In the developing world, this is true. The government could ban Bitcoin, as they did in Nigeria, or threaten to ban it, as they have done repeatedly in India.
What typically ends up happening in those situations is that a black market develops, thus increasing the price of Bitcoin in that country. If demand holds and supply dries up, then the number goes up. Bitcoin is a peer-to-peer technology that you can trade without the help of exchanges, so even if the government bans the onramps to buying and selling Bitcoin, it still exists.
Bitcoin continues to trade globally even if a single country bans ownership or trading.
We saw this play out in another way in China as recently as July 2021, when China banned Bitcoin mining within the country.
Again, Bitcoin did not go to zero. Miners unplugged their machines and sent them overseas to places like Texas, Canada, and Kazakhstan. Though as I'm writing this, the full migration hasn't been completed, the network is still functioning, and the only thing that changed is that Chinese companies no longer can participate.
You can't ban Bitcoin. You can only ban yourself from it.
If Western governments like the US or the EU banned Bitcoin, we would probably see much more violent price action. If the bans continued, the price could remain lower than it is today. What price would that be? Nobody knows. I'm confident that if The US banned Bitcoin it would be lower than $30k.
However, in the West we have rule of law. We have functioning courts. You can't just ban something through dictatorial edict. There's a process.
Between all the individuals, companies, and organizations that own or use Bitcoin there's a lot of money on the line if there were to be an outright ban. Think of it like a moat to protect against the enemies of Bitcoin. You can be sure that any proposed ban would go to the courts.
Also, consider what the precedent would be for banning Bitcoin? Technically, you never take possession of anything – you just own the key. If you memorize your key, are you then in possession of illegal thoughts? Even if you think about mining, could the state really ban the use of electricity for certain specific things?
At this point in history, it does seem like governments can pretty much do what they want, as long as it's under the guise of keeping us safe, but I think it would be pretty hard to make a case for banning Bitcoin in a court of law.
Even if they did, there would still be more than 100 other countries around the world where it would be legal, and since you can store Bitcoin in your mind by memorizing 12 words, you could see Bitcoiners start to take more frequent vacations and buy properties in these jurisdictions.
Assuming none of that makes sense to you, here's the SEC chair (2021) Gary Gensler talking about creating “rules to the road” for Bitcoin. You don't really try to make rules for something you plan on banning.
I'm not saying I'm happy about the USG getting involved in Bitcoin regulation, but an outright ban is unlikely. The fight for Bitcoin now moves to other more specific topics like the right to financial privacy, or trading and custody rules. Of course, Bitcoin is a decentralized and distributed technology, so regulations they make in the US will only apply to those living here, and “real Bitcoin” (without rules) will still exist if you live outside the jurisdiction of the SEC.
Final Thoughts
If Bitcoin were to truly crash to zero, it would mean either that it became impossible to trade Bitcoin or exchange it for goods and services, or that buy-side liquidity fell to zero for some reason. One of the only plausible scenarios that could cause this is Bitcoin being banned by all world governments, potentially rendering it illegal to own or use—as is already the case in a handful of countries.
This would also require taking down the entire Bitcoin network, rendering all nodes offline—including the ones in space—and making it impossible to set up new ones. Theoretically, this would make it impossible to transfer Bitcoin and would prevent underground trading, likely rendering Bitcoin worthless—but this would be nearly impossible to accomplish.
Decrypt [Source]
It's pretty unlikely that the Bitcoin network will disappear completely in the future. Bitcoin has some very clear use cases other than growing your purchasing power over time. People are spending their time, money, and energy to build things on Bitcoin, or that rely on Bitcoin. The network is not going to disappear over time.
There seems to be a mentality for folks unfamiliar with Bitcoin that you must be “all in” or not. That's why they want to know if the price of Bitcoin is going to zero. They are worried about losing the shirt on their backs by betting the farm on Bitcoin. You don't have to do that.
Choose an allocation to Bitcoin based on your risk tolerance, investing time horizon, and financial goals.
If Bitcoin truly does go to zero and you lose 1% of your liquid net worth, you are not going to go broke. You aren't going to lose the house. Your friends and family aren't going to make fun of you relentlessly for investing in something stupid.
Investing in anything involves risk. What if Apple goes bankrupt? What if Netflix is the Myspace of streaming movies?
In the first decade of Bitcoin's life, whether Bitcoin was Ponzi scheme and derived its value from Greater Fool's Theory were understandably good questions to ask and debate. Nobody had seen something like Bitcoin before, so your average person was skeptical.
The debate is over now. Bitcoin is here to stay. We can talk about how much a single Bitcoin is worth, how widely it will be adopted, or what its use cases are, but it's not going to go away.
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