One of the most bullish arguments before the recent cryptocurrency market crash was that Bitcoin (BTC) never tested the all-time highs of the previous cycle. And then this time around, it fell below $19,000, which was the pre-2020 high.
While this phenomenon has raised existential fears of a total collapse, it has also raised questions about whether the price of bitcoin could ever drop below zero and have a negative value like oil during the peak pandemic days.
“Suggesting that the price of bitcoin may go to zero … is almost unthinkable,” said Whitney Setiawan, a research analyst at crypto exchange Bittrue. “Its supply is not affected by the bureaucracy of the current global supply chain. The supply of crude oil is nearly infinite and can reduce how much one is willing to pay, which can lower its price.
Setiawan added that bitcoin’s technical design prevents it from hitting zero, even when “broad market sentiment could continue the selloff.” The US Commodity Exchange Act has concluded that digital currencies like bitcoin are a commodity like oil.
Bitcoin drops 70%, fears of total collapse
In 2020, at the height of the coronavirus pandemic, the price of oil in the US turned negative for the first time in history, falling to minus $37 a barrel. This meant that oil producers had to pay buyers to take the goods out of their hands, worrying that storage capacity could be exhausted. The demand for oil dried up due to the lockdown which locked people in their homes.
As the price of bitcoin has fallen sharply over the past few weeks, both traders and miners have been eager to sell off their holdings to avoid major losses. And perhaps even worse, Luna’s fashion post-collapse.
Bitcoin is down 70% since peaking at $69,000 in November 2021. At press time, BTC was trading at $20,400, reversing from an 18-month low of $17,800. This is well below the $19,000 price it reached in 2020 prior to an event known as the “halving” of bitcoin’s volume.
The carnage in the crypto market is partly due to pressure from macroeconomic forces, including rising inflation and a hike in interest rates by the US Federal Reserve. Furthermore, Terra’s transition is only starting to show, with several crypto heavyweights including hedge funds Three Arrows Capital (3AC), lenders Celsius and Babel Finance facing solvency problems.
‘Bitcoin has no storage cost so it won’t go to zero’
Styliana Charlambus, head of investment and market research at fund manager Pure, said that the historical reversal in the price of bitcoin cannot be compared to that of oil because “it costs almost nothing for traders and investors to hold bitcoin in their portfolios.” Is.” Be. talking to[In]Crypto, Charlambus explained:
“The reason oil had a negative value at some point is because oil reserves around the world were rapidly filling up. People were willing to pay to have their stock of oil taken out of their reserves. On the other hand, this is technically impossible. that BTC will have a negative value.”
Charlambus added that cryptocurrency values can fluctuate wildly depending on market speculation, but the value can never drop below zero. “It would essentially mean that you would have to pay someone to take your coins or tokens,” she said.
Brian Gallagher, co-founder of Web3 infrastructure organization Particia Blockchain Foundation, said it is difficult for BTC to drop below zero “because of the hard supply of the currency.” But “companies that have more leverage can go into debt and be sent into bankruptcy and liquidation of their assets to pay off their creditors,” he elaborated.
technology remains solid
According to experts, the basic underlying technology behind bitcoin remains sound and has faced a lot of turmoil since its inception more than 13 years ago.
Cryptocurrency markets are struggling for confidence after the Terra blockchain collapse in May. The situation has cast absolute fear over the long-term viability of the cryptocurrency, causing more than $2 trillion in value to be lost over the past six months.
“its [Bitcoin] A major new financial instrument that has long-term value and utility. I am sure that once global markets stabilize and recover, Bitcoin will recover even more rapidly,” Vasja Zupan, president of digital asset exchange Matrix, told BE.[In]crypto.