Is Bitcoin Going To Zero A Possibility?

A recent Yale reports states there is a .4% chance of Bitcoin reaching zero.

I know this report I am about to quote is from 2018, but, I am more interested in the idea of what they were studying, not the actual final numbers.

In 2018, two Yale University economists (Yukun Liu and Aleh Tsyvinski) published a report titled 'Risks and Returns of Cryptocurrency,' in which the authors examined the risk of Bitcoin collapsing to zero in the span of a day.

By using Bitcoin's historic returns to calculate its risk-neutral disaster probability, the authors found that the likelihood of an unspecified disaster crashing Bitcoin to zero ranged from between 0% to 1.3%, and was around 0.4% at the time of publication. For comparison, Tsyvinski stated that the euro (EUR) has a 0.009% chance of the same, in an interview with YaleNews.

Now, I don’t know if any of this study is realistic as it essentially tries to look at risk with crypto in the same way you look at risk with fiat or precious metals. You can read all 40 plus pages yourself if you want to follow the link below. It is interesting that they put an actual number to the risk. 

So, how hard would it be to bring crypto to zero.  Good news, nearly impossible.  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 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. The decentralization and global spread of network nodes is the entire value proposition of the Bitcoin blockchain.

Another possibility (and probably the most realistic) is that Bitcoin could simply be superseded by a better cryptocurrency or a similar alternative payment system, rendering it obsolete (and therefore worthless as a payment method or store of value). But this scenario would likely take several years—perhaps even decades—to play out. 

Whatever the case, it appears (even in a worst case scenario) likely that Bitcoin will always retain some value, either as a collector's item or as a historic artifact for future generations. A similar phenomenon was observed relatively recently when the Reserve Bank of India (RBI) demonetized Rs 500 and 1,000 notes in November 2016 due to a massive increase in counterfeit notes. Although authentic Rs 500 and 1,000 notes can no longer be used as legal tender in India, they still retain some value as works of art or as a curiosity.

So, the upside is even if it is only pennies, Bitcoin will probably always be worth something.  

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