Bitcoin's price fluctuates rapidly, and watching it crash from a distance can be gut-wrenching. If you’re an investor, you might fear losing your funds. If you’re just a curious observer, you might worry that this crash signals an impending doom for the future of Bitcoin. The reality is that Bitcoin crashes are a normal part of the market cycle. Crashes are often followed by price consolidations and recoveries that lead to new all-time highs. This article will help you understand the current Bitcoin crash and how it might impact the market's future. You’ll learn effective strategies to protect your investment during the downturn and profit from the situation throug reliable bitcoin indicators.
Bitcoin Magazine Pro’s Bitcoin analysis is a valuable tool for achieving goals. The insights will help you navigate the current market and prepare for whatever comes next.
Is the Next Bitcoin Crash Imminent?
Bitcoin's Recent Price Movements and Recovery
Bitcoin's price has rebounded by more than 22% two weeks after hitting a low of $52,546, reaching around $66,167.41 on Sept. 29.
85% of Bitcoin's Holders are Now in Profit
Bitcoin’s recent break above $62,000 saw BTC price rise above the short-term holder realized price as this cohort of traders flipped some of their unrealized losses into profit. A chart shared by a market analytics firm reveals that only 14.2% of Bitcoin investors were still in a position of loss when the price hovered around $62,600 on Sept. 20, while subsequently accounting for over 85% of the supply in profit.
The percentage supply in profit and loss evaluates whether the sum of unspent transaction outputs (UTXO) is in profit or not by comparing the price at which they were last moved to the current price. If Bitcoin continues to rise from the current levels, more investors will remain profitable. A high number of holders in profit is often seen as a sign of an overheated market, which typically precedes or coincides with price corrections. As a result of this on-chain signal, Bitcoin’s price may see pullbacks over the coming days as investors choose to book profit.
Bitcoin Futures Open Interest Soars
In August, Bitcoin futures open interest rose sharply, peaking at $34.72 billion on Aug. 27. The price failed to break the $65,000 resistance and was followed by a 20% correction in 10 days. With the latest run-up above $64,000, the open interest has increased by 22.7% since Sept. 8 to a four-week high of $34.72 billion on Sept. 20, according to Coinglass data. With the current strong demand for future contracts for BTC, investors are contemplating the possibility of a pullback similar to that experienced at the end of August.
Some traders argue that the rise in Bitcoin futures open interest indicates excessive borrowing. A large amount of open interest can potentially increase price swings, particularly when traders hold multiple positions and suddenly decide to adjust their strategy. It can also influence the overall sentiment of traders who use OI as a signal to decide whether to hold or sell their assets.
Bitcoin Price Hits Resistance at $64,000
From a technical point of view, Bitcoin price is fighting resistance at $64,000. When the price was rejected from this level on Aug. 25, it recorded a 17.5% loss to $52,546, suggesting that the bears are aggressively defending this zone. Bitcoin bulls were required to produce a decisive daily candlestick close above this level to sustain the recovery.
Failure to flip $66,000 into support could cause the price to drop lower, with the accompanying long position liquidations pulling the price toward $62,000. Data from Coinglass showed a wall of ask orders building up above $64,000, reinforcing the importance of this resistance area.
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7 of the Biggest Bitcoin Crashes in History
1. The Epic Bitcoin Crash of June 2011
You may not have heard of the Mt. Gox exchange, but it was once the largest Bitcoin exchange in the world. In June 2011, the exchange was hacked, and the fallout sent Bitcoin into a nosedive, going from about $32 to a mere $2. By the time the dust settled, Bitcoin had lost more than 99% of its value in weeks.
2. The August 2012 Ponzi Scheme That Stole Hundreds of Thousands of Bitcoins
In August 2012, the public learned that a classic Ponzi scheme updated for the digital age had been bilking investors for months. Promising incredible returns of 7% weekly interest, the culprit, later charged, convicted, fined, and imprisoned, had stolen 700,000 Bitcoins by deception. Bitcoin prices plunged by 56% as the news broke.
3. Bitcoin's Crash of April 2013
April 2013 marked the first time Bitcoin entered mainstream consciousness. The hype attracted so many new investors that the system couldn't keep up.
As transactions surged, the Mt. Gox exchange, which processed about 80% of Bitcoin trades then, experienced major technical issues. Hackers exploited the vulnerabilities to carry out a devastating attack. The fallout sent Bitcoin prices plummeting by 83%, from $260 to $50.
4. The December 2013 Crash Following China's Bitcoin Ban
Bitcoin ended 2013 on a sour note thanks to China. In early December, the Chinese government announced it would prohibit using Bitcoin for financial payments. The news triggered a massive sell-off that dropped Bitcoin prices by 50% overnight.
5. The Bitcoin Crash of December 2017 to December 2018
In 2017, Bitcoin captured the world's attention as it skyrocketed to an all-time high near $20,000. The bubble burst shortly after that, and on Dec. 27, Bitcoin prices began to fall. Over the next year, Bitcoin would lose about 84% of its value, bottoming out near $3,100 in December 2018. Regulatory concerns and major exchange hacks fueled the crash.
6. The March 2020 Bitcoin Crash Due to COVID-19
When the COVID-19 pandemic hit, the Bitcoin market crashed harder than traditional markets. In March 2020, Bitcoin lost 50% of its value in two days as global panic ensued. From a price of $10,000 in early March, Bitcoin fell to about $5,000 by mid-month.
7. Bitcoin's Mid-2021 Crash Following Regulatory News and Environmental Concerns
The price of Bitcoin hit an all-time high of nearly $65,000 in April 2021. Less than two months later, prices crashed by more than 50% following a series of negative news stories.
Tesla CEO Elon Musk announced the company would no longer accept Bitcoin as payment for its vehicles due to environmental concerns related to Bitcoin mining. Shortly thereafter, China announced yet another Bitcoin crackdown.
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Will Bitcoin Crash to Zero?
Bitcoin launched on January 3, 2009. At that time, only a few developers were aware of the technology. This meant Bitcoin was practically worthless, considering there wasn’t a marketplace or demand. According to CoinMarketCap, Bitcoin’s first recorded price was in 2011.
1 BTC was valued at just under $0.06. Bitcoin surpassed $1 later that year. Bitcoin’s next milestone was the $100 level, which it hit in 2013. It also hit the $1,000 milestone in the same year. The first mainstream bull cycle happened in 2017, with Bitcoin closing the year at $20,000.
Bitcoin’s Volatile Journey: Peaks, Bear Markets, and the Awaited Bull Run
Bitcoin peaked at $65,630.04 in November 2021. A significant bear market followed, with Bitcoin hitting lows of about $3,500 in late 2019. This bear market shed about 82% from Bitcoin’s previous peak. Bitcoin finally regained the $20,000 level in December 2020.
The Bitcoin price remained bullish through most of 2021, hitting a then-all-time high of about 68,000. Another extended bear market followed, with Bitcoin hitting lows of around $16,000 in late 2022. Bitcoin has since recorded new highs, peaking at almost $74,000. This is approximately 8% above the previous all-time high, so analysts believe the next bull market is yet to begin.
What are the Biggest Threats to Bitcoin’s Value?
Now that we’ve covered Bitcoin’s price history, we can examine the question: Will Bitcoin crash to zero?
Security Threats
Bitcoin is a secure network backed by the proof-of-work (PoW) consensus mechanism. This is why it takes 10 minutes to verify Bitcoin transactions, considering Bitcoin’s highly advanced framework.
No network is 100% secure; threats and vulnerabilities must be considered. This includes the ‘51% Attack‘, which provides control of the Bitcoin network when nefarious actors have over 51% of its hashing power. A successful 51% Attack would enable ‘double spending,’ meaning the same Bitcoins can be spent unlimited times. In reality, the 51% Attack theory is impracticable.
Potential External Security Threats to Bitcoin's Legitimacy
For a start, obtaining 51% of Bitcoin’s hashing power would cost several billion dollars. It would only provide control for the respective block, meaning just 10 minutes. A 51% Attack would delegitimize Bitcoin’s security, so it doesn’t make sense considering the vast capital requirement.
External security threats should also be considered. For example, large-scale exchange hacks can result in significant losses. Malpractice, such as the FTX saga, which saw billions of dollars worth of client-owned funds disappear, can threaten Bitcoin’s legitimacy. Grand fraud, such as widespread cybercrime and ransom demands, also risks Bitcoin's legitimacy.
Quantum Computing
Quantum computing, while further in the future, could also threaten Bitcoin’s legitimacy. This is because quantum computing will have significantly greater capabilities than we currently experience, which could supersede the PoW mechanism. Quantum computing could be capable of deriving private keys from their public keys.
This would mean Bitcoin wallets are no longer safe. It also has the potential to bypass Bitcoin mining requirements, allowing quantum computing to manipulate blocks and all respective transactions. This would first have a major impact on Bitcoin mining operations and could even cause Bitcoin to crash completely. Most experts agree that these capabilities are likely decades away.
Scalability Issues
Bitcoin is the worst blockchain for scalability. It can handle about seven transactions per second. In contrast, many blockchains can facilitate thousands of transactions in the same timeframe. This means Bitcoin isn’t suitable as a medium of exchange. It’s simply not feasible for merchants to wait 10 minutes before transactions are confirmed. There are some counter-arguments to consider.
- Because of its scarcity and limited supply, Bitcoin is largely considered a store of value rather than an everyday currency.
- Layer-2 networks provide an immediate solution to Bitcoin’s scalability woes. This includes the Lightning Network, a side chain that initially stores transactions offline, increasing scalability to thousands of transactions per second.
- The Lightning Network reduces fees and increases confirmation speeds to milliseconds.
Regulatory Crackdowns
Regulations could threaten Bitcoin’s existence. Crackdowns have had limited impact, even in China’s second-largest economy. The Bitcoin price witnessed a small and brief correction when China banned all forms of ownership in 2021. The price recovered a few days later, continuing its bullish trajectory.
Bitcoin trading volumes are still significant even in China, even though they’re prohibited. A regulatory crackdown in the US would likely be more catastrophic for Bitcoin, with regulations in its favor. After all, the SEC recently approved a wave of Bitcoin ETFs.
Central Bank Digital Currencies (CBDCs)
Some analysts claim that central bank digital currencies (CBDCs) will be a major threat to Bitcoin’s existence. CBDCs are digital assets backed by central banks, likely representing domestic currencies like the US dollar and euro. It could also be argued that the opposite will happen, meaning the introduction of CBDCs could drive increased Bitcoin adoption.
CBDCs are considered draconian by some. They would provide central banks with complete control over individual wealth. They could freeze accounts and block transactions at any time. This isn’t possible when owning Bitcoin in a non-custodial (self-custody) wallet. Only the user has access to the private keys. This means not even the wallet provider, let alone government agencies, can access the funds. Therefore, Bitcoin enables people to build and store wealth away from third parties.
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What Would Happen if Bitcoin Crashed to Zero?
A Bitcoin crash would unleash panic selling. If Bitcoin crashed at unprecedented levels, anyone still holding Bitcoin would offload their Bitcoin as quickly as possible. This mass exodus would cause an immediate liquidity crunch. After all, to sell Bitcoin, you need buyers. Without them, orders simply can’t be matched.
There would likely be no one left to facilitate sales. Similar to the FTX saga, exchanges would likely suspend trading. It’s also probable that exchanges wouldn’t have enough capital to handle fiat withdrawals. Market issues like these would also impact financial institutions, including those behind Bitcoin ETFs. Ultimately, the knock-on effect would be catastrophic.
Long-Term Economic Implications of a Bitcoin Crash
Bitcoin is a trillion-dollar asset. It is crucial in the broader economy, just like Apple and Amazon stock. A Bitcoin collapse would have severe economic implications. We could see bankruptcies at an institutional level, especially those involved fully in the digital asset sector.
Coinbase trades on the NASDAQ with a $41 billion market capitalization and would likely be the first major stock to go under. Panic selling would impact not only its exchange but also its circulating stock.
The Future After a Bitcoin Crash
Bitcoin has been and likely always will be the top. When Bitcoin performs well, profits drip down to other currencies.
If Bitcoin crashes toward zero, it could spark the end of the wider market. From a retail and institutional perspective, all confidence would be lost.
Bullish Arguments for Bitcoin’s Value Growth and Success
Will Bitcoin crash to zero? We’ve covered some of Bitcoin’s greatest threats. Let’s explore Bitcoin’s bullish investment thesis.
Institutional Adoption of Bitcoin
It’s hard to imagine Bitcoin crashing to zero considering the amount of institutional adoption we’re seeing. Bitcoin ETFs are backed by some of the world’s largest investment houses. BlackRock Bitcoin ETF. These include BlackRock and Fidelity, which manage trillions of client-owned wealth. This provides Bitcoin with a stamp of approval.
Bitcoin as Digital Gold
Bitcoin is the ideal asset class for stores of value, so it’s often called ‘digital gold.’ Its limited supply of just 21 million will be reached in about 2140. New Bitcoins enter circulation every 10 minutes, ensuring a predictable supply.
The 10-minute mint is reduced by 50% every four years. In addition, Bitcoin is easily stored and transferred. Transactions are executed on a wallet-to-wallet basis without needing third-party approval. Bitcoin can also be divided into micro-units, ensuring it’s available to the masses.
Global Economic Instability and Bitcoin
Economic instability could help Bitcoin become a mainstream asset, especially as central bank policies continue to damage the financial system. Traditional money is devalued whenever central banks use quantitative easing (money printing). Over time, this makes products and services more expensive, just like we saw after the COVID-19 pandemic.
In contrast, we mentioned that Bitcoin’s supply is predictable, limited, and fixed. This means Bitcoin can never suffer from hyperinflation like traditional currencies. This is why Bitcoin demand in Argentina, Turkey, Venezuela, and other inflationary countries continues to rise;
Bearish Arguments for Bitcoin Going to Zero
Some analysts claim that government bans will cause severe issues for the Bitcoin price. This wasn’t the case with China. As mentioned, Bitcoin has been banned in China since 2021, a country with over 1.4 billion people. This has done little to Bitcoin’s value. A US or European Union ban and tax and compliance burdens could be more impactful.
Another bearish argument is tax burdens for everyday investors. Beginners often make the mistake of believing Bitcoin sales aren’t taxable. This couldn’t be further from the truth in most jurisdictions. Most countries view Bitcoin profits like other tradable assets, such as stocks and ETFs, meaning capital gains will be liable for tax.
Bitcoin Expert Opinions and Market Sentiment
Bitcoin viewpoints from prominent figures have changed significantly in the past few years. During the 2017 bull cycle, when Bitcoin increased 20-fold from $1,000 to $20,000, leading institutions largely viewed it as a scam.
- Warren Buffet, CEO of Berkshire Hathaway, famously referred to Bitcoin as “rat poison squared” for criminals.
- Bill Gates shared similar views, with the Microsoft founder claiming Bitcoin is used for financial crimes.
- Jamie Dimon of JPMorgan Chase called Bitcoin a fraud and a Ponzi scheme. Fast-forward to 2024 and JPMorgan Chase is now invested in Bitcoin ETFs.
This is also the case with other tier-one financial institutions. What’s more, Standard Chartered recently predicted that Bitcoin would hit $250,000 by 2025. Cathie Wood, CEO of Ark Invest, predicts a $1 million Bitcoin by the decade's end. Considering these institutional forecasts, it’s highly improbable that Bitcoin will crash to zero.
5 Strategies to Survive a Bitcoin Crash
1. Buy the Dip: Capitalizing on a Bitcoin Crash
Buying the dip is a solid strategy if you believe in Bitcoin’s long-term potential. It simply means buying Bitcoin when prices decline. This enables you to enter the market at a discounted price.
For instance, some traders will buy Bitcoin if the daily candle closes in the red, regardless of how much it has declined. Others will buy the dip if it decreases by a certain percentage from the previous peak, such as 5%.
2. Dollar-Cost Averaging: Making a Bitcoin Crash Less Painful
Long-term Bitcoin investors might also consider dollar-cost averaging their investments. This means buying Bitcoin at the same amounts and frequencies, regardless of short-term volatility.
For example, buying $250 worth of Bitcoin every Monday. Or $1,000 once per month. This strategy means you can avoid worrying about short-term dips.
3. Short-Selling Bitcoin: A Precautionary Measure
Short-selling, in general, is the practice of taking a position to sell an asset, believing that it will fall in value. Then, you can buy it back for a lower price, profiting from the difference. Short-selling Bitcoin is a common hedge against a long exposure, whether this is a Bitcoin holding or a speculative trade.
Suppose you already own Bitcoin but believe it is due to fall in the short term. In that case, you might reduce your exposure by opening a short position. If the market falls, you can cover some of the loss to your initial position with gains on your short position.
Risks and Alternatives to Short-Selling Bitcoin
The traditional method of short-selling would involve borrowing Bitcoin from a broker or third party, selling it on the open market, and then returning the coins to their owner. A few exchanges facilitate short-selling, but finding a third party willing to lend you the asset can be challenging. Even if you find a willing lender, they can recall their asset at any time; this could mean you would have to repurchase the coins for a much higher market price.
For example, you borrowed a Bitcoin to short-sell when the market price was $10,000. But instead of falling in value, the price increased to $12,000. You would have to repurchase the Bitcoin at the higher market price and would have taken a $2,000 loss. Most short-selling of Bitcoin is performed using our other hedging methods: CFDs and futures.
4. Hedging Bitcoin with CFDs: A Flexible Solution
One of the most popular ways to hedge Bitcoin is through CFD trading. This means that you can speculate on the price of Bitcoin without opening an exchange account or digital wallet.
Another benefit of derivatives is that you can take advantage of markets that are falling in price and rising; essentially, they enable you to short-sell without borrowing Bitcoin. This is an essential feature for hedgers, who must protect themselves against declining assets.
Direct Hedging Strategies for Managing Bitcoin Volatility
You can implement many strategies using derivatives, but one of the most popular is direct hedging. This involves taking two positions on the same currency simultaneously but in opposite directions.
Let’s say you owned two BTC and, although you believe in the technology's long-term potential, you believe that short-term volatility could impact your position. Rather than selling your Bitcoins, you decide to hedge against them. You open a CFD trade to short Bitcoin. Once any negative price movement is over, you could close your direct hedge, and the profit to the CFD trade would offset the loss to your holding. If the price of Bitcoin doesn’t decline, then the profit to your holding will offset any loss to your Bitcoin CFD.
5. Hedging Bitcoin with Futures: Locking in Prices
Bitcoin futures were first introduced in 2017 by the Chicago Board of Options Exchange (CBOE) and later by the Chicago Mercantile Exchange (CME). Futures are a type of financial contract in which two parties agree to trade an asset, in this case, Bitcoin, at a predefined price on a specific date in the future. Bitcoin futures provide a legitimate way for market participants to lock in a market price.
Let’s say you own one Bitcoin, which is currently worth $10,000. By selling 10,000 futures contracts (each with a contract size of 1 USD), you essentially ensure that you will trade your Bitcoin for $10,000 in the future, regardless of what happens in the underlying market. If the market did fall, let’s say, down to $9,000, your future position would be $1,000 in profit. If the price of Bitcoin increased up to $11,000, you would be obliged to sell your Bitcoin for $10,000.
Factors to Consider While Shorting Bitcoin
Shorting Bitcoin: Taking Advantage of Price Drops
Shorting Bitcoin (BTC) involves borrowing and selling it on the open market to repurchase it at a lower price. When you short Bitcoin, you open a position that profits when its price declines. This strategy is the opposite of going long on Bitcoin, which involves buying to sell later at a higher price.
Like any trading strategy, shorting Bitcoin involves risks, especially considering its price volatility. It is best suited for experienced traders who can afford to take potential losses.
Bitcoin Price Volatility: A Double-Edged Sword
Bitcoin price volatility can create opportunities for traders. It also poses significant risks that traders must consider before opening short positions. Most avenues to short Bitcoin depend on derivatives, such as futures and options.
These derivatives are based on pricing, and fluctuations in the price have a domino effect on investor gains and losses. For example, Bitcoin futures mimic spot price changes, meaning they cannot be used as an effective hedge against an investment in actual Bitcoin. Options trading in Bitcoin can multiply losses due to the underlying price volatility.
Order Types and Bitcoin Shorting Strategies
Knowledge of order types is a must when shorting Bitcoin. Before undertaking a short position in Bitcoin, you should brush up on your knowledge of different order types. They can help limit losses if the price trajectory does not go in the direction that you initially bet. For example, using stop-limit orders while trading derivatives can curtail your losses.
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Save 30% on Bitcoin Magazine Pro's Bitcoin Analysis Tool With Our Annual Plan
Bitcoin Magazine Pro offers a comprehensive set of analytics tools to help investors and enthusiasts better understand Bitcoin through data. The platform provides a wide range of free, regularly updated Bitcoin charts, each accompanied by detailed explanations to make complex information accessible.
For those looking to go deeper, paid tiers offer features like:
- Chart alerts
- Exclusive indicators
- In-depth market reports
Whether you're a curious Bitcoin investor wanting to grasp the factors influencing Bitcoin's price or an analyst eager to expand your knowledge, Bitcoin Magazine Pro aims to provide clarity and insights to support more informed decision-making in the Bitcoin space.
Save 30% on Bitcoin Magazine Pro's Bitcoin analysis tool today when you sign up on our annual plan!