Bitcoin risks crashing to zero, here is why

Bitcoin could become worthless, the Bank of England has warned amid declining rate of the cryptocurrency which has seen BTC value drop by 30.07 percent since hitting $68,990.90 in November when pegged to current price of $48,240.07.

According to the deputy governor of Bank of England, Sir Jon Cunliffe, the price of bitcoin is inconsistent, creating a possibility of the crypto asset falling to zero in value, he told BBC.

The volatility of bitcoin is high, but the risk to Nigeria’s financial system is limited as holders in the country are not a handful, and adoption has been on a decline as of the first week of November 2021.

Data from Paxful shows that volume of bitcoin trade in Nigeria had dropped from 6 million early Q3, to 5 million in October, before a significant fall to 2.8 million last month.

Despite the volume dropping amid bitcoin meltdown, there’s still enough room for more to enter the crypto market, considering 19 million bitcoin was currently in circulation, out of the 21 million BTC created, which was projected not to be exhausted until February 2140.

The limited number of bitcoin compared to fiat currency is what’s driving the demand, but Belsham thinks this can work against holders who are not quick enough to sell off when the market reaches its climax.

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Regardless, just as the Central Bank of Nigeria (CBN) has written three circulars between 2017 to 2021 over the risk of bitcoin and other cryptocurrencies, Bank of England’s Thomas Belsham, has also expressed worry in an article by the lender on Tuesday.

Belsham, a member of the Bank’s stakeholder and media engagement division, said bitcoin investors should be ready to lose every penny invested in the crypto market.

“Simple game theory tells us that a process of backward induction should, really, at some point, induce the smart money to get out. And were that to happen, investors really should be prepared to lose everything. Eventually.” Belsham said.

He said bitcoin’s advantage might end up being what will “ultimately, render Bitcoin worthless”.

The Bank of England suggested regulation of the crypto market, a similar opinion shared by the World Bank and United States government, but not in the books of the Nigerian government, which has outlawed crypto trading – although a Nigerian court had ruled against the ban.

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The statement from the bank reads, “Enhanced regulatory and law enforcement frameworks, both domestically and at a global level, are needed to influence developments in these fast-growing markets in order to manage risks, encourage sustainable innovation and maintain broader trust and integrity in the financial system.”