Bitcoin now has a $2.31 trillion market cap, and it’s sitting on the balance sheets of asset managers, institutions and even national treasuries. Millions of people hold it directly, and others are exposed through exchange-traded funds (ETFs), futures and retirement accounts.
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But what if the world’s largest cryptocurrency all came crashing down? A total collapse wouldn’t just hurt crypto investors. It’d ripple through the entire economy. Below, experts weigh in on the potential fallout.
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A sharp drop in bitcoin’s value would hurt many investors, but a total collapse to zero would be in another league entirely. It’s not just crypto investors who would take a hit. Bitcoin is now tied into the broader financial system in a way it wasn’t just a few years ago. Large asset managers, pension funds and even some governments now hold bitcoin directly or through investment products.
“Considering how embedded bitcoin now is in the global financial system, with the world’s biggest asset manager holding $90 billion of the world’s biggest cryptocurrency, if it were to crash to zero, we’d see a crisis magnitudes bigger than 2008/2009,” said Kevin Rusher, founder of RAAC.
“The next crash will likely feel a lot worse, as the market is much bigger now, and we have many bitcoin derivatives such as exchange-traded funds and futures,” said Vince Stanzione, founder of First Information and author of “The Millionaire Dropout.”
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Many people who hold bitcoin today are those in younger generations, often millennials and Gen Zers who see cryptocurrency as a main way to grow wealth. For some, bitcoin was their first real investment. If bitcoin were to crash, it could lead many of these younger investors to lose faith in financial markets. Instead of moving into other assets like stocks or bonds, some might step away from investing entirely.
“Studies show that bitcoin investors (by the way, I don’t like to refer to them as investors — more appropriately, they’re speculators) tend to be younger than investors in stocks and bonds. One of the ripple effects of a bitcoin crash would be a loss in confidence in the financial markets by this younger demographic. When one loses confidence in a particular institution (like the financial markets), one often disengages from that activity,” according to Robert Johnson, founder of Economic Index Associates.
