One of the most bullish arguments before the recent cryptocurrency market crash was that bitcoin (BTC) had never tested a previous cycle’s all-time high prior to a halving event. And then this time around it did, falling below $19,000, the pre-halving high in 2020.
While the incident has brought on existential fear 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 as did oil during the peak pandemic days.
“Suggesting the bitcoin price could go to zero…is almost unthinkable,” said Whitney Setiawan, a research analyst at crypto exchange Bitrue. “Its supply is not affected by the bureaucracies of the current global supply chain. Crude oil supply is almost infinite and this can impair how much one is willing to pay, which can lower its price.”
Setiawan said bitcoin’s technical design prevents it from hitting zero, even when “the broader market sentiment can continue to stir a sell-off.” The U.S. Commodities Exchange Act has concluded that digital currencies such as Bitcoin are a commodity, much like oil.
Bitcoin slumps 70%, fears of total collapse
In 2020, at the peak of the coronavirus pandemic, the price of oil in the U.S. became negative for the first time in history, falling to as low as minus $37 per barrel. It meant oil producers had to pay buyers to take the commodity off their hands worried that storage capacity could run out. Demand for oil dried up due to lockdowns that kept people in their homes.
As the price of bitcoin fell sharply in the last few weeks, both traders and miners were keen to offload their holdings to avoid having to take massive losses. And perhaps worse, a collapse after the fashion of LUNA.
Bitcoin has slumped 70% since hitting a peak of $69,000 in November 2021. At the time of press, BTC was trading at $20,400 after bouncing back from an 18-month low of about $17,800. This is below the price of $19,000, a high reached in 2020 before an event that reduces the amount of bitcoin minted known as a “halving.”
The carnage in the crypto market is partly caused by pressure from macroeconomic forces, including rising inflation and a succession of interest rate hikes by the U.S. Federal Reserve. In addition, Terra’s contagion is only starting to show, with a number of crypto heavyweights including hedge fund Three Arrows Capital (3AC), lenders Celsius and Babel Finance, facing solvency problems.
‘Bitcoin has no storage costs so it won’t go to zero’
Styliana Charalambous, head of investments and market research at fund manager Pure, said the historic reversal in the bitcoin price could not be likened to that of oil because it cost almost nothing “to traders and investors to keep their bitcoin in their portfolios.” Speaking to Be[In]Crypto, Charalambous explained:
“The reason why oil had a negative value at some point is that oil storages around the world were filling up, fast. People were willing to pay in order to remove oil stock from their storages. On the other hand, it is technically impossible that BTC will have a negative value.”
Charalambous said that cryptocurrency values could fluctuate wildly based on market speculation, but the values could never be lower than zero. “That would essentially mean that you would have to pay someone to take your coins or tokens,” she stated.
Brian Gallagher, the co-founder of Web3 infrastructure outfit Partisia Blockchain Foundation, said it is hard for BTC to drop below zero “because it’s a hard supply of currency.” But “companies that are over-leveraged could go into debt and be sent into bankruptcy and liquidation of their assets to pay their creditors,” he detailed.
The technology remains solid
The fundamental underlying technology behind Bitcoin remains sound and has weathered much turbulence since its inception more than 13 years ago, according to experts.
Cryptocurrency markets are struggling for confidence following the collapse of the Terra blockchain in May. The situation has provoked full-blown fear over the long-term viability of cryptocurrencies, leading to a loss of more than $2 trillion in value over the last six months.
“It’s [Bitcoin] a key new financial tool that has long-term value and usability. I’m sure that once global markets stabilize and recover, bitcoin will recover even faster,” Vasja Zupan, president of digital asset exchange Matrix, told Be[In]Crypto.