Bitcoin, the emerging systemic risk

Bitcoin cryptocurrency has great potential to cause a serious financial crisis. Making matters worse is Bitcoin’s global influence and rapid adoption. We can’t be so quick to forget what caused the 2008 recession. We cannot ignore the fact that Bitcoin technology helps to neutralize its effects.

Some argue that bitcoin is gradually becoming a catalyst for the problem its creator wants to solve. Financial market experts warn that the economic collapse of Bitcoin is one of the most dangerous. They add that if this happens, it will be the biggest in the cryptocurrency industry.

Addressing Bitcoin’s potential system failure is becoming more complex every day. Indeed, thousands of investors around the world continue to pour millions of dollars into the market. But this risk appears partly because some investors understand it.

Most early BTC investors have been in the market long enough to absorb all its ups and downs. They also know all the dos and don’ts. And most importantly, these people are excited about cryptocurrencies, not about making more money. Therefore, this group of players is not afraid of market anomalies and remains untouched during bad news.

Unfortunately, part of the cryptocurrency market includes only beginner investors. They do not believe in the possible failure of the financial system. All they care about is the hype. Therefore, beginners are quick to avoid anyone who talks negatively about BTC. They joined the industry just to make money.

What is the meaning of this?

Well, in case of uncertainty or emergency, the beginners will not hesitate to withdraw their funds. This will likely be a mass exodus that could significantly disrupt most of the world’s financial systems. The systematic risk of Bitcoin is inevitable because the cryptocurrency market consists of many new investors. Therefore, those who understand the tricks are too few to face a serious crisis.

Why is Bitcoin a Potential Systemic Risk?

One of the main winning aspects of Bitcoin is how decentralized the network is. The peer-to-peer setup makes the Bitcoin platform more efficient than traditional central banks. However, this flexibility is one of the main factors that make the BTC cryptocurrency a threat to systemic stability.

For the first time since the price spikes of late 2017 and 2021, cryptocurrency investors are eager to buy BTC at a rate never seen in history. And this saw Bitcoin’s market capitalization cross the $200 billion mark. But this is not enough. Many people borrow from the crypto sector, which makes the situation even worse.

Unlike other markets, cryptocurrency does not offer direct cash loans. Instead, some exchanges offer investment incentives to their users. Like other scholarships also allows the use of credit cards. Using these financing options has allowed several young people to earn millions through investments in Bitcoin and other cryptocurrencies.

Unfortunately, only a few people are ready to deal with an unprecedented emergency. Most traders will rush to convert their coins into US dollars, which can cause prices to plummet. Additionally, the current total of Bitcoin investment funds is well below market share. Therefore, a mass exodus would immediately lead to cash shortages. And this means that most active brokers cannot process all funds at the same time if necessary.

Final Thoughts

A systemic failure caused by Bitcoin and its related digital assets is likely. Independent transactions and high levels of efficiency have made BTC more welcoming to thousands of inexperienced, money-hungry investors. In addition, trade incentives and indirect loans such as the use of credit cards have consistently attracted additional investors.

As a result, Bitcoin market capitalization increased and exceeded the funds available to investors. And this would create a shortage of funding, leaving intermediaries unable to process withdrawals in the event of a massive influx of investors. The inability of users to convert their bitcoins into fiat currency could be extremely disruptive, as the market would experience a severe lack of liquidity.

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