Crypto expert: „Insolvency of major companies could crash bitcoin“
The Komodo manager considers such a scenario unlikely, but not impossible.
Bitcoin (BTC) is known for its price fluctuations. And the current record run was also preceded by a crash in March 2020 due to the Corona crisis, before the market-leading cryptocurrency was able to soar to new heights. However, this also suggests that it could possibly go down again just as quickly in the future.
Jason Brown, the director of business development at blockchain platform Bitcoin Superstar, has speculated for Cointelegraph on what could trigger a similar downturn to that seen at the start of the Corona crisis.
„I think such a scenario is unlikely, given the increased adoption by institutional investors,“ as he first states to that effect. He added: „On the other hand, we wouldn’t have expected the corona virus to trigger a sudden crash followed by a long-term spike either.“
In March 2020, Bitcoin had crashed by 50% within 48 hours, with other financial products doing similarly at the time. Subsequently, however, many well-known companies such as MicroStrategy and MassMutual had invested large sums in Bitcoin. MicroStrategy, led by CEO Michael Saylor, is betting particularly heavily on the cryptocurrency as protection against impending inflation. „The institutions are pursuing a long-term strategy and are not speculating,“ as Brown accordingly says.
However, as soon as companies need capital to stay afloat, this strategy can quickly change again
The situation could become particularly bad if institutions become insolvent, regardless of developments on the crypto market.
The fact that Bitcoin recently hit an astronomical record high of $41,000 inevitably means that companies are currently buying in at peak prices. So the risk involved is higher than usual. „This means that companies experiencing financial distress as the bitcoin price stagnates or falls would have to sell below their purchase price,“ as Brown concludes. To this he adds:
„While this is all very theoretical and unlikely, such a scenario could trigger a domino effect to the downside, quickly putting us back in the downtrend. We’ve always talked before about how big investors can move the market, but currently the amount available in circulation of the major cryptocurrencies is even more centralised than usual. So going forward, it may only take one really big sell-off from one of the big players to move the market significantly lower, which could possibly be even worse than during the 2018 slide.“
In 2018, the bitcoin price had crashed from US$17,000 down to just US$4,000.