Bitcoin's potential for spectacular collapse could trigger widespread market turmoil and negatively affect the broader economy, according to Simeon Willis, chief investment officer at consultancy XPS.
Willis argued that while Bitcoin has offered substantial returns historically, those days are now largely over, with the cryptocurrency underperforming other assets in recent years. He described Bitcoin as a "one trick pony," suggesting its underlying blockchain technology is too limited to adapt to other rapidly evolving digital finance sectors.
"The evaporation of a £1 trillion market is highly likely to lead to people selling risky assets like equities and buying safer assets like bonds," Willis stated, warning that a sharp decline could reduce consumer spending and impact economic growth.
Between 2016 and 2021, Bitcoin saw a 7,000 percent return. However, over the last five years, its return has been only 72 percent, with a significant portion of that growth occurring recently. This performance lags behind traditional investments like the FTSE All World global equity index, which delivered 75 percent over the same five-year period.
Willis outlined two potential long-term outcomes for Bitcoin: widespread adoption as a functional currency or a rapid decline due to a lack of adoption. He pointed out that blockchain technology does not inherently require cryptocurrency, citing the planned digital UK government bond in 2027, which will utilize a blockchain without involving crypto. Furthermore, Bitcoin's blockchain is limited to its own currency, lacking the smart contract capabilities of other blockchains that are programmable for areas like tokens.
He cautioned that a sudden failure of Bitcoin could lead to significant withdrawals from digital markets, including the potential loss of value in stablecoins like USD Tether, which has assets that include volatile precious metals and Bitcoin itself. A broader market sell-off, similar to the impact of the 1998 LTCM hedge fund failure and Russian debt default, could follow, affecting equity markets and consumer wealth.
Willis expressed a hope for Bitcoin's continued existence, preferring a slow, predictable decline over a sudden collapse for the sake of market stability. He noted that in the 2024-25 tax year, 240 Britons earned over £1 million from cryptocurrency, with an average of around £3 million each, illustrating the historical allure of significant gains.