What would the impact be of a complete crypto meltdown?

The crypto market has become somewhat of a mythological wonderland among new investors, with constant stories of 10,000 x returns, and teenagers becoming overnight millionaires sat in their parents’ spare bedroom.

The harsh reality of trading in cryptocurrencies has been brought to bear for investors over recent months, with bitcoin (the largest and most popular crypto currency) losing over 60% of its value since its high of almost £50,000 in November 2021. For many this has come as a complete shock – many investors felt returns were guaranteed and poured a large portion of their savings into bitcoin, Ethereum etc when prices were at record highs.

With prices only recovering marginally from the crash, many are left with half of what they started with, and an asset they don’t understand and no longer want.

So, at an individual level, painful lessons had to be learned for many new and excited investors – but how do crashes like this affect the global economy, and what will happen if crypto values continue to fall?

The simple answer is – not as much as you might expect.

Take Bitcoin, for example. Its market cap is comparable to that of a large US company (it would rank 10th in the S&P 500, between Nvidia Corp. and Procter & Gamble Co), while the entire crypto market stands at a little less than $1 trillion. Compare this to the US equity market at $34 trillion, or to the entire global market, which stands at over $108 trillion. If Bitcoin’s price crashed all the way down to zero, it would have roughly the same broader effect on total wealth as the bankruptcy of Nvidia or Procter & Gamble might do — certainly a major event, but not one that would bring down the financial system.

We continue to be sceptical of the cryptocurrency market, and would urge investors to do as much research as they can before thinking about buying any crypto, particularly before they consider placing more than 10% of their investable assets into any form of cryptocurrency.