Cryptocurrency markets have been hurting for more than a year now. Bitcoin, the leading cryptocurrency, topped out at $20,089 per token on Dec. 17, 2017. That record price represented a mind-boggling 24,600% return in 52 short weeks. But the coin retreated from those all-time highs just as quickly as it had skyrocketed in the first place. Bitcoin is now changing hands at roughly $3,500 per token, 88% below the record prices from 2017.

Meanwhile, the cryptocurrency platform's mathematical design stoically continued to make it harder and harder for bitcoin miners to create another unit of the digital currency. Bitcoin mining may not make any economic sense anymore, depending on the cost of electric power in the miner's particular location.

The tipping point has already passed for many miners. For others, it will come in the very near future. What will happen to the bitcoin market when even the biggest and most efficient mining operators can't justify creating new tokens at an unprofitable payout rate?

A highway marked with the word Cryptocurrency rises to the sky, ending in a huge question mark.

Image source: Getty Images.

The most obvious outcome: Fade to black

According to a fresh report from J.P. Morgan, the average production cost for one bitcoin token stood at roughly $4,060 in the fourth quarter of 2018. These expenses are based on using the most efficient cryptocurrency-mining chips available today. There was a large spread between the highest and lowest production costs, driven mostly by the miner's access to cheap electric power -- or the lack thereof.

At this point, profitable bitcoin mining is restricted almost exclusively to Chinese operators who have struck power supply agreements with local manufacturing businesses. Miners in places like Iceland and the Czech Republic are still increasing their output, hoping to cash in on a future rebound in the bitcoin market. For now, those operators can't really make ends meet. Miners without a serious cash cushion won't be able to keep the lights on for much longer, driving weaker hands out of this brutal business.

If bitcoin prices continue to drop, the logical conclusion to the whole saga would be a hard crash to zero -- as in, "There's zero value in making the cryptocurrency work, so let's just stop trying." When the mining side shuts down, it would eventually become impossible to trade, transfer, or otherwise use the cryptocurrency at all. In other words, bitcoin would truly become worthless in every sense of the word.

Fade to black.

The counterintuitive result: Trigger the next boom

So let's say the weak hands close down shop and leave the bitcoin mining almost completely in the hands of Chinese efficiency experts. The rate of freshly minted bitcoin tokens slows down but doesn't stop. People and/or businesses continue to see value in the digital tokens and keep on using them for moving monetary assets around the world in significant volumes.

And according to the economic theory of supply and demand, the value of a scarce resource should increase. If the imbalance is lopsided enough, we're looking at the opportunity for another round of absolutely skyrocketing coin prices.

This is what those Icelandic and Czech miners are hoping for right now. The unprofitable bitcoin tokens they produce today could be worth millions or billions in a future where bitcoin prices race back to $20,000 or more.

The big test

So bitcoin is headed for, or arguably in the middle of, an important test here.

The cryptocurrency needs to prove its real-world worth here in order to stay alive. Failing to do so should drive its pricing to zero very quickly. But a successful performance here, where bitcoin users continue to depend on it for their value storage and transfer needs on a global scale, could easily trigger another enormous bounce.

Do keep in mind that the cryptocurrency market as a whole doesn't live and die by bitcoin alone. The leading cryptocurrency might hold on to its starring role through some combination of technical prowess and its established scale, or it could fall out of favor and be replaced by another digital coin whose technical and economical foundations make more sense in the long run.

So we're either looking at a dying digital currency or maybe just another swing in bitcoin's cyclical boom-and-bust rhythm. I'm holding on to a small fraction of one token and hoping for a bounce, but that's only part of a diversified basket of promising cryptocurrencies. And all of these digital currencies add up to a rounding error in my mostly stock-based investment portfolio.

I wouldn't be surprised to see the volatile bitcoin charts continue to jump, then crash again -- lather, rinse, repeat. But each downturn could also be the last one, with no rebound in sight. The next few months should tell us whether bitcoin survived this particular downturn or not. Either way, its prices should make another big move. It's just hard to tell if it's going up or down.

Anders Bylund owns a fraction of one bitcoin token. The Motley Fool does not own any cryptocurrencies mentioned in this article. The Motley Fool has a disclosure policy.