The history of the mighty Bitcoin has not been smooth sailing. Instead, the original cryptocurrency has experienced various ups and downs which show just how volatile the asset can be.
From Bitcoin Bubble to Bitcoin Crash, here is everything you need to know about why and how these crises happened and whether they could occur again.
Ever since its invention all the way back in 2008, Bitcoin’s worth has been known to fluctuate. This cryptocurrency is most widely renowned for its spectacular price increases, one of which surprised the world when it made the value of the token spike from $13.5 to $220 within the first four months of 2013. In November of the same year, the scenario repeated itself in the form of a yet more impressive bubble, bringing the price of Bitcoin from $200 to over $1,000 per coin! Even those who had never heard of cryptocurrencies prior to that event started taking an interest.
What is Bitcoin?
Bitcoin is both a digital currency (the first of its kind, actually) and the network through which it runs. The currency itself was imagined and developed by an unidentified person answering to the pseudonym of Satoshi Nakamoto. Different in many respects from the more traditional means of payment, Bitcoin promises low transaction fees and, unlike regular currencies, it does not depend on any governmental authority.
As a virtual asset, Bitcoin functions without any physical coins. Instead, balances are kept on the cloud thanks to a public ledger. Every time a transaction happens, extremely complex equations need to be solved by powerful computers which add information to a blockchain.
Though Bitcoin is not a legal tender, its popularity has made it a true financial asset which continues to gain in prominence.
Why did Bitcoin crash?
Volatility goes hand in hand with the very concept of cryptocurrencies. Over the course of its relatively short life, the crypto market went from Bitcoin bubble to Bitcoin crash to Bitcoin bubble again quite frequently, sometimes in no time at all.
There exist several reasons for this, but one of the main factors is, without a doubt, that crypto assets have no intrinsic value. With nothing to sell, no dividends to return, uncertain profitability and only market sentiment to go on, a digital currency such as Bitcoin is difficult to value.
No regulatory oversight is exercised on crypto assets, which do not benefit from any type of protection in case of market manipulation. Not backed by any institution, Bitcoin and altcoins do not receive any institutional capital, which contributes to their almost ‘underground’ status.
Another particularity virtual currencies have is that most of the tradable supply is not actually in circulation. Investors are wary of the fact that keeping their coins on an exchange makes them run the risk of losing them to a hacker and prefer to store them on offline wallets. This results in large traders being able to influence the crypto market by massively releasing tokens.
Finally, because of its high volatility, Bitcoin does not appeal to those investors who are looking to safeguard their future. Instead, young, relatively tech-savvy traders who are comfortable with the peculiar nature of cryptocurrencies make up the vast majority of the investor pool. This creates a herd-like phenomenon in which Bitcoin levels are not stabilized by long-term-oriented, more seasoned investors.
As Bitcoin keeps on gaining momentum and investor profiles start to diversify, volatility may decrease. In the meantime, Bitcoin crashes and will probably continue to do so regularly.
Bitcoin’s major crashes
Bitcoin’s crash history is relatively rich for such a young asset. Bitcoin crashes tend to happen very quickly, sometimes overnight, though prices have also been known to rise back up almost as fast. The most famous examples show just how unexpected these movements can be.
Bitcoin crash 2013
In April of 2013, Bitcoin experienced one of its first major drops. The Bitcoin crash of 2013 happened overnight when, in a mere 12 hours, the king of cryptocurrencies suddenly lost 71% of its value and went from $233 to $67. The reason for Bitcoin’s crash on that particular occasion may have been the recognition it finally began to receive from mainstream actors, leading it to be worth more than $200 in the first place. Once the excitement blew over, so did the price of the BTC.
Another (or contributing) theory is that the Mt. Gox outage created the perfect conditions for Bitcoin to abruptly lose some of its credit.
Later that same year, Bitcoin’s prices started going up again to reach $1,150 by the end of November. This success was met with a new failure when the bubble burst and the value decreased once more in December to less than half of what it was then. It was never to pass the $1,000 mark again until four years later.
Bitcoin crash 2017
The Bitcoin crash of 2017 was another case of burst bubble. This time, the price of Bitcoin had crossed the $1,000 mark in June for the first time in four years, which caused such effervescence that it kept going up and up, topping at $3,000. The way down was brutal, and Bitcoin had lost 36% of its short-lived value by mid-July.
While Bitcoin had piqued people’s interest more than ever before, a hardfork planned for August 1 may have given investors doubt as to its future. Once that hurdle had passed without affecting the situation significantly, Bitcoin shot back up to $5,000 at the beginning of September, only to lose another 37% by the 15th.
Bitcoin crash 2018
What is known as the Bitcoin crash of 2018 was, in fact, one of the most memorable examples of a crypto financial crisis and practically bound to happen. This Bitcoin crash followed what will forever be remembered as the year when everyone who had thought cryptocurrencies had no future bitterly regretted it. By the end of 2017, Bitcoin had reached $19,891, setting an unprecedented high. It was not long until, in January 2018, Bitcoin came crashing down to suffer the loss of 65% of its value and, by the end of November, it had fallen by over 80% from the incredible 2017 peak.
This was the very definition of a bubble, putting an end to a growth that had achieved 2,700%.
The future of Bitcoin
While such a major Bitcoin crash has not happened since, the value of the BTC token certainly has gone up and down over the past couple of years. In 2019, Bitcoin experienced another resurgence, topping at $10,000 in June, but the end of the year saw it lose almost one third of its value.
In 2020, Bitcoin briefly hit $10,000 again and plummeted to $5,000 in March. At this point, the future may appear quite uncertain.
Will Bitcoin crash again?
With the world currently facing a global pandemic, the future may never have seemed less certain. What Bitcoin has proven, however, is an incredible propensity to resilience and to bouncing back, sometimes to return even stronger than before.
Will there be another Bitcoin crash? Probably so, just like there will probably be new highs, too. So far, what we have been able to observe over the course of Bitcoin’s somewhat short history is that its rise and fall is constant. As our economy experiences great uncertainty, Bitcoin will undoubtedly be affected, and this could either cement its position as an alternative to the financial solutions in place or make it lose some of its relevance.
While the price of Bitcoin hit a concerning low mid-March, as we write these lines (at the beginning of May 2020) it has already shot back up to its end-of-February value. This does not prove that Bitcoin will come out of the Covid-19 situation unscathed, but it would indicate that its continued existence is not in question.
A Bitcoin crash is always possible and, as we have seen, a variety of reasons can set one off. Only time will tell and give us the benefit of hindsight. Until then, be as wise with your investments as you would normally be and avoid any kind of hasty action.