Recent developments in the Bitcoin market have taken investors on a wild ride. The beginning of September saw the cryptocurrency hit an all-time high of $5,000 USD before experiencing a massive 40% spectacular drop in value. In the last few days, Bitcoin has seen a rapid recovery, peaking at around $4,000 USD nearly halfway through the month.
To put the recent crash in perspective, we’ll take a look at some of the biggest crashes in Bitcoin history in this article and piece together their most likely explanations. Assessed as a whole, this article will help you understand why Bitcoin can be so volatile, and hopefully deliver some insight as to whether Bitcoin is here to stay.
The April 2013 Meltdown
The first crash we’ll take a look at in this article is the meltdown of April 2013. In the early days of spring in 2013, Bitcoin experienced a massive drop from $237 USD down to just $67 overnight. After this massive fall, the currency took more than six months to recover.
The root cause of the April 2013 collapse was the impact of Bitcoin’s first major encounter with the mainstream media. Having never risen above $30 before, Bitcoin experienced a meteoric rise in value due to a flood of media coverage that caused it to reach over $237 USD per unit. The crash that followed reflected a correction to overly enthusiastic adopters. Some speculative investors also attribute this crash, at least in part, to a long outage at Mt. Gox, which was at the time the most heavily used Bitcoin trading platform.
The 2013 Bubble
For the majority of 2013, Bitcoin sat at around $120. In the fall of the same year, however, the currency experienced a 1000% price increase, reaching a then-astronomical price of $1,150 per coin in late November. By mid December, however, prices had plummeted to less than $500 USD. The resulting loss in value took more than four years to recuperate, only reaching over $1,000 again in 2017.
The 2013 bubble is attributed to a classic bubble model, caused by amatuer investors haphazardly rushing to board the crypto gravy train. The feeding frenzy was exacerbated by regulatory bodies around the world adopting a more positive view of Bitcoin as a whole, and the establishment of US-based exchanges such as Coinbase. Perhaps Bitcoin would have recovered faster if it were not for the next calamity to occur in our crash retrospective.
The 2014 Mt. Gox Disaster
The price of Bitcoin was slowly but surely recovering from the impact of the 2013 bubble burst, achieving stability at around $837 USD in early February 2014. In the same month the price of the currency suddenly fell to $439, representing a drop of 49%. This rapid loss in value began a long winter period for Bitcoin, which lasted until Q4 2016.
The sudden drop in price that occurred in early 2014 was caused directly by the announcement from Mt. Gox, one of the largest Bitcoin trading platforms, stating that a large-scale hack had occurred. On the 7th of February, the exchange halted all withdrawals, revealing that the hackers had absconded with more than 850,000 Bitcoins. Whether or not the loss was a result of the hack or due to poor bookkeeping on the exchange’s behalf is a matter of open debate, but there’s no doubt that the event negatively impacted the price of Bitcoin for several years.
The 2017 Summer Selloff
In the early days of 2017, Bitcoin was reaching the apex of a steady climb in value, reaching the $1,000 level for the first time in years. Investor confidence caused the price to surge, which caused the value of a single Bitcoin to approach $3,000 USD. By mid-July, however, the currency lurched back rapidly, dropping 36% to just $1,869.
The new Bitcoin boom was caused by an impending change, called the fork, to Bitcoin’s canonical blockchain, which degraded investor confidence. This lack of confidence manifested as jitters in the market, with many investors frantically selling, resulting in a significant price drop.
The Chinese ICO Ban Hysteria
The most recent crash in Bitcoin history occurred after fears surrounding the impending fork had evaporated. Reaching nearly $5,000 in value by the start of September 2017, Bitcoin had reached a new record high, which was suddenly terminated by a 37% drop by the middle of the month.
The drop is attributed to a decision made by the Chinese government to place a temporary moratorium on “Initial Coin Offerings”, or ICOs. The ban, which has only recently been announced to be temporary, caused the development of rumors that the Chinese government could possibly ban the cryptocurrency altogether.
What We’ve Learned From These Examples
After reviewing the biggest crashes that have occurred over the history of Bitcoin, it’s clear that the currency is extremely volatile, and prone to crashes of up to 50% overnight. It’s also clear, however, that most crashes occur as a result of unpredictable events that shake the confidence of the cryptocurrency zeitgeist as a whole.
Whether you hold the perspective that Bitcoin is nothing but a niche, or maintain that cryptocurrency and by extension Bitcoin are now an indelible aspect of the financial fabric of society, it’s definitely worth considering the extremely fast drops in value and equally fast recovery the currency has experienced.