Bitcoin Crash: We’ve Been Here Before (Twice)

As expected, the media has gone into a frenzy over the recent bitcoin crash. As we plunge below $4,000, the familiar cries of “bitcoin is dead” are ringing again.

True, bitcoin is now down more than 80% from its all-time high in December last year.

But now is a good time to remind everyone that we’ve been here before. Twice, actually. Bitcoin has suffered larger percentage falls than this and survived.

Worried about the crash? Here are 9 strategies for surviving the crypto crash.

Of course, that doesn’t mean history will repeat itself, but it does prove that bitcoin is resilient. Let’s take a quick look back through history.

June 2011 Bitcoin Crash

Top price: $30

Bottom price: $2

Percentage drop: 93%

How long to recover? Two years

bitcoin crash 2011
Bitcoin’s price rise and crash in 2011. Source: 99 Bitcoins

What triggered the price rise?

In June 2011, bitcoin was barely two years old. It began to creep beyond the obscure cryptography forums and into some high-profile tech publications.

New exchanges cropped up, making it easier to purchase bitcoin and the Silk Road dark web marketplace attracted new bitcoin users. 

At the beginning of June 2011, Gawker published its groundbreaking article on Silk Road, drawing enormous attention to bitcoin (arguably for all the wrong reasons). By the end of the month, bitcoin topped out at $30.

And the collapse?

The world’s biggest crypto exchange at the time, Mt. Gox, was hacked, with thieves making off with 2,000 bitcoins. This wasn’t the fatal blow for Mt. Gox (that came later, in 2014). But it was the first in a series of major hacks in the crypto market.

Coupled with the negative publicity around bitcoin and its association with drugs and the Silk Road, a harsh sell-off began.

The bitcoin price fell from $30 in June to $2 in November: a 93% fall in just five months.

It wasn’t until April 2013 (almost two years after the high) that it hit $30 again.

November 2013 Bitcoin Crash

Top price: $1,026

Bottom price: $152 (on Bitstamp exchange)

Percentage fall: 85%

How long to recover? Three years

Bitcoin crash 2014
Bitcoin rise and crash 2013-2014. Source: CoinMarketCap

What triggered the price rise?

In March 2013, the government of Cyprus did something unprecedented. They confiscated the money in people’s bank.

Anyone with more than €100,000 in the bank had a percentage of their funds frozen or turned into shares of the failing bank. It caused outrage. 

To avoid the brutal policy, Cypriots turned to bitcoin.

For the first time, people realized that bitcoin could be a viable alternative to government-controlled fiat currencies. The cryptocurrency began an epic price run.

There was even positive sentiment from governments – the US Senate spoke of the promises of virtual currency and China told its citizens they were free to buy bitcoin.

And the collapse?

Unfortunately, the flurry of excitement about bitcoin overwhelmed the fledgling infrastructure.

The biggest exchanges were slammed with activity and security holes were breached. Mt. Gox was hacked with 744,000 BTC stolen (worth $350 million).

At the same time, China changed its mind on bitcoin, banning financial institutions from trading bitcoin.

The Mt. Gox. scandal and bankruptcy continued through the year. Meanwhile, governments tightened their grip. The bitcoin price bled out for over a year until it finally bottomed at $152 in January 2015 on the Bitstamp exchange.

The bitcoin price didn’t climb back to $1,000 until early 2017, three years after the previous high.

December 2017 Bitcoin Crash

Top price: $19,792

Bottom price: $3,600 (so far)

Percentage drop: 81% (so far)

Time to recover: ?

Bitcoin crash 2018
Bitcoin price rise and crash 2017-2018. Source: CoinMarketCap

What triggered the price rise?

During bitcoin’s three-year “winter,” a whole blockchain industry was being built. Ethereum gained traction as a platform for new crypto projects. Big-name players like IBM began experimenting with blockchain technology. Ripple established itself with some of the biggest banks in the world.

At the same time, ICO-fever gripped the markets – providing a new way to invest in crypto startups.

But the biggest catalyst was the launch of a bitcoin futures market. It offered the first route for institutional investors to trade the bitcoin market. This announcement sent bitcoin flying to $20,000.

And the collapse?

Again, the flurry of activity exposed a lot of problems in the crypto infrastructure. The Bitcoin network couldn’t handle so much activity. Confirmation times took days and it cost up to $50 to make a bitcoin transaction.

The much-hyped bitcoin futures market also allowed people to bet against bitcoin’s price, introducing new short-sellers to the market.

And the ICO hype fizzled out as investors realized many of the projects were useless or outright scams.

What Next?

If history tells us anything, it’s that bitcoin could fall further yet. We’ve seen bigger percentage drops in bitcoin’s short life, and long, dark “winters.”

There is light at the end of the tunnel. Potential catalysts for a price surge include Fidelity’s proposed crypto trading and custody service, the much-hyped Bakkt launch, and the expectation of a bitcoin ETF. 

One thing’s for certain, though, it’s too early to call the “bottom.” A long process of rebuilding lies ahead.

Learned something new in this article? Subscribe to the Block Explorer newsletter.

Ben Brown

Editor, Block Explorer News

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.