The 3 flash crash histories of Bitcoin，will it get up again after it falls?
From a record high to a rapid plunge, the price of bitcoin has been on a “roller coaster”.
After falling below $40,000 in the early hours of Jan. 9, the price of bitcoin plunged more than 12% again in the early hours of Jan. 11 to a low of $33,447, equivalent to a wild drop of nearly $6,000 in one day. Although the bitcoin price then pulled up briefly, it never touched the high again. As of press time at noon on Jan. 11, the bitcoin price was around $35,131.40.
The week before that, bitcoin was on a wild ride, and on Jan. 8, according to Bitstamp, bitcoin broke through the $40,000 barrier, hitting a record high of $41,910, just one step shy of $42,000.
Looking back at the history of over a decade of development, Bitcoin has actually seen frequent price fluctuations, with three periods of bubbles (i.e., prices rising sharply in the short term and then falling sharply).
It took nearly 11 years for that hot cryptocurrency to reach $20,000, but it has soared by $20,000 in just 22 days so far in late 2020, and many analysts and investors are worrying — -Could the Bitcoin flash crash be back?
3 flash crash histories
Bitcoin was born at a time when the world economy was in turmoil.
In 2008, the global financial crisis erupted and risk aversion was high in the market. On November 1 of that year, a man calling himself Satoshi Nakamoto published the Bitcoin white paper “Bitcoin: A Peer-to-Peer Electronic Cash System” on the P2P Foundation website, stating his new vision for a crypto-electronic currency.
On January 3, 2009, Satoshi Nakamoto created the first block — the Genesis Block of Bitcoin — by hand on a small server in Helsinki, Finland, and was rewarded with the first 50 Bitcoins automatically generated by the system, making the first Bitcoin available.
At that time, the price was less than 1 cent, and 1 dollar could be exchanged for 1,300 Bitcoins, and it has only gone up a few cents in the year since then.
Bitcoin was first reported by the news site Slashdot in July 2010. This article first mentioned the Bitcoin project, which led to a large number of tech enthusiasts taking an interest in this new concept.
On February 10, 2011, the intense investor interest pushed the price of Bitcoin to $1, which became known as “Dollar Parity Day”.
This pattern of price advancement is perpetuated: advances in digital currency technology and its infrastructure drive prices up, and when the price is pushed up, it fuels the next bubble.
The first truly crazy bitcoin bubble began on June 1, 2011. That’s when news site Gawker published an article, “The Darkweb Market Silk Road,” about how bitcoin could be used to buy illegal drugs on the dark web. Combined with the fact that several bitcoin exchanges had opened, the barrier to buying bitcoin was greatly reduced. In just one week, Bitcoin rose from $10 to nearly $30, but the price of Bitcoin plummeted in the following months, reaching as low as $2.14.
A few years later, Bitcoin surged to another critical threshold, surpassing $1,000 in late November 2013 and peaking at $1,127.45. The good times didn’t last long, however, and by mid-December, Bitcoin’s price had plummeted by nearly 50%. The most striking feature of this bubble was the more moderate but long-lasting decline: over the next year, the bitcoin price dropped to $172.15 and maintained this stalemate for several years.
In February 2017, Bitcoin saw its wildest and most brutal bubble period, which was even dubbed “the widowmaker”.
It wasn’t Bitcoin that started this madness, but other emerging cryptocurrencies. Back then, the ICO policy allowed cryptocurrency founders to sell their new products directly to the market for the first time, directly triggering an unprecedented speculative frenzy.
The market’s various speculative mindsets fueled each other and the “FOMO” (“fear of missing out”) mentality was rampant, and Bitcoin’s big rally emerged clearly benefiting from this frenzy. However, as more other cryptocurrencies emerged, Bitcoin’s dominance disappeared and its market share in the cryptocurrency space plummeted.
On December 7, 2017, the price of Bitcoin reached a then-record high of $20,052, yet after that day, its market share fell below 50% for the first time since September.
Bitcoin’s market share fell to 48.26% on December 19, 2017, and continued to decline until mid-January of the following year, finally reaching an all-time low of just 32.45% on January 13, 2018.
Bitcoin’s price was also plummeting. on December 15, 2018, Bitcoin’s unit price was just $3,194, the lowest in a year, with an overall market cap of $566 billion, evaporating $269.9 billion from its 2017 market cap high of $326.5 billion.
Of course, the plunge in other cryptocurrencies has been even more devastating. Masayoshi Son, the Japanese tech giant and founder of SoftBank, reportedly lost $130 million in this 2017 cryptocurrency bubble.
Since then, ICOs have been outlawed by the U.S. Securities and Exchange Commission (SEC) as illegal securities offerings.
Is it good or bad?
Why is Bitcoin “boiling” again after a period of silence? From an external perspective, this wave of Bitcoin’s surge is mainly related to global risk aversion; and from an internal development perspective, it is different from previous bubble periods.
The global economy has been hit hard by the COVID-19 since 2020, with many countries adopting extraordinary monetary easing policies to rescue their economies and global inflationary expectations increasing. In the economic environment of high inflation, low growth and negative interest rates, investors and institutions have greatly increased their demand for safe-haven assets. Bitcoin, which is based on blockchain technology, has the characteristics of decentralization, limited total amount and traceability, and is considered to be effective in avoiding inflation and is favored.
The “cryptocurrency veterans” who have experienced the ups and downs of bitcoin generally say that the current bitcoin surge is different from previous bubbles. The ICO ban has effectively circumvented the scams associated with bitcoin; the inflation hedge caused by covid-19 has enhanced bitcoin’s safe-haven properties, and the presence of regulators and publicly traded companies has made the cryptocurrency market safer as times progress.
In 2020, black swan events occur frequently, epidemics intensify, economies are hit hard, and trust in the U.S. dollar decreases, the world enters an era of zero or even negative interest rates. Industry analysts believe that the scarcity of bitcoin is particularly prominent in this drastically changed environment.
Bitcoin started 2021 on a high note, and its anti-inflation and store-of-value features have been further affirmed by the market. Proponents believe that the upward logic in 2020 still holds true and that the aftermarket is still promising.
In a recent J.P. Morgan research note, analysts believe that Bitcoin could reach $146,000 in the long run, but to reach that price, Bitcoin’s volatility would have to be greatly reduced.
Bearish people, on the other hand, insist that Bitcoin is a bubble, with Rosenberg Research economist and strategist David Rosenberg saying that Bitcoin’s parabolic move in such a short period of time is highly unusual.
Of course, while the Bitcoin bubble does exist, there is a growing recognition that its investment still pays off in the long run. Optimists see Bitcoin’s history of volatility as nothing more than a history of looking intermittent, but actually catching up steadily. Overall, the speculative nature of bitcoin makes it inevitably risky, and its future will have to be tested.
Article from Hou Mingyu
Translated by Yang(Mengyan Finance)