Bitcoin (BTC) traders should keep in mind that the digital currency has a history of significant volatility. More specifically, there have been several instances where the world's largest cryptocurrency by market capitalisation (market cap) experienced very aggressive bull and bear markets where it either gained or lost more than 80% of its value. This rivals many of the worst performers in the New York Stock Exchange's (NYSE) storied history.
In other words, if investors are thinking about getting involved with the digital currency at a time when it has fallen substantially from its latest high, they can benefit from remembering that periods of sharp gains and losses are nothing new for Bitcoin. Without question, Bitcoin's price is subject to change dramatically and rapidly. BTC's inherent volatility is due to many factors, ranging from cryptocurrency exchange breaches to the evolving Bitcoin mining environment.
This piece will review some of these historical market cycles to explore times when the digital currency experienced notable gains and losses.
Bitcoin Market Drivers
Before analysing the price action of any asset, it's useful to examine what drives participation and volatility to the marketplace. Aside from the advanced supply/demand dynamic facing BTC, there are four premier market drivers: rumors, media coverage, mainstream adoption and regulation. Each has been shown capable of influencing the price of Bitcoin significantly.
Historically, rumours have been a key market driver of Bitcoin. Speculation on everything from hard forks and network updates to hacking incidents such as Mt. Gox has periodically swayed the value of Bitcoin. A powerful rumour can send a period's trading volume directionally higher, thus enhancing volatility.
Users share crypto rumours in a variety of fashions, including the underground Silk Road, Reddit, and Twitter. Wherever it stems from, hearsay is a unique virtual currency market driver.
Any media buzz has the potential to shake the price of Bitcoin, altcoins, ICOs, and EFTs. Given the relatively new standing of these assets, coverage from mainstream, online and social media outlets can send BTC prices in different directions.
From a social media standpoint, tweets from Tesla CEO Elon Musk have periodically brought volatility to the market. In early 2021, Musk added a simple "#bitcoin" to his Twitter page, and BTC prices rallied 15% in the minutes after the tweet.
Since the genesis block of the Bitcoin blockchain was completed, mainstream financial adoption has been one of the primary market drivers of BTC. Accordingly, when prominent companies, countries, or financial institutions adopt Bitcoin, values have historically risen.
One example of this phenomenon occurred in June 2021 when El Salvador designated BTC legal tender. Upon the news breaking worldwide, the price of Bitcoin (BTC/USD) rose 6%, to more than US$37,000.
Government regulation is perhaps Bitcoin's single largest market driver. Certain governments, such as China, have outlawed even the smallest Bitcoin transaction; others, such as El Salvador have aligned with the digital currency.
Although the long-term ramifications of these regulatory stances remain to be seen, they do illustrate how fast BTC legalities can change. Regulation is one reason that Nobel Prize winning economist Joseph Stiglitz projects that government will play an instrument role in controlling BTC and crypto:
"You cannot have a means of payment that is based on secrecy when you're trying to create a transparent banking system. If you open up a hole like Bitcoin, then all nefarious activity will go through that hole and no government can allow that."
In the event that governments around the world effectively ban BTC, the impact on prices would likely be enormous. At the time of this writing (July 2022), any such assertions regarding global crypto bans or central bank interventions remain conjecture.
2011 Market History
Upon being introduced by anonymous programmer Satoshi Nakamoto, the first units of BTC were mined on the blockchain in January 2009. Initial valuations were modest as the decentralised Bitcoin network was in its infancy.
A few years later, in 2011, the digital currency experienced a strong rally where its price climbed from US$0.30 to US$35 in a few months, a return of more than 11,000%. These gains were followed by a precipitous drop when the digital currency fell back to US$2.30, a decline of more than 90%.
2013-2015 Price Fluctuations
In 2013, Bitcoin enjoyed two notable price rallies.
- The first brought the digital currency to US$259 on 10 April. In less than one week, the cryptocurrency had plummeted back to US$43, however, losing more than 82% of its value.
- By 30 November, Bitcoin prices had recovered all of these losses and more, rising to a peak of US$1,163.
After climbing to this level, the digital currency suffered a bear market far more drawn-out than the previous ones. It didn't bottom out until it reached a low of US$152 on 14 January 2015. By falling to this level, Bitcoin lost roughly 87% of its value when compared to its then all-time high.
After bottoming out in early 2015, Bitcoin's price enjoyed another notable upward movement, climbing to nearly US$20,000 in December 2017. During this rally, the digital currency appreciated more than 3,000%.
After rising to nearly US$20,000 for the first time, Bitcoin started to drop and would fall to roughly US$3,100 nearly one year later in December 2018. By falling from US$19,783.21 to US$3,122.34, Bitcoin lost more than 84% of its value.
Following the sharp drop it experienced in 2018, Bitcoin started pushing higher, nearly doubling in 2019 and finishing the year at US$7,251.28. The digital currency continued to gain in 2020, finishing the year at US $29,111.52.
The following year had a strong start, as Bitcoin rose from roughly US$29,000 to more than US$58,300 in February. Prices rose to new all-time highs as the financial world began to laud the applications and potential of blockchain technology. Bitcoin price history was rewritten as BTC posted a high of $69,000 in November 2021.
At the time, BTC held its own with the post-COVID rally in the American stock market. However, it did lag behind other crypto market altcoins and fellow blue-chip cryptocurrency Ethereum (ETH). In fact, for the period of 1 January 2021 to 1 December 2021, ETH appreciated more than six-fold, becoming a premier digital asset.
Unfortunately for Bitcoin users and crypto market bulls, 2022 brought a massive depreciation. Fueled by the meltdown of stablecoin Terra (Luna), hawkish policy from the US Federal Reserve, volatile fiat currencies and pending regulation, BTC suffered heavy losses through the first half of 2022.
From 1 January 2022 to 1 July 2022, BTC lost more than 31% of its value against the US dollar (BTC/USD). Prices fell from US$46,230 to US$31,777 in the year's first six months in a severe crypto financial crisis.
During the 2022 crash, the entirety of the cryptocurrency asset class felt the strain. Related coins such as Bitcoin Cash (BCH) showed similar weakness, posting steep 180-day retracements. The downturn prompted numerous Bitcoin exchanges and lenders to file bankruptcy or downsize. Amid the strife, crypto exchange Coinbase chose to reduce operations, laying off 18% of its workforce.
Over the course of BTC's history, it has experienced many ups and downs. The drivers of this volatility vary, but the most consistent factors are rumours, mainstream adoption, regulation and media coverage. One can even make the case that the introduction of Bitcoin futures by the Chicago Mercantile Exchange (CME) has had a profound impact on BTC pricing.
At the end of the day, all we know for certain are the facts. What that means is that if Bitcoin prices rise on a certain day, all we know for sure is just that: the price increased. Analysts regularly offer explanations for why a digital currency either increased or decreased in value, but it is impossible to know what influenced the decisions of all the investors who helped determine the price of a specific asset. Fortunately, looking at an asset's price history provides information that is less open to interpretation.
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