In part three of our four-part series on the creation and history of Bitcoin we look at the fallout from the Mt. Gox crash and Bitcoin’s unlikely recovery to massive new highs.
The Spectre of Mt. Gox Looms Large
By fall 2015, many thought Bitcoin had finally had its day. The fallout from the Mt. Gox crash hung over the space like a nuclear cloud, and no one was quite sure when it would be safe to return. As a result, the price had been falling for more than a year, from $1,100 in December 2013 to under $200 in January 2015. Bitcoin had fallen off the radar of many an investor and the world’s media alike.
Behind the scenes however, the cryptocurrency industry as a whole was making great strides. Projects like Monero, Dash, Ripple, and Litecoin were establishing themselves in the cryptocurrency space, and a number of varying projects were beginning to harness the potential of blockchain technology. The total market cap was hovering around $4 billion spread across over 550 projects, a number that was growing every day.
A New Hope
The end of 2015 at last saw some positive momentum for Bitcoin, buoyed by the development of the market as a whole. It trickled its way from $210 on August 24 to $455 in January 2016, with the overall market cap almost doubling to $7.5 billion. New investors began to find their way into the sector, bringing with them a fresh optimism and a view to the future rather than the recent past, helping Bitcoin retain its price around the $400 mark. The growth of new blockchain projects was also adding a much-needed legitimacy to the space and was helping to build a solid new foundation for the cryptocurrency market.
Back to $1,000
The second half of 2016 saw the Bitcoin price gain more momentum, boosted by the four-yearly ‘halving,’ which cut the block rewards for miners in half and helped Bitcoin reach around $770 towards the end of June. Even a hack on the exchange Bitfinex, which resulted in the theft of almost 120,000 Bitcoin, only had a minor and temporary negative effect on the price.
Bitcoin, helped by its new breed of investors, was becoming more resilient. A rally towards the end of 2016 took Bitcoin over $1,000 again for the first time in three years, and it seemed the memories of Mt. Gox and the 2013 China ban had been expunged.
The cryptosphere was vibrant, the market cap was approaching $15 billion, and there were now blockchain-based startups catering for almost every industry on the planet. Bitcoin’s 2016 annual return of 120% knocked the S&P (9%), the NASDAQ (7%), gold (6%), and even oil (50%) out of the park.
Bitcoin Back in the Ring
Bitcoin was beginning to resemble a financial version of Rocky; battered and bruised, it had spent time nursing its wounds and getting itself ready for another heavyweight battle. As spring 2017 came around, Bitcoin was back – the price was punching post-$1,000 with confidence, merchant adoption continued to climb, countries such as Japan and Russia legalized it as a means of payment, and the number of hedge funds and big-money investors was growing.
The 2017 Bull Run
Suddenly, during summer 2017, the powder keg exploded. Bitcoin’s price trebled to $3,000 between April and June, before pushing up to $5k in early September. Bitcoin was in the news again, and this time, with easier access for than ever before, millions of everyday people were able to invest – and they did. The price kept climbing through fall and into the winter, until a long-running ideological battle between Bitcoin developers ended when Bitcoin completed a ‘hard-fork’, causing the price to drop 21%.
From then on however, Bitcoin was like a mountain climber, racing higher and higher with little regard for reason or common sense. This momentum was fueled by rumors that the Chicago Board Options Exchange (CBOE) and the Chicago Mercantile Exchange (CME) were going to launch Bitcoin futures trading on their world-renowned platforms. Bitcoin passed $10,000 in early December, ten days before the CBOE launched their futures trading, which helped the price double again and tip an astonishing $19,340 on December 16.
This meteoric rise represented a staggering 1,830% rise from the turn of the year and left even seasoned investors baffled. The media were going crazy, with some news outlets even telling viewers how to buy specific coins, and regular working people suddenly had portfolios worth more than their houses. More millionaires were created, and it seemed as if the party was never going to stop.
What Goes up Must Come Down
It may have been pure coincidence, but Bitcoin’s record high coincided with the CME launching its futures trading platform, practically to the day. Many investors had been clamoring for the ‘big money’ to get involved in Bitcoin, thinking it would propel the market to higher levels still. The introduction of Bitcoin futures represented the first official recognition of Wall Street’s entry into cryptocurrency, and the market reacted as it had when China had banned the cryptocurrency back in 2013 – the price dropped off a cliff.
Fundamentally, Bitcoin was stronger than ever before, but whether because of market cycles or other forces at work, Bitcoin’s value caved, crashing first from $19,340 to $11,858 in five days. What followed was a slow progression downwards through the spring, carrying with it the realization that the party was over and there were going to be some sore heads and empty wallets in the morning.
Many who had seen their portfolios rise exponentially over the winter, now saw such slowly eroding day by day, although some held on in case the price rebounded. By the summer however, with prices fluctuating around the $7,000 mark, it was clear that exuberance had got the better of most investors and their gains were gone.
Some had unwisely taken out loans or second mortgages in order to pay for cryptocurrencies that were now worth a fraction of what they bought them for, yet the loan repayments were very real. As summer turned to fall, the price remained stagnant, eliciting comparisons with the 2014/15 bear market, before a 50% crash in late 2018 wiped out out many remaining holders. Once again Bitcoin was labelled a Ponzi scheme or simply an outright scam, with the usual predictions that it was destined for zero.
The End for Bitcoin?
The final part in our series looks at how Bitcoin fared after the 2017 bull run, including China, El Salvador, Elon Musk, and the threat of regulations. Coming soon…
