- Bitcoin’s run to $1,000 took in some of the biggest stories in its history
- The seizure of Silk Road and the collapse of MtGox both happened around this time
- We tell the story of Bitcoin’s run to four-figures through its biggest developments
There aren’t that many people still in the cryptocurrency space who were around when Bitcoin first passed the milestone of $1,000, and of those who still are, even fewer would have thought such an achievement was possible when it was languishing at just $2 two years prior. How did this momentous piece of Bitcoin price history happen? Let’s find out.
The Two-dollar Bear Market
It’s November 2011. Barack Obama is approaching his third year in office, the world is getting back on its feet after the financial crisis, and Bitcoin is floundering. Five months earlier it had been riding high at $30, with illicit marketplace Silk Road giving Bitcoin its first use case and propelling it to unthinkable highs. But then the fun stopped.
Between November 2011 and June 2012, Bitcoin lost 82% of its value as exchange after exchange was hacked, losing millions of dollars of user funds in the process. Confidence was lost, leading to many remaining holders selling up and leaving, and the experiment seemed dead and buried. Six months after hitting its all-time high, the value of Bitcoin was languishing at just $2.
This crash led to the first real exposure of Bitcoin in the mainstream media. Many news outlets covered the Bitcoin bubble, and very few were complimentary – even the ones that understood it. The rise of Silk Road was a major talking point, with a leaked FBI report from April 2012 stating that Bitcoin would “become an increasingly useful tool for various illegal activities beyond the cyber realm.”
Stagnation to Recovery
2012 was a year of stagnation for Bitcoin, with many wondering if its best years were already behind it. However, the price slowly rose over the year, regaining double figures by August, helped by an increase in adoption – blogging site WordPress announced that it was accepting bitcoin while French exchange Bitcoin Central gained a banking license, resulting in a slew of positive headlines and a much-needed reputation boost for the cryptocurrency.
By early 2013 there were definite green shoots as payment processor BitPay surpassed 10,000 bitcoin transactions without one incident of fraud, pouring cold water on claims that bitcoin was only used for nefarious means. All this positivity, coupled with the pressure of 18 months’ worth of consolidation, led to the building of a powder keg, a powder keg that exploded at the very start of 2013: Bitcoin ran from $13.30 to $230 within four months without pausing for breath.
The Cyprus Factor
There was an important factor behind Bitcoin’s rise in early 2013, and one that brought its basis as a decentralized currency to the fore. The Mediterranean island of Cyprus was gripped by a financial crisis at the time, which resulted in the government and central bank deciding to tax bank deposits as a way of raising $7.5 billion. The authorities also enforced withdrawal restrictions to avoid potential bank runs, leading to negative headlines across the globe and forcing citizens looking for cash alternatives.
It didn’t take long for Bitcoin to grab their attention, and Cypriots began using it to store their wealth. When a financial rescue package was implemented and the restrictions were lifted, it was expected that things would return to normal. They didn’t, however – Cypriots, no longer trusting their financial overlords, rushed to withdraw their money, and many used it to buy the un-taxable, un-confiscatable bitcoin.
This run to $230 was a stick in the eye for the critics, and highlighted Bitcoin’s elegant design. Finally, there was another way.
Silk Road Arrest is a Springboard
Of course, all good things must come to an end, and Bitcoin’s early rally faded. By July 2013 it was back to $67, leaving many wondering if they were in for another 18-month bear market. If anyone was in any doubt as to the role that Silk Road was playing in Bitcoin’s success at this time, they only needed to look at what happened on October 2, 2013, when its founder, Ross Ulbricht, was arrested in San Francisco; Bitcoin’s price plunged from $125 to $100 within just 90 minutes of the news coming out.
This was followed by days of negative stories worldwide about Bitcoin and its connection with Silk Road. It seemed that a bear market was a certainty, and that Bitcoin price history would forever show that $230 was the top of the bull run.
However, Bitcoin is one for doing the opposite of what anyone expects, and this situation was no different. Buyers gobbled up the 20% discount and Bitcoin was back at its pre-arrest price within a week. Not only that, it did what it had done at the start of the year and simply took off, doubling in price in less than a month, kicking off a second bull run of 2013 that almost no one had predicted.
China Bitten by the Bug
Again, geopolitics played a part in this second bull run. Seemingly from nowhere, the Chinese middle class began throwing their money at Bitcoin, with demand so high that when Bitcoin crossed $500 in November, some Chinese exchanges were pricing it at $1,000. The reason why Chinese investors were rushing to Bitcoin was, again, down to its decentralized nature – it was perfect for getting around China’s tight capital controls, which prevented rich Chinese citizens from moving too much money overseas. Suddenly they could transfer their money internationally out of the gaze of the authorities.
Another reason why Bitcoin’s price was able to take off was because of Mt. Gox, the infamous Tokyo-based exchange which launched in July 2010. MtGox was the template on which all Bitcoin exchanges have since been built, and by November 2013 it had hoovered up users from all other platforms to become the biggest Bitcoin exchange in the world.
This influx of investment into Bitcoin, and the ease with which it could now be traded, had the obvious effect, and the price of Bitcoin jumped 400% in the space of three weeks to November 30, where it crossed $1,000 for the first time. This run turned many early investors into millionaires practically overnight, and dashed fears the Silk Road affair would kill Bitcoin.
Years after MtGox’s collapse it would emerge that the company was operating trading bots that bought bitcoin from its own exchange, helping boost the price significantly on the exchange, and thus across all other exchanges.
A Memorable Time
Bitcoin’s run to $1,000 took in some of the biggest stories in its history, and allowed the world to see for the first time the power of a borderless, decentralized currency. Mainstream media outlets that had predicted Bitcoin’s demise were forced to eat their words, although the other side of this historic run allowed them once more allowed them to stick the knife into Bitcoin: less than a week after the $1,000 milestone was surpassed, China banned any financial and payment institutions from dealing with Bitcoin-handling companies, and a month or so later MtGox went bankrupt, having lost 850,000 bitcoin to hackers.
Those who were around will remember the run to $1,000 with pleasure, particularly as it came on the back of the predictions of Bitcoin’s demise following the collapse of Silk Road, and it remains a pivotal time in the Bitcoin price history.
