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27 Mar 2020
4 min read

Bitcoin and Crises: A Walk Through Past Bubbles

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Written by OspreyFX News Team

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Bitcoin and Crises: A Walk Through Past Bubbles

  • The cryptocurrency’s highs and lows
  • Insights from past bubbles

Crypto is still very much the new kid on the [currency] block and Bitcoin is undoubtedly the leader of the pack. The COVID-19 pandemic is wreaking havoc across all markets and it is a scenario unlike any other before it. However, despite Bitcoin’s young age and the uniqueness of the current situation, it is still possible to observe how it reacts in times of crisis

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Defining the Bubble

So, what constitutes a bubble?

In simple terms, a bubble is a situation where the price of a particular asset increases rapidly but then crashes drastically. Investors see the asset as a very attractive and so start buying more of it. This leads to an increase in prices until investors lose interest in the asset’s worth, it’s price crashes, and the bubble deflates.

Bubbles are part of all markets and the crypto market is no exception.

Notorious Bitcoin Bubbles

Price fluctuations are the name of the game when it comes to markets, however, dramatic crashes are unique. There have been three notable Bitcoin bubbles:

2011: Bitcoin experienced its first crash a year after it was created. This crash happened due to the very low level of crypto usage by people in their day-to-day lives. Following a rapid increase, the currency crashed dramatically and its price fell by a staggering 93%.

2013: Year characterized by sharp drops and equally sharp increases. The impressive price of $263 in April was followed by an equally impressive drop of 52% in a matter of hours. Some commentators linked this crash to the banking crisis in Cyprus while others linked it to the fact that the coin was now much more widely used.

2018: 2017 was by all accounts, a very successful year for Bitcoin with many claiming that the currency would become ‘digital gold’. However, this wave of optimism got stumped by The Great Crypto Crash. The price of Bitcoin went from $19,891 in 2017 to below $4,000 by November 2018.

Multiple theories could be the reason behind this crash. The massive sell-offs that took place at the time and the fact that many investors were young adults that needed cash before college. Also, many were afraid of incurring very substantial capital gains tax bills.

The Coronavirus Crisis and Bitcoin

The Coronavirus crisis caused the crypto coin to slump amid fears among investors. Recent market patterns have been more positive with experts talking about Bitcoin’s consolidated safe-haven status. (Check out our thoughts on the topic here).

It may be too early to say whether the current situation will be similar to previous bubbles or not. Nonetheless, it will be interesting to see how the leading cryptocurrency’s price changes during this unprecedented global crisis.