Market Byte:
10 Times Bitcoin Bounced Back

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Intro

As we near the end of what has been an undeniably tumultuous – some might say apocalyptic – year in crypto, we look back at the various challenges our nascent industry has faced in its 13-year history. Time after time, events like these have caused doomsayers to call into question the viability of crypto, and to pronounce its death. But, of course, we’ve seen this all before. Crypto has shown incredible resilience, surviving through some of the harshest conditions.

Let’s look at a brief history of some of Bitcoin’s scariest moments. The chart below shows some of the largest crypto-centric drawdowns in the history of Bitcoin – with some of the largest drawdowns barely making a dent in the long-term returns of the decade’s best performing asset.1

Significant Historical Bitcoin Drawdowns

Source: Grayscale Research, Coin Metrics

Past performance is not indicative of future results

June 2011 | Bitcoin Crashes 99% in Only a Few Days

Bitcoin crashes 99%2 from a high of $32 to $0.01 on Mt. Gox—the world’s largest crypto exchange at the time—over the course of a few days after an admin account for the exchange was hacked. During 2011, Bitcoin was primarily used for Silk Road transactions, WikiLeaks donations, and speculation. With the majority of existing Bitcoin traders being harmed by the crash, Bitcoin’s future felt uncertain.

August 2012 | Ponzi Scheme Results in 700,000 BTC ($4.5m) Stolen

Bitcoin falls 41%3 after the Bitcoin Savings and Trust, operated by Trendon Shavers, stops withdrawals. Shavers offers investors a 7% weekly return on their Bitcoin, taking advantage of the lack of education around this nascent asset class. The Bitcoin Savings and Trust raised 760,000 BTC, worth $4.5m at the time (representing about 7.3% of total circulating supply).4

April 2013 | Government Distrust Sends People to Bitcoin, Breaking Mt Gox

On the tiny island of Cyprus, people flocked to Bitcoin in response to a government bailout that utilized money directly from citizens’ bank accounts. Despite barely being four years old, Bitcoin’s value as a self-sovereign store of value was already being proven. Exploding trade volume led Mt Gox to suffer server failures, shaking users’ trust and causing bitcoin to fall nearly 60%5. Read more – When Governments Take Your Money, Bitcoin Looks Really Good

December 2013 | China Bans Bitcoin

Bitcoin falls 80%6 in 24 hours after the Chinese government issues a ban on financial institutions using Bitcoin as a form of payment. This included banks, payment processors, and other financial institutions. China was home to many crypto enthusiasts at the time, with companies like Baidu and Alibaba experimenting with and accepting the digital currency for services.

February 2014 | Mt Gox Hack

Bitcoin falls 58%7 following Mt Gox filing for bankruptcy after the exchange loses 850,000 Bitcoins—worth around $450 million at the time—as a result of a major hack. The exact details of the hack remain unclear, but it is believed to have been carried out by a group of hackers who exploited a security vulnerability in the platform’s code. The incident is one of the most significant hacks in the history of Bitcoin. Since Mt Gox handled 70% to 80% of total Bitcoin transactions at its peak8, the hack posed a significant hit to investor confidence in Bitcoin and the broader cryptocurrency market.

June 2015 | The DAO Hack

Bitcoin falls 31%9 after The DAO (Decentralized Autonomous Organization) is hacked, sparking a broad market sell-off as hackers stole 3.6 million ETH. The hack also created a philosophical rift in the Ethereum community about whether or not to undo the attack, which was in violation of the protocol’s rules. A small faction who disagreed decided to continue with the hacked version of the chain to hold true to the principle of immutability, which is known today as Ethereum Classic.

August 2016 | Bitfinex Hack

Bitcoin falls 30%10 over four days after Bitfinex announces a security breach resulting in the loss of more than 115,000 bitcoin—worth approximately $66 million at the time. Eight years later, victims of the hack are still looking to be made whole.

December 2017 | Crackdown on Initial Coin Offerings (ICOs)

Bitcoin falls 84%11 in the year following its then-high of $19.6k as investors no longer believe in the promises made by teams raising through ICOs. The unregulated and popular fundraising method resulted in many investors getting ‘rugged’ and losing their investment. Prices, volume, and on-chain activity remained depressed until late 2020, when activity began to pick up again during the COVID-19 pandemic.

May 2022 | UST, Celsius, and 3AC

Bitcoin falls 48%12 as UST loses its peg and ultimately unwinds to zero. The contagion spreads, causing firms like 3AC, Voyager, BlockFi, and Celsius to file for bankruptcy. Customers, users and investors of these firms and platforms lose significant amounts of money due to poor risk management and transparency from these ‘trusted’ counterparties.13

November 2022 | FTX & Alameda Research

Bitcoin falls more than 25%14 in five days as the third-largest international crypto exchange files for bankruptcy. The failure of FTX and Alameda Research could be one of the biggest losses of value in history, resulting in billions of customer funds lost. Much of the fallout may yet remain to be seen, but the bankruptcy and uncertainty around FTX has led some investors to question their trust in other crypto institutions.

The Potential of Crypto

While the crypto industry has faced significant setbacks and challenges like those mentioned above, it is critical to highlight that these have not been failures of underlying cryptocurrency technology. Instead, the failures have been in the coordination and implementation of this technology by humans and commercial enterprises, rather than of the immutable code. To that end, does a bank robbery mean the US Dollar is fundamentally flawed? No. It instead reveals poor security measures implemented on the part of the bank and the assets of its customers they intend to protect.

It’s inevitable that the development of new technologies for mass adoption will have growing pains. In 1983, 10% of adults had a home computer and less than 1.5% of them used the internet.15 Lack of deep understanding of this new technology made the internet ripe for those with malicious intentions. Similarly, crypto is an iteration on the digital world we live in, providing people with access to digital assets and services unrestricted by a central authority.

Revisiting Cyprus in 2013, we are reminded of the core purpose and potential of cryptocurrency. After all, when the Cypriot government stole deposits from citizens, they rushed to convert their money into Bitcoin – as a safe haven from the authority of centralized government. Since then, our industry has continued to grow and evolve, remaining a significant force in the global economy. User engagement and trading volumes remain strong despite a down market, and we believe it will continue to maintain its strength. While today cryptocurrency is often associated with volatile prices and sensational headlines, the underlying technology has the potential to transform fields such as finance, technology, gaming, real estate, entertainment, and governance. Like any transformational journey, this one will inevitably be turbulent but Bitcoin and decentralized networks are resilient and capable of surviving in the harshest conditions.

1. As of 2011 to 2021

2. BitMEX Research – https://blog.bitmex.com/the-june-2011-bitcoin-flash-crash/

3. Coin Metrics

4. As of August 2012

5. Coin Metrics

6. Coin Metrics

7. Coin Metrics

8. https://www.investopedia.com/terms/m/mt-gox.asp

9. Coin Metrics

10. TradingView

11. Coin Metrics

12. Coin Metrics

13. https://www.makeuseof.com/celsius-crypto-collapse-how-much-did-users-lose/

14. Coin Metrics

15. https://www.pewresearch.org/internet/2014/02/27/part-1-how-the-internet-has-woven-itself-into-american-life/

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