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2021-01-07 18:59:36
Jacob Fisher

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2021-01-07 18:59:36

Is Bitcoin a bubble? How the biggest bubbles crashed

As you know already the 2020 and 2021 are breakout years for Bitcoin. In 2020 there was wave of interest from institutions and mainstream investors which pushed the digital currency price from $7100 to $28900 on 31 of December with up to $39000 in early days of January 2021. The innovative cryptocurrency, which is maintained by a decentralized swarm of crypto miners, has a long volatility history. Most financial experts expect some big retrenchment of that rally in some point.

As you know already the 2020 and 2021 are breakout years for Bitcoin. In 2020 there was wave of interest from institutions and mainstream investors which pushed the digital currency price from $7100 to $28900 on 31 of December with up to $39000 in early days of January 2021. The innovative cryptocurrency, which is maintained by a decentralized swarm of crypto miners, has a long volatility history. Most financial experts expect some big retrenchment of that rally in some point.

For insight into why a slump is highly possible, it's worth looking on Bitcoin's many Pump and Dump periods. When the price of Bitcoin increased dramatically in a short timeframe, then fells, even more sharply.

Bubbles, of course, has negative connotations, implying the crowds madness and popular delusions. But there's a growing understanding that the bubbles in the financial sector can also be generated by overoptimism. A great example of this is the 1999 Dot-com and british railway Mania bubble.

Let's have a trip within the Bitcoin's bubble history.

Dollar Parity Day / The Great Slashdotting in Feb 2011

The Peak: $1.06 ( 14.Feb.2011)

The Bottom: $0.67 (5 April, 2011)

The Bitcoin market peaked in February 2011 was the first Bitcoin bubble, and tremendously significant for its evolution. It began on July 2010, when Bitcoin - with pennies price tag per coin - was first mentioned on Slashdot, Slashdot is news aggregator which is popular with diehard techies.

The Bump on Silk Road June 2011

The Peak: $29.58 (9 of June, 2011)

The bottom: $2.14 (19 of November 2011)

The first biggest Bubble in the Bitcoin history began with an article about the darkweb market Silk Road. The article was describing how illegal illegal drugs could be purchased in the dark web with cryptocurrencies. (At that time beliefs that Bitcoin is untraceable turned out to be complete wrong). In the same period , multiple crypto exchanges opened, which made the investment in bitcoin easier. The combination of the article about the privacy power of bitcoin plus the exchanges pushed Bitcoin from $10 to $29.58 in just a week.

A Thousandaire November 2013

The Peak : $1125.45 ( 29 November 2013)

The Bottom: $172.15 ( 13 January 2015)

Within 3 years bitcoin make its path to $1000 in late November of 2013. Of course it didn't last long, as the price crashed almost 50% by the mid of December same year.

The digital currency price declined gently in a year to a new bottom. The Bitcoin price didn't break the $1000 barrier for over 3 years period.

The Widowmaker December 2017

The peak: $19665 (15. December 2017)

The Bottom: $3.164 ( 15. December 2018)

The most brutal and bloody of all Bitcoin Bubbles so far, except it wasn't a real bubble. Instead, the bull run was largely fueled by a wave of new bitcoin clones (altcoins) that made big promises.

And most importantly, a novel process known as ICO (Initial Coin Offering) allowed startups to sell their new offerings directly to individuals. Which of course created more than one speculative mania, which fed off each other. The No1 cryptocurrency benefited from the frenzy, but fell off a cliff once the interest in these cryptocurrency alternatives surged.

The result? All ended in tears! Week after the peak, BTC dropped more than 27%. Other alt coins plummeted further more. Most of the ICOs turned out to be scams/frauds which of course leaded to aggressively pursuing from SEC ( U.S. Securities and Exchanges Commission) as illegal securities offerings.

Just one example of the fraud ICOs and how bloody things was is the Japanese tech mogul Masayoshi Son, of SoftBank fame, is reported to have lost over $133 millions in the 2017 cryptocurrency bubble, that was his personal money and not Bank's money!

But this time, it's different?!

The Bitcoin's wild roller coaster ride veterans have argued that the current bull run is different. (Of course, we've heard this before). They argue that the absence of ICO's has forestalled the worst excesses of fraudsters and their greedy marks, the U.S. COVID stimulus can be read as validation of the inflation-hedge thesis that is crucial to BTC's appeal as an investment and publicly-traded corporations throughout the cryptocurrency market has created an entirely new sense of normality.

It can't be repeated enough, but Bticoin is still a speculative and risky asset.

If history is any teacher (and often is) there will be more than a few more pullbacks on BTC journey to the moon.