BTCs Biggest Ever Price Drops Explained

Whenever bitcoin tends to make it into the mainstream headlines, it is often because of either a stratospheric price rise or a catastrophic price drop. Bitcoin is, by its very nature, an extremely volatile asset. The value of BTC can double overnight or collapse completely in the space of just a few hours. This is, of course, exactly what draws millions of investors and traders to the cryptocurrency in the first place.

However, taking advantage of bitcoin's innate volatility is difficult without understanding the market forces that cause it. Bitcoin has undergone several calamitous price drops over the past few years, some much more severe than others.

While predicting the price fluctuations that bitcoin will undergo is little more than alchemy, looking at the circumstances behind some of its most dramatic price drops will help future investors understand what makes this fascinating asset tick. With that in mind, here is your explainer of some of BTC's biggest ever price drops.

2011: An Unbeaten Crash

Although few bitcoin watchers talk about it today, the worst ever crash the currency has experienced was in June 2011, when BTC saw 94% of its value wiped out in a single day. These were the so-called 'wild west' day of bitcoin when only a small number of questionably brave tech utopians were trading the currency via limited exchanges.

At the beginning of the year, the price of a single bitcoin was 95 cents. However, by mid-June, the price has risen to a then-record $32, following increased attention from Silicon Valley investors and the cult-status surrounding bitcoin founder Satoshi Nakamoto. However, this rally did not last. There was not enough liquidity to sustain this price rise and the few existing exchanges had completely overwritten themselves, forcing many to go bankrupt.

This set off a chain reaction, the result of which was bitcoin's price collapsing almost instantly to just $2. The crash was so swift and brutal that the tech bible Wired even penned a column that described the "end of bitcoin forever". This article has, naturally, not aged well.

2013: The Mt. Gox Fiasco 

There are many factors that affect the price of bitcoin and cause it to fall. As explained in this comprehensive guide to trading bitcoin online, bad press within the bitcoin trading community tends to dampen market sentiment and can rapidly undermine the value of bitcoin. This is exactly what happened in 2013 with the so-called 'Mt. Gox disaster'.

Those veteran traders out there might remember Mt. Gox as the once-feted crypto exchange based in Japan that, until its bankruptcy in 2014, was responsible for 70% of all bitcoin exchanges worldwide. It was during 2013 that Chinese investors and traders began to take bitcoin seriously, helping to push the price of it up to previously unfathomable heights of $1075 by October, a fivefold increase in just five months.

Mt. Gox was responsible for most of this frenzied trading activity, making the entire bitcoin ecosystem intensely vulnerable to the fortunes of one company. Traders began reporting issues with Mt. Gox in the fall of 2013. Coins were going missing and cyberattacks were becoming a daily occurrence.

The true crash was sparked by revelations that around 850,000 bitcoins, worth $450 million at the same, had gone "missing" as a result of theft and mismanagement. After reaching a high of $1079 on December 4, 2013, BTC fell 29% in two days, hitting a low of $760. This scandal also prompted pundits to declare that bitcoin was 'over', but it bounced back yet again.

2017: The Mother of All Bubbles

Finally, there is the infamous crash that occurred in 2017, after BTC reach still-unrivaled heights of $20,089 in the winter of that year. The unbelievable rise of bitcoin throughout that summer can best be described as a classic speculative bubble, one that has frequently been compared to the 'Tulipmania' bubble experienced in the Netherlands in the 17th century.

By the winter of 2018, BTC has crashed to around $3000. This is an example of classic overheating of the market. The hype around bitcoin that pushed it into the five-figure territory was completely unjustified and its collapse is widely considered to have been a necessary market correction. While the collapse was prompted by the bottom falling out of the bubble, it was exacerbated by the market being flooding with crypto alternatives such as Litecoin and ZCash.

The history of bitcoin is one of dramatic peaks and troughs. While there will undoubtedly be more drops in the future, you now know the telltale signs to look out for.

Author Bio:

Having graduated from the University of Hull with a first in English Language, I’ve developed a keen insight into all forms of cryptocurrency, consistently trading, educating and learning more and more about this fascinating phenomenon. Aside from this, I’m extremely keen on 1800s literature and a fine ale or two!