How Can Bitcoin Crash: Explained
How can Bitcoin crash? Many different factors go into the success of the Bitcoin market, meaning there are a plethora of various factors that can make Bitcoin crash. The Bitcoin market is very volatile, which is one reason why its price rises and falls seemingly at random.
This blog post will explain some of Bitcoin’s historic crashes and why they happened; keep reading to learn more.
Bitcoin Crash History
Bitcoin has a history of crashing but picking itself back up and continuing. Bitcoin crashed in 2011, 2012, 2013, 2018, and 2020. There are daily, weekly and monthly fluctuations, but these years contained some of the more monumental crashes. Even though it is not uncommon to have massive price correcting crashes, people can see that the long-term trend is upward.
June 2011
In 2011, Bitcoin went from being worth $29 to $2. Bitcoin wasn’t as popular as it is now, so the crash didn’t happen because of Bitcoin users. The 2011 crash happened because someone hacked Mt. Gox, a leading crypto exchange during this time. The hacker accessed Mt. Gox’s user accounts and made it appear that the price of Bitcoin was $0.01. This hack occurred over a period of time, from June to November, and the total drop was 93%. Though this Bitcoin crash was manufactured, it fostered a lot of distrust in the cryptocurrency.
August 2012
August of 2012, Bitcoin was slowly recovering from the “drop” of 2011 but crashed in mid-August. Trendon Shavers was running a Ponzi scheme during this time and ended up going to jail for his crimes. Shavers sold shares of Bitcoin through a company called Bitcoin Savings and Trust. Shavers’ raised over 700,000 Bitcoin, which amounted to $4.5 million, which would be around $39 million today. Bitcoin was worth $15.25 at this time, and it fell to $10 in just mere minutes.
March and April 2013
In early March of 2013, Bitcoin dropped 33% in a few minutes, then rallied after a few hours to the previous price. A few days later, the same thing happened, it dropped 27%, then rallied again. April 2013 was not as lucky. On April 10, 2013, Bitcoin fell 52% in 6 hours, and it took many months for it to recover. Mt. Gox was still handling most Bitcoin exchanges, and their lack of control over the situation caused Bitcoin investors to become concerned.
December 2017 and March 2020
2017 was a big year for Bitcoin. The year started with Bitcoin being worth just $700, and by the end of the year, it was worth $20,000. Sadly, the price of Bitcoin began to decline in December of 2017 and would continue to decline throughout 2018. The 2017-18 Bitcoin crash is regarded as one of the biggest crypto crashes to date. This crash was because many Asian owners of Bitcoin were selling off their shares. There was a fear of regulation in Asian countries, so many people pulled, causing the dramatic drop.
Now known as Black Thursday in the cryptocurrency world, the March 12, 2020 crash of Bitcoin is the latest Bitcoin crash. Bitcoin crashed 50% in March of 2020, and it was primarily because many people were liquidating their coins. Due to the state of the world during that time, many people pulled out of the market. The significant number of investors unwinding their positions lead saw prices drop to $4,000. However, the next 12 months would see Bitcoin rise rapidly in value to nearly $62,000.
Why Does Bitcoin Crash?
There are many different reasons that Bitcoin crashes but a lot of them center around human interest. As 2021 has shown, when high-profile people take an interest in Bitcoin, others do as well. Here are some of the reasons there can be a bitcoin crash.
Fear of regulation
Mass liquidation
A Bitcoin Bubble
Fear of Regulation
As we saw with the 2017 crash, fear of regulation can be incredibly damaging to the Bitcoin market. Every year there is always a fear that the government will step in and attempt to regulate Bitcoin. Bitcoin can currently run without government interference which is what prompts many to start investing. Many people don’t want Bitcoin to begin being regulated because it will become like a regular currency, and it will lose its unique qualities. Bitcoin can be used worldwide without conversions, unlike other currencies, and regulation could end this.
Mass Liquidation
Mass liquidation can occur when traders borrow a large amount of capital to trade with “leveraged” positions. This positioning gives traders more capital, but it can drop the price of Bitcoin. When Bitcoin’s price drops, it can lead to compounding effects and cause more people to cash out their coins, which is why Bitcoin is so volatile. One person’s action can create a significant change in the Bitcoin market. With the price of Bitcoin rising like it currently is, some people expect that there will be a liquidation frenzy.
Bitcoin Bubble
It can be said that any money that isn’t backed by gold or silver is a bubble. A bubble is an economic cycle characterized by the rapid escalation of market value. Fast inflation often leads to a decrease in value which is when the “bubble bursts.” Bitcoin has increased quickly this year, and many believe it’s a bubble that will soon burst. This belief may cause people to cash out their coins which would essentially become a self-fulfilling prophecy. It’s incredibly tough to determine if Bitcoin is or is not in a bubble; some experts predict that it will break even more records as the year goes on.
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Though Bitcoin can crash, so can the stock market. Long-term holdings are insulated from the daily undulations of the market. Don’t let the fear of a Bitcoin crash stop you from investing in cryptocurrency. Pelicoin is a great way to start investing in Bitcoin with minimal effort.
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