So you finally want to buy some bitcoin, but want to buy it at the right time. Will bitcoin go down? How can you tell?
The truth is that during bitcoin's lifetime, it's gone through many periods of downturns, including steep selloffs, flash crashes, and long-term bear markets. There is a chance that if you buy bitcoin today, it will drop 20% in price by tomorrow. It may drop 80% in purchasing power over the next two years. In the short term, there's a chance that the price of bitcoin will not do what you want it to.
The good news is that long-term, bitcoin has always recovered from any price declines and ended up hitting new all-time highs.
Bitcoin has been in a bull market since 2009Bitcoin Proverb
Bitcoin is not dead. In fact, the opposite is true. Bitcoin is gaining adoption around the world, in a wide variety of capacities, including remittances, gaming, content creation, and of course, wealth storage. If you believe in what Bitcoin the protocol is trying to do, and follow the space to see how fast it's catching on, then it's pretty hard to imagine that the price of bitcoin in 10 years will be lower than what it is today.
How high can it go? Nobody knows.
Regardless, as a new bitcoin owner, or as a bitcoin owner experiencing your first significant drop in price, it can be disheartening to see the purchasing power of this so-called savings technology drop significantly. In this post, I want to talk about some of the most famous price drops in Bitcoin's history and the events surrounding them.
Take note: Each subsequent crash or bear market brought higher lows than the previous one!
Yes, Bitcoin Will Always Go Down (But Then It Will Go Back Up)
The price of bitcoin has dropped many times over the years, in big and small ways. I only got into Bitcoin in 2017, so the crash of 2018 and Crypto Winter was my first blow-off top and bear market. It wasn't fun, but I had some great support in the bitcoin community with awesome podcasts and books to learn the fundamentals while I watched my wealth plummet lol.
The most disappointing thing to me reading about these earlier bubbles is that I wasn't around at that time to experience the sentiment. I can't go back in time, so I can't say for sure whether I would have had strong hands or not. I did think this comment from @Mandrik was interesting though – that he got inspiration from working in the industry, so there was definitely a community with high conviction back then.
All I can say is that I'm grateful that I came in when I did. I didn't get caught up in where bitcoin was. I thought about where bitcoin is going to be in 10 years. It's easy to think back on how rich you'd be if you had just bought a few bitcoin and sat on them for a decade, but could you have really watched the value of your magic internet money plummet by 93% and not blinked?
The cool thing about Bitcoin is that its history lives online. You can read Satoshi's actual words from pre-2011 on BitcoinTalk.org. One day when I have more time I may go through the old forums and see what the chatter was like during that time period. From the limited reading I did do for this blog post, much of the sentiment seems to be similar to today. There was talk of positive news to focus on, and advice to keep building because price isn't everything.
Bubble of 2011
The first major bitcoin bubble was the bitcoin bubble of 2011. The price rose to a peak of $30 and subsequently crashed more than 93% to $2. The catalyst to the crash seems to be centered around Mt. Gox, the main exchange and trading platform at that time. The flurry of activity during the rise to $30 caused Gox to slow down to the point where it took more than an hour to execute a trade. Eventually, the entire site went offline for several hours.
What exactly triggered the crash is unclear, though perhaps it was just a rush of negative market sentiment in a low liquidity environment.
Subsequently, there was an actual hack of the exchange, and a flash crash, when a hacker created a temporary fake price of $0.01 in order to steal 2,000 bitcoin. While the Gox hack of 2011 appears to have happened after the bubble peak, I think everything happening in a short time frame on the biggest bitcoin exchange was enough to tank the entire market.
What's interesting IMO is that there was only one single exchange providing leverage trading at that time. That exchange (Bitcoinica) shut down before the bubble popped, so the aggressive downturn in bitcoin price seems to have been due to market exhaustion, profit-taking, and fear in a low-liquidity environment, rather than cascading liquidations of margin traders like we see today.
A funny personal story – I had looked into bitcoin earlier that year when it was around $10 and considered buying about $6,000 worth. That would have been 600 bitcoin! I ended up not doing it because it seemed complicated and risky. I remember hearing the mainstream media news that bitcoin had crashed to almost nothing, and at that moment, I was glad that I didn't end up investing. Wow, I really dodged that bullet!
Obviously, now it seems like a poor decision. I should have bought and held until 2021, right?
It's just impossible to judge what would have happened. I definitely wasn't orange-pilled at that time, and $6,000 was a lot of money to me. I probably would have sold when it lost 50% of its value to recoup some value, but who knows?
Double Bubble of 2013
Mt. Gox would continue to be a source of bitcoin crashes throughout 2013 and 2014. Who's to say if similar events would have happened in a more robust exchange environment? Regardless, the conditions that lead to these crashes go hand in hand. Bitcoin was still young and unknown. The market was tiny, which mean that there was not a lot of interest in providing exchange platforms. The platforms which did arise were inexperienced bitcoiners and technologists. It was a recipe for disaster.
The first crash in 2013 appears to have been triggered by a run up in price, then increased trading on Gox which triggered technical issues with the exchange similar to 2011. Shortly after, the DHS started an investigation into the company for running an illegal money transmitter business. From peak to trough was $200 to $70.
From what I understand, because the DHS captured Gox's American bank accounts and they couldn't find a replacement, they started using their Japanese banking partners exclusively, which limited the number of payouts they could make in a day. Despite ongoing technical issues and delays in receiving funds, Gox continued to trade and another run-up ensued later that year.
The second bubble pop in 2013 is probably the most famous crash in Bitcoin's history because it coincided with the biggest bitcoin hack ever. More than 840,000 bitcoin was stolen from Mt. Gox, which was handling over 70% of bitcoin transactions at that point. It was a huge event in Bitcoin's history.
Bitcoin's price peaked at $1,200, then crashed to just $200.
The pain didn't stop there. There was the first round of the China FUD cycle, when they banned financial institutions from using bitcoin and Chinese exchanges had their bank accounts closed. Looking back, that seems funny. These days, nobody really cares what China thinks, and since they banned mining in 2021, they seem to be completely out of the picture for now.
There was also a Newsweek article that supposedly found Satoshi Nakamoto, which ended up being fake. At that time, it may have been seen as a risk to find out the true identity of Satoshi.
There were also multiple exchange hacks and DOS attacks.
Was it all over? Was Bitcoin dead?
There were many negative news events during that period, and comparing it to more recent crashes, that seems to be how things go. Negative news brings out more negative news. Despite this, bitcoin's adoption and price slowly recovered, but it didn't set a new ATH until 2017.
2015-2016 Bear Market & The Bottom of 2015
The bottom of 2015 wasn't really a “crash” per se, but it was the result of the 2013 Mt. Gox hack, and I just wanted to highlight this period in time to emphasize what it might be like in your future as a bitcoin holder. There was plenty of negative news to focus on during this time period, and the price remain depressed for about two years. From peak 2013 to peak 2017 was almost exactly four years.
During this time period, Mark Karpalas, the owner of Mt. Gox was arrested. Charlie Shrem, the owner of another popular bitcoin exchange, was sentenced to two years in prison. Both were charged with running an unlicensed money transmitter business. Ross Ulbricht was sentenced to life in prison for his involvement in the Silk Road. Would Bitcoin be declared illegal in the future? Would alphabet agencies just arrest everyone involved, driving Bitcoin underground?
It was also the beginning of the blocksize war, with a faction of bitcoiners trying to fork bitcoin's code and take it in a new direction. When that failed, a prominent bitcoin developer Mike Hearn rage quit, saying that Bitcoin finished and that he sold all his coins [The Resolution of The Bitcoin Experiment]. You might not know who Mike Hearn is right now, but imagine your favorite modern bitcoiner saying that the bitcoin he started working on was dead. Would it shake your confidence?
This is why it's important to know a little about bitcoin before you buy and continue to learn about it as you hold. I was able to hold after the crash of 2017 precisely because I immersed myself in Bitcoin knowledge. Understanding how bitcoin works, why people need it, and where it could be in 10 years is great fuel for stacking sats.
Bubble of 2017 & Crypto Winter
I'm class of 2017, so this is when I discovered bitcoin for the third time. Like Vijay Boyapati says about touchpoints, I had to encounter bitcoin multiple times before things started to click. The bitcoin saying, “I came to get rich, but stayed for the revolution” ended up being true for me. I saw bitcoin as a form of asset diversification – an outside bet that may pay off in the future.
One experience that really made an impression on me was how hesitant I was to buy at $3,000 because it had just been $2,000 a few weeks earlier. I was concerned that bitcoin would go back down and I'd miss out on a discount. What if $3k was the bubble top? It was stressful.
Now that bitcoin is worth around $50,000, it seems silly to have invested so much time and emotion trying to time the market and buy at $2k vs $3k. I use this experience to help me continue stacking sats now, even today at these prices. Why worry about buying at $40k or $50k when in 10 years, it might be worth a million or more?
Anyway, I watched it run up from about $2k to $20k and looking back, it was definitely a euphoric time for me. Again – images of lambos and land were dancing around my head. I can't imagine how people felt after a 2-year bear market and watching it run up from $200 to $20,000. Wow.
It's pretty amazing how fast the price can run up. The time between when bitcoin hit $10k for the first time and the subsequent run up to $20k was just 3 weeks. Those were the nights where I'd up in the middle of the night to check the bitcoin price. Constant adrenaline all the time. How far could we go? $50k? $100k? A million?
Then, for seemingly no reason at all, the price started to fall…and fall…and fall. All the way down to $3,500 per bitcoin. Back where I was in the summer of 2017, hesitating to buy or not to buy. Regret set in. I should have just waited. That bitcoin I bought at $12k, $16k, and $18k seemed so expensive!
Then, a brief respite. We pumped for a while and got back to $12k in the summer of 2019. Ah, the bull market resumes! Nope. Not quite. We were back down to $6k a few months later, and then the March 2020 liquidity crisis hit after COVID lockdowns started to roll out (more on this below).
I hope all of that provides you with some insight into what's in the mind of a person in the midst of a bull run, crash, and the following bear market.
If you're going to buy bitcoin, it's important to prepare yourself mentally for events like this. It's entirely possible that you drop some big money at the top of a bull market and have to wait a few years things to pick back up again.
I followed two bits of simple advice that helped me get through the Crypto Winter of 2018-2020:
- I didn't buy with leverage
- I wasn't over invested
Because of these two things, even though the value of my portfolio dropped, I didn't get liquidated and I was never forced to sell for living expenses. Though it would have been nice to time the market exactly and buy the bottom and sell the top, nobody truly knows where the market is headed at any point in time.
Stay Humble, Stack SatsMatt Odell
During the two-year bear market, I did a lot of learning. I read books. I listened to podcasts. I actually used bitcoin. I built my first node. Then built another one. I created multisig wallets. I erased wallets and used the recovery seed. I bought stuff with bitcoin. I posted questions in forums. At the end of it, when the March 2020 liquidity crisis hit, instead of stressing out, I just heard a little voice in my head scream, “Buy the dip!” (OK, maybe there was a bit of stress, but I did buy the dip)
That ended up being a good decision!
March 2020 Liquidity Crisis
Covid started making its rounds in early 2020, but most of us didn't really think it would be that big of a deal. SARS wasn't a big deal. H1N1 wasn't a big deal. The world would keep going. Apparently, we were wrong.
Lockdowns started to roll out across the US. Hospitals were filling up. The news was 24/7 chaos and markets reacted sharply. On March 12th, the price of bitcoin went down more than 50%, which was the largest single-day drop in price since 2013. Just prior to this event, it appeared that the price was starting to recover and we were entering another bull market. Then the price was cut in half from $10k to $5k in just a few moments.
The interesting thing about this massive drop is that all markets were affected. Stocks dropped by a huge amount as well. The difference between bitcoin and stocks was clear though, in that stock markets are centrally controlled and they can stop massive selloffs with “breakers” to let the broader market gather their wits.
The same is not true of bitcoin. Bitcoin is sold 24/7/365 with no central control over price, so when the market goes down, it can go down as much as it needs to in order to find a bottom. Smart bitcoiners bought the dip. This was clearly a short term event for bitcoin. Nothing about the fundamentals had changed. Traders got spooked, then liquidated. Bitcoiners continued to buy.
By May we were back at $10k. By December we broke above previous all-time highs. Just after the 1-year anniversary of the liquidity crisis, in April 2021, bitcoin was trading above $63,000.
2021 Energy FUD
It's kind of funny to look back at crazy bull markets and remember how irrational you can become. Even as a knowledgeable bitcoiner at this point, when we were trading above $60k, I was starting to dream of seaside mansions in Miami and acreage near Austin.
I stacked a little too hard during this run up (but never overextended myself), and I was confident we'd see $100,000 bitcoin in the next few months. That was in April 2021. Right now, it's September 2021. During that time period we dropped from a high of $63,000 down to $29,000. Bitcoin went down more than 50% – again.
Even experienced, knowledgeable bitcoiners can get caught up in the hype, and that's why we support each other with reminders to stay humble and stack. Don't buy with leverage. Don't use money you'll need for bills. Luckily, I follow these rules, and although it would have been nice to have more dry powder for the dip back to $29K, it's not a big deal. On the road to $10mil, it won't make much of a difference.
In terms of why this drop happened, I think most people would blame Elon Musk for starting energy FUD as triggering the selloff, then of course, leveraged longs getting liquidated did the rest. As with most selloffs, then a barrage of negative news comes to the forefront. Rinse, repeat.
We briefly climbed above $50k a few weeks back, then there was a quick selloff back to $45k as I write this. At the same time, bitcoin has become the official currency of El Salvador and lightning is experiencing exponential growth, so the story of bitcoin remains the same: temporary price dips on the road to bitcoinizing the entire world.
I can't wait to hear about the next bitcoin crash from $200,000 to $100,000, and the next one from $500,000 to $250,000!
2022 Luna Death Spiral And 3AC Contagion
Update coming (at some point)
Bitcoin is new money technology, so there are going to be some ups and downs on the road to global bitcoinization of the economy. The path from $0.01 to $10,000,000 is not going to be a smooth, straight line. If you're going to buy bitcoin, expect to be holding it for a number of years. You should learn about what it does and why it has value so that if the price does go down, you don't panic sell.
Nobody likes to see the value of their money go down in the short term. Even the most experienced bitcoiner can have the wind taken out of their sails during a deep, extended bear market. Yet, they do not sell. They continue to hold. They stack and save. They understand the fundamentals of Bitcoin and believe in its mission. They buy the dip and enjoy the temporary discount on the price of bitcoin.