Published: January 26th, 2022
Crypto markets are highly volatile, and news of new 'crashes' frequently appears in the traditional financial press. Yet a savvy crypto trader probably wouldn't call a 10 per cent Wednesday dip in Bitcoin's price a crash. History shows that it will likely bounce back before the week is out.
But the slump currently sucking the life out of crypto markets is of a different magnitude. Bitcoin has dropped by more than 16 per cent in one week, while number two coin Ethereum is reeling from a 22 per cent loss. In the altcoin space, high-flying Solana is down more than 30 per cent.
The bottom started falling out of the market between January 20th and 22nd, when BTC plummeted from USD 43,200 to around USD 34,500. If a market experiences a 20 per cent drop in less than 48 hours, that’s a crash.
So how does this latest crypto crash stack up against the others that have occurred over the last decade? Let's take a closer look.
Crypto’s first great crash was also its worst. In the days before Coinbase and Binance were around to facilitate buys and sells, or without reputable analytics firms to track Bitcoin's price, BTC was mainly traded on now-defunct Japanese Bitcoin exchange Mt. Gox.
After rocketing up from two dollars to USD 31 between January and June of 2011, Bitcoin fell back to USD 17.50 after suddenly dropping to just one cent. That's a 99.9 per cent crash in a single day.
A hacker was to blame, making the carnage a flash crash that didn't last long.
In early December 2013, the price of BTC reached an all-time high of USD 1,150 after trading slightly above USD 200 just a month before. By the middle of the month, the price had crashed by more than 50 per cent.
Beijing’s first country-wide cryptocurrency ban was to blame. Chinese banks were forbidden from touching Bitcoin, and it spent much of the next 12 months staging rallies before falling back dramatically. By January 2015, BTC had fallen all the way back to USD 200. It wouldn't be until January 2017 that it re-established its previous all-time record.
When veteran crypto traders talk about the bear markets of yore, they're often reminiscing about the dismal Crypto Winter of 2017/18. It began in December of 2017 after an 11-month run that saw Bitcoin experience a 20-fold rise in price. BTC reached an all-time high of USD 19,488 on 15th December 2017. Six days later, it sank to USD 13,829, nearly a 30 per cent drop.
But the worst was still to come. By early February 2018, BTC fell below USD 7,000 and floated aimlessly in a band between USD 6,000 and USD 10,000 for the next nine months. In the Autumn of 2018, it looked like Bitcoin's price had stabilised. But a month later, in December 2018, it was trading at less than USD 3,300...
Along with its long duration, the extended BTC bear market also pulled Ethereum down. Negative crypto sentiment and a slew of initial coin offerings on the Ethereum network that landed with a thud made it appear that the crypto bubble had finally burst.
The arrival of coronavirus and the upheaval it’s caused has roiled every financial market. Stock markets crashed when investors began hoarding cash and other liquid assets. Bitcoin traders also felt the pain when BTC's price plunged 36 per cent in a single day, from USD 7,909 to USD 4,968.
The arrival of stimulus from the Federal Reserve kept the world economy in motion, and it wasn't long before the money started flowing into crypto markets again. The influx of liquidity plus major corporate buys from Tesla and MicroStrategy played a huge part in sending BTC's above USD 60,000 the following year.
As bad as they were, neither COVID nor the Crypto Winter could kill enthusiasm for digital assets. Businesses and traders just kept buying. By the Spring of 2021, crypto saw the rise of new Ethereum-based altcoins like Solana, decentralised finance (DeFi) tokens like Compound, and arguably questionable coins like Shiba Inu. It all combined to push the price of Bitcoin even higher, reaching a record peak of USD 63,309 in April 2021.
BTC was still buoyant in early May though somewhat diminished at USD 58,800. By 22nd May, a deflated BTC staggered along at under USD 34,800 in a period when the total crypto market cap lost more than a third of its value, plunging from USD 2.38 trillion to USD 1.57 trillion.
On Friday 22nd January, global crypto markets fell 8.4 per cent overnight, taking the total market capitalisation of cryptocurrencies around the world to below USD 1.64 trillion from USD 2 trillion the day before.
Last week’s wipeout is indicative of the general direction this week (wc 24th January). Almost all of the top cryptocurrencies have been in freefall. The broader entire crypto market made a terrible start to the new year, and then things deteriorated further.
Bitcoin fell 16.4 per cent over the last seven days to dip below USD 34,439. The last time BTC was around the USD 35k level happened in late July last year.
Ethereum posted a seven-day loss of 25 per cent. At the time of writing, it's trading at USD 2,473. The last time the rice of ETH price was that low was in August 2021.
Altcoins also took a beating. Solana, Avalanche, Polkadot, and Chainlink all sank 30 per cent or more in the seven days ending 22nd January. Virtually every cryptocurrency in the top 35 by market cap is down by double digits as we hit mid-week.
As bad as the figures look, 2022’s January bear market hasn't matched the 99.9% flash crash or the Winter deflation of 2017 to 2018. And remember, both those market meltdowns were followed by new gains and eventual booms.