The past few weeks have brought massive price drops in the cryptocurrency market, with bitcoin plummeting to levels that haven’t been seen in over a year and a half. Altcoins are in worse shape, with numerous double-digit drops across nearly all charts. Terra continues to be the most significant loss with a 99% decline in 72 hours, suffering at $0.15.

It’s no news that crypto is much riskier than other investments because it is highly volatile—its price often rises and falls in the blink of an eye and sometimes seemingly for no reason. In just over a decade, the cryptocurrency market has spiked and crashed and rallied and fallen again, over and over, on the way to a price in the tens of thousands. The market has gained mainstream traction as a means of exchange. Investors have turned to it as a way to store value and generate wealth.

HERE’S A QUICK RUNDOWN OF BITCOIN’S PAST

The idea of cryptocurrency first began in the late 1980’s but fully began on October 31st, 2008 by Satoshi Nakamoto, an anonymous inventor (s) who published a white paper called Bitcoin: A peer-to-peer electronic cash system. On the 3rd of January, 2009, Satoshi mined the first block of Bitcoin, which was called the “Genesis Block,” and six months after trading began in April 2010, the value of one Bitcoin was priced to about 14 cents. In November, it surged to 36 cents before settling at around 29 cents.

A DECADE OF PRICE CHANGES  (2010–2021)

In the year 2010, Bitcoin was not worth much, but it showed it had real world value. In February 2011, it rose to $1.06 before coming back to 87 cents, and from early April to the end of May, the cost rose from 86 cents to $8.89.

On the 1st of  June the price more than tripled to about $27, and by September it dropped back down to $4.77 and $2.05 by November. In October 2011, Litecoin appeared, which was the second in the market cap, with Namecoin and 7 others trailing in the distance. The following year, it’s price rose to $13.50 in August.

The year 2012 was an uneventful year for Bitcoin, but 2013 witnessed strong gains in price as it reached $230 on the 8th of April, followed by a rapid decline, bringing its price down to $68.50 on the 4th of July. In early October, it rose to $123 and spiked to $1,237.55 in December, falling again to $687.02 three days later. Its price slumped through 2014 and touched $315.21 at the start of 2015.

The prices slowly climbed through in 2016 to over $900 by the end of the year. In 2017, Bitcoin’s price hovered around $1,000 until it broke $2,000 in mid-May and skyrocketed to $19,345.49 on the 15th of December. Various investors, the government, economists, scientists and other entities took notice, and began developing cryptocurrencies to compete with bitcoin.

In 2020, the economy shut down due to the COVID-19 pandemic. Bitcoin’s price burst into activity once again at $6,965.72. The pandemic fed investors’ fears about the global economy and accelerated Bitcoin’s price, reaching up to $29,000 in December 2020.

In 2021, the price was propelled upward, and Bitcoin reached a peak of $63,558 in April. In mid December 2021, Bitcoin fell to $46,164 due to the uncertainties about inflation and the emergence of the Omicron Virus.

BITCOIN TODAY

Between January and May 2022, Bitcoin’s price continued to gradually decline, with closing prices only reaching as high as $47,445 at the end of March before falling further. On the 11th of May, Bitcoin closed at $28,305. It’s the first time it has closed for less than $30,000 since July 2021.

CAUSES

Hyperinflation

The recent crash can be associated with hyperinflation and the growing fear of a potential recession. The current crypto sell off  has shown correlation with traditional markets as inflation in the US hit 7% the highest annual rate since 1981. There is also huge uncertainty on what the FEDs will do with interest rates to combat the situation. Crypto sell offs is now a part of a broader sell off of risky assets as inflation looms.

Government Regulation, Policy and Security Breaches

The crypto market mostly thrives on speculation, growing interest and hype. Government regulation and policies play a huge role in price changes. China’s crack down on mining activities in June led to Bitcoin’s crash from of $65,000 to $35,000. The market also declined when the world’s richest man Elon Musk announced that “Tesla would no longer accept Bitcoin due the environment effects of mining on climate change”

Growing government regulations and policies around the crypto space brings skepticism in the minds of investors and often leads to broader sell offs in the market.

A number of security breaches, design flaws, rug pulls, and hacks in the crypto space have also created panic which ultimately affects price. The case of  $600 million hack of Ethereum sidechain Ronin, Verge currency, and ZenCash are all notable incidents that affect new and existing investor confidence in the market.

UST/TERRA LUNA

The unprecedented crash of UST and LUNA has further deepened the issues around the viability of crypto currency infrastructure. UST and LUNA ecosystem exposed design flaws with algorithmic stable coins which led to price crash by 99%. Investors have lost a ton of money in the past few weeks contributing to huge sell offs in the crypto market.

LESSONS LEARNED: WHAT DOES THE FUTURE HOLD

Garette Furo (Partner at Wilshire Phoenix) sees it being a bright and exciting place. Bear in mind that no investment is without risk and if there’s one lesson to be learnt from Bitcoin’s history, is that what goes up can also come down fast, but it can definitely go up again, so see every crash as an opportunity in disguise.

A trip down memory lane has shown that price swings in the crypto market in the last ten years makes it clear that the market is extremely volatile.  It is important to note that each crash usually coincides with run up of speculative events and shocking occurrences, such as government regulations, hacks, design flaws, rug pulls etc.

Coins like Bitcoin, Ethereum, BNB have recovered within months of (50% – 70%) crash to set new highs and bring fresh gains. This explains that while many investors will turn to bag holders for some period of time, fresh capital is introduced into the market push its recovery.

The price recovery phase is the toughest period in the crypto market. History has shown a cycle of 2-4 years. During this time, investors will be faced with an important decision to either accumulate more coins and hold their portfolios for longterm gains or cut losses as the bear market sets in full scale.

Images Sources; 24K-Production / Getty Images/ Investopedia