Intro As we near the end of what has been an undeniably tumultuous – some might say apocalyptic – year in crypto, we look back at the various challenges our nascent industry has faced in its 13-year history. Time after time, events like these have caused doomsayers to call into question the viability of crypto, and to pronounce its death. But, of course, we’ve seen this all before. Crypto has shown incredible resilience, surviving through some of the harshest conditions.
Let’s look at a brief history of some of Bitcoin’s scariest moments. The chart below shows some of the largest crypto-centric drawdowns in the history of Bitcoin – with some of the largest drawdowns barely making a dent in the long-term returns of the decade’s best performing asset .[1]
Significant Historical Bitcoin Drawdowns Source: Grayscale Research, Coin Metrics
Past performance is not indicative of future results
June 2011 | Bitcoin Crashes 99% in Only a Few Days
Bitcoin crashes 99%[2] $32 to $0.01 on Mt. Gox—the world’s largest crypto exchange at the time—over the course of a few days after an admin account for the exchange was hacked. During 2011, Bitcoin was primarily used for Silk Road transactions, WikiLeaks donations, and speculation. With the majority of existing Bitcoin traders being harmed by the crash, Bitcoin’s future felt uncertain.
August 2012 | Ponzi Scheme Results in 700,000 BTC ($4.5m) Stolen
Bitcoin falls 41%[3] return on their Bitcoin, taking advantage of the lack of education around this nascent asset class. The Bitcoin Savings and Trust raised 760,000 BTC, worth $4.5m at the time (representing about 7.3% of total circulating supply).[4]
April 2013 | Government Distrust Sends People to Bitcoin, Breaking Mt Gox
On the tiny island of Cyprus, people flocked to Bitcoin in response to a government bailout that utilized money directly from citizens’ bank accounts. Despite barely being four years old, Bitcoin’s value as a self-sovereign store of value was already being proven. Exploding trade volume led Mt Gox to suffer server failures, shaking users’ trust and causing bitcoin to fall nearly 60%[5] When Governments Take Your Money, Bitcoin Looks Really Good
December 2013 | China Bans Bitcoin
Bitcoin falls 80%[6] ban on financial institutions using Bitcoin as a form of payment. This included banks, payment processors, and other financial institutions. China was home to many crypto enthusiasts at the time, with companies like Baidu and Alibaba experimenting with and accepting the digital currency for services.
February 2014 | Mt Gox Hack
Bitcoin falls 58%[7] [8]
June 2015 | The DAO Hack
Bitcoin falls 31%[9] 3.6 million ETH . The hack also created a philosophical rift in the Ethereum community about whether or not to undo the attack, which was in violation of the protocol’s rules. A small faction who disagreed decided to continue with the hacked version of the chain to hold true to the principle of immutability, which is known today as Ethereum Classic.
August 2016 | Bitfinex Hack
Bitcoin falls 30%[10] whole .
December 2017 | Crackdown on Initial Coin Offerings (ICOs)
Bitcoin falls 84%[11] rugged ’ and losing their investment. Prices, volume, and on-chain activity remained depressed until late 2020, when activity began to pick up again during the COVID-19 pandemic.
May 2022 | UST, Celsius, and 3AC
Bitcoin falls 48%[12] as UST loses its peg and ultimately unwinds to zero. The contagion spreads, causing firms like 3AC, Voyager, BlockFi, and Celsius to file for bankruptcy. Customers, users and investors of these firms and platforms lose significant amounts of money due to poor risk management and transparency from these ‘trusted’ counterparties.[13]
November 2022 | FTX & Alameda Research
Bitcoin falls more than 25%[14]
The Potential of Crypto While the crypto industry has faced significant setbacks and challenges like those mentioned above, it is critical to highlight that these have not been failures of underlying cryptocurrency technology. Instead, the failures have been in the coordination and implementation of this technology by humans and commercial enterprises, rather than of the immutable code. To that end, does a bank robbery mean the US Dollar is fundamentally flawed? No. It instead reveals poor security measures implemented on the part of the bank and the assets of its customers they intend to protect.
It’s inevitable that the development of new technologies for mass adoption will have growing pains. In 1983, 10% of adults had a home computer and less than 1.5% of them used the internet.[15]
Revisiting Cyprus in 2013, we are reminded of the core purpose and potential of cryptocurrency. After all, when the Cypriot government stole deposits from citizens, they rushed to convert their money into Bitcoin – as a safe haven from the authority of centralized government. Since then, our industry has continued to grow and evolve, remaining a significant force in the global economy . User engagement and trading volumes remain strong despite a down market, and we believe it will continue to maintain its strength. While today cryptocurrency is often associated with volatile prices and sensational headlines, the underlying technology has the potential to transform fields such as finance, technology, gaming, real estate, entertainment, and governance. Like any transformational journey, this one will inevitably be turbulent but Bitcoin and decentralized networks are resilient and capable of surviving in the harshest conditions.
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[7] Coin Metrics
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[11] Coin Metrics
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