Since its inception, Bitcoin has experienced extreme price volatility, marked by four notable bubbles where prices skyrocketed after a slow grind upward, eventually crashing but settling above pre-bubble levels. This article examines each bubble and explores when the next one might occur, based on historical patterns and technical analysis.
The First Spike (July 2010)
The first significant price spike took place on July 12, 2010, on the first Bitcoin exchange, The Bitcoin Market. The day before, a popular tech news site Slashdot published an article about Bitcoin version 0.3, sparking a flood of new users. Over five days, the price jumped from $0.008 to $0.080 per BTC – a tenfold increase. Shortly after, Mt. Gox launched and the price quickly settled at around $0.06.
The Great Bubble of 2011
On June 8, 2011, Bitcoin reached $31.91 on Mt. Gox, widely attributed to the growing popularity of the Silk Road darknet marketplace. The rally proved short-lived, however, as the price collapsed over the next four months, losing more than 93% of its value and entering a prolonged decline.
April 2013 Bubble
On March 18, 2013, the U.S. Financial Crimes Enforcement Network (FinCEN) issued guidance on digital currencies. The next day, Bitcoin 0.8 was released, and soon the Internet Archive began accepting Bitcoin. This wave of positive news pushed Bitcoin's price above $30 and its market capitalization to a then-record $1 billion. Amid the backdrop of the Cyprus haircut protests, the price surged to $266 on April 10, surpassing $100 for the first time. However, the bubble burst just as quickly, crashing below $60 before gradually recovering to the $120 range.
November 2013 Bubble
After months of Mt. Gox CEO Mark Karpeles secretly running two trading bots (Willy and Marcus) that fabricated volume, speculation reached a fever pitch. On November 28, 2013, Bitcoin hit an all-time high of $1,242 on Mt. Gox. Soon users discovered they could not withdraw funds, and the price on Mt. Gox plummeted to $0 by February 2014. Unlike earlier bubbles, three other major USD exchanges (Bitstamp, Bitfinex, BTC-e) operated simultaneously. While prices on these platforms took a heavy hit, they never fell as low as Mt. Gox. Bitstamp’s peak was $1,163, and its price did not drop below $400.
When Is the Next Bubble?
Among various speculations, a detailed analysis by Mike Casey Sr., a BI developer at General Motors, stands out. He compared Bitcoin price charts to the Gartner Hype Cycle, the S-curve, and fractal mathematics. Casey argues that Bitcoin bubbles largely follow the hype cycle because Bitcoin investment is almost entirely speculative, driven primarily by hype. He observed that the chart between the April 2013 spike and the November 2013 spike mirrors, on a smaller scale, the chart from the November 2013 spike to the present. Casey hypothesized that the upcoming spike would take a similar form. He noted that at the time of writing (early 2017), the price was gradually climbing back toward the old high. “Once the price reaches a sustained level of 80–90% of the peak, the bubble cycle typically starts over again with another bull run,” he wrote. After extensive analysis, he predicted one more plateau likely around $900. Finally, he stated: “At present, all technical indications are that we are several months away from a new hype cycle and bull run.” Whether history repeats itself remains to be seen.