Bitcoin Flash Crashes: Historical Context As BTC Recovers Losses
Will the latest Bitcoin flash crash spook crypto hodlers?
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A bitcoin flash crash put a (temporary) end to the recent bull run, with bitcoin losing ten percent only days after doubling in price for the year. The result was another market panic, with $21 billion shredded from the total market capitalization in 24 hours.
And just two days later, we are almost right back where we started – bitcoin is hovering around the $8,000 mark at the time of writing.
These flash crashes happen regularly in the crypto world, where whales and news cycles drive price more than value (perceived or otherwise). And while there have been occasions when the flash crash drove a catastrophic market collapse – as in early 2018 – the more seasoned bitcoin investor might be tempted to ride these dips.
A few of the more devastating crashes are mentioned here – but there have been dozens of corrections over the years that have, as yet, failed to crush the King of Cryptocurrencies.
What Caused The Bitcoin Flash Crash This Time?
A large sell order of 5,000 BTC was placed on Bitstamp for $6,200 – around 30 percent below the then-market price. Panic ensued, with Bitstamp leading the charge downwards for bitcoin. That sentiment quickly spread market-wide.
Influential crypto identity @DoveyWan suspects manipulation, making the argument that nobody with 5,000 bitcoin would leave it on an exchange to innocuously sell.
As NO ONE will simply keep 5000 BTC on exchange, this is deliberately planned dump scheme, aka manipulation imo
That dumper can on one hand dumping on stamp with poor liquidity > move the Bmx contract > 100x short on Bmx to take huge advantage in stacking cheap BTC
— Dovey “Rug The Fiat” Wan🪐🦖 (@DoveyWan) May 17, 2019
Flash Crash? Ha! Crypto Sneezes At Ten Percent Drops!
But as mentioned above, many cryptocurrency veterans hardly sneeze at a ten percent dip. In the heady days of Mt. Gox, bitcoin saw flash crashes that put a ten percent fall to shame. Probably the most famous of all was the plunge from $32 to one cent in June 2011.
That was the result of a malicious hack of Mt. Gox founder Jed McCaleb’s account. McCaleb retained admin rights on the exchange, having sold it to Mark Karpeles three months prior. (McCaleb has also been deeply involved in both Ripple and Stellar – the latter of which he still serves, as CTO.)
Mt. Gox dramas were again behind – or correlated with – another bitcoin plunge when the exchange shut in February 2014. Just after it announced its closure on February 10th, large sell orders were placed on the two other crypto exchanges, Bitfinex and BTC-e.
The sell orders were filled, bringing bitcoin down from $620 to $102 within mere seconds. It remained at that price for only a few minutes but the crash retains a storied place in bitcoin history.
Market Dips – Traders Just Love That Volatility
Those flash crashes, of course, were related to hacks and price manipulation. But the news-driven crashes are bordering on ‘frequent’.
On April 25th, the price of bitcoin dropped by around 10%, from $5,500 to just under $5,000. On February 24th, it dropped from ~$4,100 to ~$3,700. On January 20th… well, you get the picture.
Even as BTC began its long recovery, last December saw bitcoin fall around 11 percent in a day.
But what has mired the community more, perhaps, has been the prolonged bear markets the OG crypto has endured. Generally, crypto veterans recognize three prolonged bear markets.
From June to November 2011 bitcoin lose 93 percent of its value – falling from $29 to around $2. Traders took six months to regain confidence in the emerging digital asset.
December 2013 to January 2015 was an 18-month bear market that saw bitcoin correct around 85 percent. Over the period bitcoin fell from well over the psychologically significant $1,000 mark to eventually bottom out around $177. It would not breach its all-time high again until April 2017.
And Then There Was The Winter…
Just when crypto was attracting significant mainstream media interest and impending institutional investment, we encountered a significant short-term price surge toward the end of 2017 (the famous bubble), after which prices began falling and have yet to recover.
One could note the recent price upswing and suggest that the latest bear market has finished. Others may need to see bitcoin, at the very least, above all-time highs to suggest a new bull has been born.
That price is a long way north of where we are. But there is little doubt that 2019 has offered if not a full reversal, then at least a reprieve, for bitcoin bulls.