A cryptocurrency bubble is a phenomenon where the market increasingly considers the going price of cryptocurrency assets to be inflated against their hypothetical value. The history of cryptocurrency has been marked by several speculative bubbles.
Some skeptics have expressed the view that the entire cryptocurrency market constitutes a speculative bubble. Adherents of this view include Berkshire Hathaway board members, including Warren Buffett, and Bill Gates, Microsoft co-founder and philanthropist. They also include several laureates of the Nobel Memorial Prize in Economic Sciences, central bankers, and investors.
In February 2011, the price of bitcoin rose to US$1.06, then fell to US$0.67 that April. This spike was encouraged by several Slashdot posts about it. In June 2011, bitcoin's price again rose, to US$29.58. This came after attention from a Gawker article about the dark web market Silk Road. The price then fell to US$2.14 that November.
In November 2013, Bitcoin's price rose to US$1,127.45. It then gradually declined, bottoming out at US$172.15 in January 2015.
The 2018 cryptocurrency crash (also known as the Bitcoin crash and the Great crypto crash) was the sell-off of most cryptocurrencies starting in January 2018. After an unprecedented boom in 2017, the price of Bitcoin fell by about 65% from 6 January to 6 February 2018. Subsequently, nearly all other cryptocurrencies followed Bitcoin's crash. By September 2018, cryptocurrencies collapsed 80% from their peak in January 2018, making the 2018 cryptocurrency crash worse than the Dot-com bubble's 78% collapse. By 26 November, Bitcoin also fell by 80% from its peak, having lost almost one-third of its value in the previous week.
A January 2018 article by CBS cautioned about possible fraud, citing the case of BitConnect, a British company which received a cease-and-desist order from the Texas State Securities Board. BitConnect had promised very high monthly returns but hadn't registered with state securities regulators or given their office address.
From January to February 2018, the price of Bitcoin fell 65 percent. By September 2018, the MVIS CryptoCompare Digital Assets 10 Index had lost 80 percent of its value, making the decline of the cryptocurrency market, in percentage terms, greater than the bursting of the Dot-com bubble in 2002. In November 2018, the total market capitalization for Bitcoin fell below $100 billion for the first time since October 2017, and the price of Bitcoin fell below $4,000, representing an 80 percent decline from its peak the previous January. Bitcoin reached a low of around $3,100 in December 2018.
Wired noted in 2017 that the bubble in initial coin offerings (ICOs) was about to burst. Some investors bought ICOs in hopes of participating in the financial gains similar to those enjoyed by early Bitcoin or Ethereum speculators.
Binance has been one of the biggest winners in this boom as it surged to become the largest cryptocurrency trading platform by volume. It lists hundreds of digital tokens on its exchange.
In June 2018, Ella Zhang of Binance Labs, a division of the cryptocurrency exchange Binance, stated that she was hoping to see the bubble in ICOs collapse. She promised to help "fight scams and shit coins".
From 8 March to 12 March 2020, the price of Bitcoin fell by 30 percent from $8,901 to $6,206. By October 2020, Bitcoin was worth approximately $13,200.
In November 2020, Bitcoin again surpassed its previous all-time high of over $19,000. After another surge on 3 January 2021 with $34,792.47, Bitcoin crashed by 17 percent the next day. Bitcoin traded above $40,000 for the first time on 8 January 2021 and reached $50,000 on 16 February 2021. On Wednesday, 20 October 2021, Bitcoin reached a new all-time high of $66,974.
In early 2021, Bitcoin's price witnessed another boom, rising over 700% since March 2020, and reaching above $40,000 for the first time on 7 January. On 11 January, the UK Financial Conduct Authority warned investors against lending or investments in cryptoassets, that they should be prepared "to lose all their money". On 16 February, Bitcoin reached $50,000 for the first time. On 13 March, Bitcoin surpassed $61,000 for the first time. Following a smaller correction in February, Bitcoin plunged from its peak above $64,000 on 14 April to below $49,000 on 23 April, representing a 23% mini-crash in less than 10 days, dipping below the March bottom trading range and wiping half a trillion dollars from the combined crypto market cap.
On 14 April, Coinbase, a much hyped crypto exchange went public on the NASDAQ. Their shared grew by over 31% on their first day to $328.28 pushing their market cap to $85.8B.
Other cryptocurrencies' prices also sharply rose, then followed by losses of value during this period. In May 2021, the value of Dogecoin, originally created as a joke, increased to 20,000% of value in one year. It then dropped 34% over the weekend.
By 19 May, Bitcoin had dropped in value by 30% to $31,000, Ethereum by 40%, and Dogecoin by 45%. Nearly all cryptocurrencies were down by double-digit percentages. Major cryptocurrency exchanges went down amid a market-wide price crash. This was partly in response to Elon Musk's announcement that Tesla would suspend payments using the Bitcoin network due to environmental concerns, along with an announcement from the People's Bank of China reiterating that digital currencies cannot be used for payments.
Bitcoin and other cryptocurrencies experienced a solid recovery after Elon Musk met with leading Bitcoin mining companies to develop more sustainable and efficient Bitcoin mining. After bottoming out on July 19, by early September Bitcoin had reached $52,633.54 while Ethereum grew by over 100% to $3,952.13. After a short but significant fall, both crypto's peaked on November 7, 2021 at $67,566.83 and $4,812.09, respectively. The NASDAQ would peak 12 days later on November 19 at 16,057.44. Since bottoming out after the covid crash in 2020, Bitcoin had grown over 1,200% in value while Ethereum had grown over 4,000% in value while the NASDAQ had only grown around 134%.
In September, Bitcoin officially became a legal tender in El Salvador with many news sources wondering what countries would be next.
As of October 2021, China has continued shutting down crypto trading and mining activities, and Tesla has not yet resumed payments with Bitcoin.
After their peak, the crypto market began to fall with the rest of the market. By the end of 2021, Bitcoin had fallen nearly 30% from its peak down to $47,686.81 and Ethereum had fallen about 23% to $3,769.70. Through much of late January to late April, crypto currencies struggled for direction, with Bitcoin swinging between $35,000 and $48,000.
|13 February||Four crypto agencies purchase Super Bowl ads: Coinbase, FTX, eToro and Crypto.com. Coinbase becomes one of the most downloaded apps after their ad aired.|
|Early April||The U.S. Securities and Exchange Commission (SEC) announce that they would begin to put regulations on the crypto agencies setting the stage for a broad selloff.|
|4 April||Bitmex becomes the first crypto agency to announce layoffs, laying off 25% of its workers.|
|3 May||The Federal Reserve raises interest rates by 0.5% triggering a broad market selloff. Over eight days, Bitcoin fell 27% to just over $29,000 and Ethereum fell 33.5% to around $1,960. The NASDAQ fell 12.5% during the following five days after the announcement.|
|10 May||Coinbase, with shares down nearly 80% from their peak, announces that if they went bankrupt people would lose their funds. The CEO later announces that they were at no risk of bankruptcy.|
|12 June||Celsius Network, a crypto exchange, announces the halt of all withdrawals and transfers. Bitcoin falls 15% the following day to nearly $22,500 and Ethereum falls to $1,200. A wave of layoffs from other crypto agencies accompanies this, including from Crypto.com and Coinbase.|
|13 June||Tron's algorithmic stablecoin, USDD, loses its peg to the US Dollar.|
|23 June||CoinFlex pauses withdrawals after a counterparty, which it later named as Roger Ver, experienced liquidity issues and failed to repay a $47 million stablecoin margin call.|
|27 June||Three Arrows Capital, a cryptocurrency hedge fund, defaulted on a $670 million loan from Voyager Digital, a cryptocurrency broker.|
|30 June||FTX announces they could acquire BlockFi, a crypto firm that had laid off 20% of their staff.|
|Late June||Many crypto agencies begin to rethink their spending as their funds begin to dwindle.|
|2 July||Three Arrows Capital declares bankruptcy.|
|4 July||Vauld, a Singapore-based crypto lender backed by Coinbase and Peter Thiel, halts withdrawals and trading on its platform.|
|6 July||Genesis Trading discloses that it was exposed in the Three Arrows Capital bankruptcy.|
|8 July||Blockchain.com announces to its shareholders that it faces a potential $270 million loss from loans made to Three Arrows Capital.|
|12 July||A filing with the Southern New York U.S. Bankruptcy Court from attorneys representing Three Arrows Capital creditors states that the company founders' current whereabouts were unknown.|
|14 July||Celsius Network declares bankruptcy.|
|19 July||SkyBridge Capital freezes withdrawals.|
|25 July||Coinbase comes under SEC investigation for potentially lying to their customers. This leads to a 21% drop in their stock the next day.|
|8 August||Singapore-based cryptocurrency lender and borrower Hodlnaut suspends withdrawals.|
|7-8 November||FTT, FTX's main crypto coin, crashes and loses 80% of value, as the result of a "bank run" on the exchange.|
|11 November||FTX declares bankruptcy.|
|16 November||Both Genesis Global Trading and Gemini halt withdrawals.|
Main article: Terra (blockchain) § Collapse
In May 2022, the stablecoin TerraUSD fell to 10 US cents. This was supposed to be pegged to the US dollar via a complex algorithmic relationship with its support coin Luna. The loss of the peg resulted in Luna falling to almost zero, down from its high of $119.51. The collapse wiped out $45 billion of market capitalization in a week. On 25 May, a proposal was approved to reissue a new Luna cryptocurrency and to decouple from and abandon the devalued UST stablecoin. The new Luna coin lost value in the opening days of being listed on exchanges.
In the wake of Terra-Luna's collapse, another algorithmic stablecoin, DEI, lost its peg to the dollar and started to collapse.
On January 7, 2022, a class-action lawsuit was filed against EthereumMax alleging it to be a pump and dump scheme with media personality Kim Kardashian, former professional boxer Floyd Mayweather Jr., former NBA player Paul Pierce, and other celebrities also being named in the lawsuit for promoting the Ether cryptocurrency on their social media accounts.
On February 18, the U.S. 11th Circuit Court of Appeals ruled in a lawsuit against Bitconnect that the Securities Act of 1933 extends to targeted solicitation using social media.
On the same day, a class-action lawsuit was filed against SafeMoon alleging it to also be a pump and dump scheme with professional boxer Jake Paul, musician Nick Carter, rappers Soulja Boy and Lil Yachty, and social media personality Ben Phillips also being named in the lawsuit for promoting the SafeMoon cryptocurrency with misleading information on their social media accounts.
On April 1, a class-action lawsuit was filed in Florida against the LGBcoin cryptocurrency company, NASCAR, professional stock car racing driver Brandon Brown, and political commentator Candace Owens alleging that the defendants made false or misleading statements about the LGBcoin and that the founders of the company had engaged in a pump and dump scheme.
On April 13, Coinbase received a class-action securities fraud lawsuit from its shareholders for including false and misleading statements and omissions in the registration statement and prospectus of its initial public offering.
On June 13, Binance received a class-action lawsuit from more than 2,000 investors accusing the company of false advertising in promoting terraUSD.
On June 17, TerraForm Labs received a class-action lawsuit in the United States alleging the company misled investors in violation of federal and California securities laws in marketing its cryptocurrencies in a manner that resembled securities.
On July 7, Celsius Network received a lawsuit from a former cryptocurrency investment manager alleging the company failed to implement adequate risk management strategies or accounting practices to hedge the firm against cryptocurrency price fluctuations and protect its ability to repay its depositors, and that the company was operating an effective Ponzi scheme.
On July 21, an ex-Coinbase employee and 2 other men were charged with wire fraud and conspiracy to commit wire fraud. This marked the first time charges were brought to people involving crypto assets.
Main article: Bankruptcy of FTX
In early November, Binance, one of the largest crypto exchanges in the world, announced it would be dissolving its holdings in FTX Token (FTT) with reports that most of FTX liquidity was based in this coin and was very unstable. This resulted in a "bank run" on FTX resulting in 90% of all FTT being withdrawn. The price of FTT fell from $22 on November 7 to under $5.00 on November 8, an 80% drop. Abracadabra.com's stablecoin "magic internet money" (MIM) also briefly lost its peg to the US Dollar for the first time since May 2022. This all resulted in a liquidity crisis with the company unable to pay off the withdrawls. On November 8, rival Binance announced plans to buy the company to save it from collapse. This sent shockwaves through the crypto market and led to a 10% drop in Bitcoin price and a 15% drop in Ether price. The following day, however, Binance immediately withdrew its offer causing Bitcoin and Ether to plummet another 14% and 16%, respectively, to their lowest levels since November 2020. The same day, the SEC and Justice Department launched an investigation into the company. FTX filed for bankruptcy protection on November 11.
Further information: Economics of bitcoin
Bitcoin has been characterized as a speculative bubble by eight winners of the Nobel Memorial Prize in Economic Sciences: Paul Krugman, Robert J. Shiller, Joseph Stiglitz, Richard Thaler, James Heckman, Thomas Sargent, Angus Deaton, and Oliver Hart; and by central bank officials including Alan Greenspan, Agustín Carstens, Vítor Constâncio, and Nout Wellink.
The investors Warren Buffett and George Soros have respectively characterized it as a "mirage" and a "bubble", while the business executives Jack Ma and J.P. Morgan Chase CEO Jamie Dimon have called it a "bubble" and a "fraud", respectively. However, Dimon said later he regrets calling Bitcoin a fraud.
Besides the volatility of the price of cryptocurrency, there are other factors that contribute to investors being skeptical about it. One factor is its trustworthiness. Some investors wonder whether it can be trusted as a high value currency. This may be due in part to the stigma of being associated with nefarious people that carryout financial fraud: Cryptocurrency such as Bitcoins have been the preferred choice of payment by cyber criminals that use ransomware to exploit organizations whether large or small out of millions of dollars. This preferred method of payment makes it difficult to trace criminals on the dark web. Cryptocurrency investment fraud schemes have been used to target Individuals as well. The Silicon Valley Business Journal reported that a number of LinkedIn users were victims of cryptocurrency investment fraud. Another factor is security: Cryptocurrency is a digital currency that is usually stored in the cloud. The risk of a digital currency is that it can get lost or stolen during transactions. It is easier for hackers to hack your digital wallet and steal your money. With these factors in mind, many investors cannot help but be skeptical about cryptocurrency.
A proposal by the founder of the troubled Terra ecosystem to salvage the project was approved ... The process means Terraform Labs is effectively abandoning the stablecoin TerraUSD, or UST, which from now on will only trade on the Terra Classic blockchain.
Under the approved measure, the original blockchain will split off and be known as Terra Classic, while Luna, which plunged close to zero this month, will be renamed Luna Classic with the ticker LUNC. The new Terra blockchain will start running a coin under the existing Luna name and ticker, and won’t include the UST stablecoin.
Now, luna has a new iteration, which investors are calling Terra 2.0. It is already trading on exchanges including Bybit, Kucoin and Huobi. Binance, the world’s largest crypto exchange, says it will list luna on Tuesday.
It doesn’t serve any socially useful function.
In an open letter on Wednesday, 26 computer scientists, software engineers and academics -- including Harvard computer security expert Bruce Schneier and Google Cloud principal engineer Kelsey Hightower -- urged Congress to 'resist pressure from digital asset industry financiers, lobbyists and boosters to create a regulatory safe haven for these risky, flawed and unproven digital financial instruments' ... The letter also cautioned that crypto assets are being used to promote 'unsound and highly volatile speculative investment schemes' to investors who may not understand the real risks. 'The claims that the blockchain advocates make are not true,' Schneier told the Financial Times. 'It's not secure, it's not decentralized. Any system where you forget your password and you lose your life savings is not a safe system.'
A 28-year-old software engineer who writes Wikipedia articles for fun, White is an odd figure to make the crypto industry cower. On her website, “Web3 is Going Just Great,” White documents case after case of crypto malfeasance: investments that turn out to be scams, poorly-run projects that collapse under mismanagement and hacks that drain supporters’ money. As much of the financial and tech elite has rallied around crypto, White has led a small but scrappy group of skeptics pushing the other way whose warnings have seemed vindicated by the cratering in recent weeks of cryptocurrency prices.
One of the most prominent skeptics these days is Molly White, a software developer who started the blog Web3 Is Going Just Great last December ... The site has gotten quite popular among fellow doubters, and White herself has become a go-to voice countering the hype coming from crypto companies and maxis—even collaborating with other crypto watchers on a project fact-checking mainstream publications’ praise of crypto.
Over the course of one week in April, Molly White’s internet crime blotter Web3 Is Going Just Great documented 15 crypto-related offenses, each of which alone would hobble—or at least humiliate—most other industries ... White is in a unique position to catalog Web3’s never-ending highlight reel of disasters. A software engineer who has worked in front-end development at enterprise software company HubSpot for the past six years, the 28-year-old has a sophisticated understanding of the blockchain’s underlying technology.
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