We look at the history of Bitcoin price to identify what caused market cycles and what narratives will shape the market in the future. While it is impossible to attribute the exact cause of each price movement, here’s what we found:

Even if history doesn’t repeat itself, it often rhymes. Adoption and regulation are the most important factors that consistently drive the ups and downs of the crypto market.

Looking ahead, there are a few themes that could lead to another bullish cycle:

Security tokens give deep pocket investors a crypto introduction

Crypto with “money” attributes offers value reservation

Utility tokens with protocol-market-fit find real adoption

The last bear had 14 months’ duration. We’re now 12 months into this downtrend. Hopes for better days is not an imagination.

A Look Back

Bitcoin has cycled through booms and busts four times in eight years. The stock market is considered to be a bull run if it rises by 20%, but we think it’s more appropriate to define a crypto bull run as Bitcoin price rising >1,000% and dropping >70%. Now, let’s dive in to see what caused Bitcoin price to fluctuate like a roller coaster over the years.

Bitcoin market cycles

Cycle #1 (2010–2011)

Bitcoin first caught public attention when Gawker published an article about Silk Road, a black market eCommerce platform in which Bitcoin was the standard currency, in June 2011. With a hint of Bitcoin’s real-world use case as a global payment currency and a link to Mt. Gox exchange in the article, Bitcoin jumped 4x to as high as $35 within only a week.

As demand rose, Mt.Gox, the biggest Bitcoin exchange at the time, became a target for hacking. A hacker allegedly used credentials from a Mt. Gox auditor’s compromised computer to illegally transfer a large number of Bitcoins to himself. Accounts with the equivalent of more than $8.75 million were affected. With Mt.Gox as the only few “gatekeepers” to Bitcoin, the market became depressed thereafter.

Cycle #1 (2010–2011)

Cycle #2 (2011–2013)

Bitcoin trading volume started rising 2–3x a few years later during the talks about Cyprus bail out. Quick history lesson: Cyprus received a $13 BILLION funding for its economic crisis in March 2013. In exchange, a levy was imposed on bank accounts with more than $130k of deposits. This was a serious concern not just for wealthy Cypriots but many internationals as Cyprus was a popular global tax haven, particularly for the Russians. Many of these account holders resided to Bitcoin. The price of one BTC was boosted over 3x to $260 as Bitcoin adopted soared again, this time as a store of value.

As the price rose, you can guess what happened next. The burst in price lured hackers to launch DDoS attacks on Mt. Gox, not just once, but three times in just a month. Of course, that was enough to spell doom for the bull run as the market cap was only 1% of what it is today (January 2019). Bitcoin, which was trading at $265, plummeted by half to around $150 in just 24 hours and continued to tank after the news. Again, weak trading infrastructure was enough to halt market optimism during Bitcoin’s early life.

Cycle #2 (2011–2013)

Cycle #3 (2013–2015)

Then, the market narrative started to shift. The price rose again on the back of regulatory support. Bitcoin, the currency of the dark web, may finally be accepted by the mass. US Senate held a hearing on Bitcoin after the Silk Road shutdown. Hopes among the Bitcoin community leading up to the hearing was dim, but as the proceedings commence, many of the Senators agree that Bitcoin holds great promise. Across the Atlantic Ocean, China’s central bank governor stated that he would “personally adopt a long-term perspective on the currency.”

Not surprisingly, Chinese regulators quickly shifted its stance a month later when the government stepped in to ban financial institutions from trading, insuring, or offering services related to Bitcoin, and force closure on exchanges’ bank accounts. As Chinese exchanges were struggling to operate, other exchanges were struggling to fight DDoS attack, a concerted attack that exploited Bitcoin’s transaction malleability problem.

Mt. Gox suffered the most. The exchange was attacked 150,000 times per second. To be fair, Bitcoin might have been clogged too. Rumor has it that Mt. Gox, a hub to 70% of the world’s Bitcoin, lost over $575 million worth of Bitcoins, a bizarre 7% of the market cap at the time. Customers started to complain that they had requested withdrawals from Mt. Gox, but never received the money. And… it was all gone. The site shut off all withdrawals without any notice. Its Twitter account disappeared just like that. Shortly after, the company filed for bankruptcy in February 2014, citing $64 million in liabilities. This time, both regulation and weak infrastructure were against Bitcoin.

Cycle #3 (2013–2015)

Cycle #4 (2015–2018)

In every market bubble, a few things need to come together: new capital, new asset, and a new instrument. In 1636, the Dutch society traded tulips on exchanges and futures markets. In 2007, institutional investors poured money into subprime mortgage through CDOs.

In 2017, retail investors bought utility tokens through ICOs. Ethereum led a new paradigm: Ethereum was a decentralized supercomputer and a fundraising platform. This was reflected in the gains of ether vs other top 10 coins today (excluding Bitcoin forked ones) on coinmarketcap.com. Ether rose nearly the most among the selected coins during the latest bull run, second to only Monero (XMR).

Gains of the current top 10 coins (as of Dec 2018)

Amid the ICO craze, scammers, as well as policymakers, jumped on the bandwagon. China started banning ICOs and shutting down crypto exchanges in September 2017 (something that never gets old). A minor bear emerged with ether down by 38%.

However, fear over China was not enough to tame the market. Optimism rose to an all-time high after the CME and CBOE announced that they would launch Bitcoin Futures. The narrative that institutional money was coming led Bitcoin price to pop up by 4x within just three months. The price reached a peak of $19,000 on December 17, 2017. All top exchanges reportedly could not handle the number of new customers signing every day. Shitcoins are pumping 2–3x daily. Everyone was on top of the world as they discovered and jumped into this new asset class. Surely, what goes up must come down.

The market craze was nothing, but short-lived. A slew of regulations from all directions weighed down on the crypto market throughout 2018. Korea threatened to shut down exchanges and said it was drafting a bill to ban crypto trading altogether. The US SEC finally buried some ICOs, demanding those projects to return capital to their investors. One of the most shocking news was the SEC charging a popular decentralized exchange, EtherDelta, for operating an unregistered exchange. The founder had to pay a total of $378,000 for settlement.

With the reckoning that adoption was not catching up with the hype, and almost all ICOs were scams or failed to deliver on their promises, regulatory actions were enough to send the market into another long winter.