Bitcoins price history
Available on many exchanges, we can find a price chart showing Bitcoin’s exchange rate since its beginning. The following chart, available at https://eo.finance/ , shows Bitcoin’s price history in US dollars since 2009:
1 – Bitcoin’s price history
For the first two and half years of Bitcoin’s existence, its price remained less than one US dollar. The new digital currency was being mined quite easily at the time. With little mining competition, it was common for miners to earn 50 BTC a day. Once parity with the dollar was reached, early in the year 2011, the mainstream news outlets started covering Bitcoin. Rapid growth and adoption soon followed, leading to much more competition for mining Bitcoin. The result was a quick boom in price. Referring to the preceding market chart, let’s review some key drivers that influenced significant changes in the Bitcoin price.
In market economics, a bubble is a cycle characterized by a rapid expansion or rise in price followed by a sharp correction. The changes in the market prices during a bubble are often unsupported by the underlining fundamentals, thus leading to the “post bubble crash”. Over speculation is often the primary driver of bubbles.
In Figure 1, we can identify three significant price bubbles, with each having the characteristic rapid rise and fall in price. The first bubble occurred circa July 2011. This is when the news media first picked up on Bitcoin. At the time, the USD/BTC exchange rate was around $2-3. Soon after, the price surpassed $30 in only a few weeks. Before the end of the year, the exchange rate fell back down to $2. The next major bubble happened around April 2013. At that time, Bitcoin adoption was increasing and more people were familiar with it. At the same time, the government of Cyprus announced an unprecedented bailout of its banks. These were the conditions for a bubble that took the Bitcoin price to over $260. After the bubble, the price settled back down to around $140.
The largest bubble shown in the preceding price chart happened in late 2013 when the Chinese market exploded. With a large surge in interest in Bitcoin by the Chinese investors, the price surged past $1100 in a short period of time. The government officials responded by banning its banks from handling bitcoin transaction. Its citizens were not restricted from buying/selling Bitcoin, but without a legal framework for exchanges, fear dominated the markets. Less than 12 hours after the news was published, the exchange rate fell below $600. Uncertainty of government acceptance and restricted access to capital quickly cooled the surge in price. Instability with government currencies may be one of the most significant drivers of Bitcoin price movements. As we’ve seen in the two largest bubbles, investors are looking for an alternative market, outside the restrictions imposed by the financial system. As governments’ acceptance of Bitcoin can be quite uncertain, trading on these conditions can be quite risky. Over time, as the Bitcoin market matures, we may eventually see price stability, but it’s evident that it may take some time to get there. Until then, we can continue to see the price volatility tied with major global events and government acceptance.
The Silk Road online drug market bust was the largest seizure of Bitcoin to date bygovernment officials. Silk Road operated as a marketplace for illegal items such as drugs and weapons. At its height, more than 10,000 items, ranging from cannabis to heroin and from knives to pistols, were listed for sale, all priced in bitcoin. Using an open sourced service called Tor, users were able to log in to the site anonymously and purchase items using Bitcoin. Using Tor with Bitcoin makes it very difficult to trace the connection between buyers and sellers. Thus, illegal sales flourished. It is estimated that, in 2013, Silk Road grossed $1.2 billion in revenue and earned $80 million in commissions.
Dead Pirate Roberts was the operator of Silk Road. Working anonymously, he inadvertently leaked enough traces of his identity that the DEA and the Secret Service were able to make an arrest. In October of 2013, Ross Ulbricht was arrested on charges of drug trafficking and money laundering.
Seizure of Bitcoin by law enforcement agencies resulted in some significant price movements. With the seizure of 144,000 bitcoin from the Silk Road bust, the traders were uncertain of Bitcoin’s ability to sustain its price. This news resulted in a drop from $123 to $75. Two days later, the price recovered to around $118.