A Dazzling History of Bitcoin's Ups and Downs

Emerging out of the ashes of the financial crisis, Bitcoin was created as a bypass to the banks and government agencies mired in Wall Street's greatest calamity in decades. 

At first, it was slow to break through, muddied by a slew of scandals: fraud, thefts, and scams that turned away many and brought closer regulatory scrutiny. But once it burst into the mainstream, it proved to be the decade's best-performing asset.

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2009

By January 9, the first iteration of Bitcoin software was released, and on January 12, the first-ever bitcoin transaction occurred as Nakamoto sent 10 Bitcoins ( (BTC) ) to noted computer programmer and developer Hal Finney.

But the market has not yet recognized the value of Bitcoin.

2010

In May of 2010, it happened. Florida-based programmer Laszlo Hanyecz sent 10,000 BTC to a London man in exchange for two pizzas, valued at a total of $25. At today's bitcoin price, this pizza is worth 150 million U.S. dollars!

A couple of months later, Bitcoin's value finally broke the penny threshold.

The first Bitcoin exchanges popped up in 2010 as well - Bitcoin Market in February, and Mt. Gox in July. Slush, the first mining pool, also mined Bitcoin successfully for the first time that year. 

By November, the market cap for Bitcoin surpassed $1 million for the first time.

2011

In February 2011, a major milestone occurred: 1 Bitcoin was worth $1 for the first time.

Bitcoin began receiving press - both good and bad. TIME Magazine published an article on Bitcoin for the first time, but the same year there was also an article on Gawker detailing Silk Road, the dark web drug market where Bitcoin was frequently used as payment. The publicity got people talking, and by June, Bitcoin was worth over $30. Soon after, it crashed back down to about $10.

Also, in June, Mt. Gox dealt with a serious security breach that compromised tens of thousands of accounts and their Bitcoins. 

Still, Bitcoin was becoming an entity that more and more of the public knew about and interest in the cryptocurrency grew. 

2012

If 2011 was a choppy year for Bitcoin, 2012 was smoother sailing. Among notable moments for Bitcoin on its way to becoming the world's top digital coin was its crossing the $100 threshold in April.

In September 2012, the Bitcoin Foundation was launched to "accelerate the global growth of bitcoin through standardization, protection, and promotion of the open source protocol". 

In October 2012, BitPay reported having over 1,000 merchants accepting bitcoin under its payment processing service. In November 2012, WordPress had started accepting bitcoins.

2013

Bitcoin hits record exchange values with Cyprus banking crisis in 2013.

Bitcoin passed a value of $1,000 for the first time and was becoming the most recognizable and successful wallet and exchange available.

In the second half of 2013, most European countries introduced Bitcoin issuance policies.

A single bitcoin has surpassed the value of an ounce of gold for the first time as its price surged to an all-time high.

The Bitcoin was $1,268, while a troy ounce of gold cost $1,233 in the end of November 2013.

2014

In January 2014, Zynga announced it was testing bitcoin for purchasing in-game assets in seven of its games. 

In February 2014, Bitcoin exchanges, including Mt.Gox, Bitstamp, and BTC-e were all attacked by DDoS, which caused a sharp drop in the price of Bitcoin.

By the end of the month, Mt. Gox had filed for bankruptcy protection in Japan amid reports that 744,000 bitcoins had been stolen. The loss amounted to 450 million U.S. dollars.

2015

Mt. Gox, United Kingdom-based exchange Bitstamp announced that their exchange would be taken offline while they investigate a hack, which resulted in about 19,000 bitcoins (equivalent to roughly US$5 million at that time) being stolen from their hot wallet.

Market confidence has greatly diminished, and the price of Bitcoin has fallen.

In October, Bitcoin transactions were exempt from Value Added Tax (VAT), the European Court of Justice (ECJ) has ruled. The ruling delighted Bitcoin supporters.

2016

There are dozens of bitcoin exchanges worldwide, and bitcoin trading volumes in most countries and regions have surged.

In April, the well-known gaming platform Steam began accepting Bitcoin payments.

In November, Trump was unexpectedly elected President of the United States. Global financial markets fell. Bitcoin trading volume rose by 5%, and its price rose by 5% within 24 hours. The increase exceeded that of gold, demonstrating a hedging attribute.

2017

2017, though, was the biggest and busiest year for Bitcoin. After spending 2016 desperately trying to claw its way back up, 2017 was when it finally reached and passed the $1,000 mark. It kept ascending. By June, Bitcoin was worth over $3,000.

Still, some Bitcoin users were frustrated with the network around this time as well. The rising number of Bitcoin miners meant higher fees and more time spent processing transactions, leading some to want an increase in block size. In August, this led to Bitcoin Cash (BCH) being created via a fork in the network. Bitcoin Cash is now the fifth-largest cryptocurrency by market cap.

Still, for the remainder of 2017, Bitcoin was on an upswing. By October, it was topping $6,000. It ended November at nearly $10,000, and by the end of December, Bitcoin hit a peak of $19,783. More and more people and companies began chasing the trend as the price just kept rising. Unsurprisingly, it wouldn't continue that heady growth.

2018

2018 has been a rough year for Bitcoin users, especially ones who held on assuming the price would keep ascending. Many sold their Bitcoins while they could, and the price has steadily dropped all year. 

Twitter, Facebook, and Google banned crypto advertisements.

On December 16, the Bitcoin price bottomed out at $3,200.

2019

In February, Bitcoin fell to $3,400. The bitcoin price rose as a boost from Facebook's Libra in June. On June 23, Bitcoin once again stood at $10,000, approaching $14,000 at one time.

Bitcoin's price rose sharply after Chinese President Xi Jinping gave a speech embracing blockchain technology and calling on his country to advance development in the field in October.

The good times did not last long. On December 18, Bitcoin fell again and fell to around $6,500.

2020

As soon as 2020 started, Bitcoin took off from its lows, but a global pandemic caused asset valuations across all financial markets to plummet. Bitcoin dropped from $10,000 to $3,800, and is back at $12,000. 

Factors Affecting the Bitcoin

1. Supply and demand

The supply of bitcoin is impacted in two different ways. 

First, the bitcoin protocol allows new bitcoins to be created at a fixed rate. New bitcoins are introduced into the market when miners process blocks of transactions and the rate at which new coins are introduced is designed to slow over time. Case in point: growth has slowed from 6.9% (2016), to 4.4% (2017) to 4.0% (2018).This can create scenarios in which the demand for bitcoins increases at a faster rate than the supply increases, which can drive up the price.

Secondly, supply may also be impacted by the number of bitcoins the system allows to exist. This number is capped at 21 million, where once this number is reached, mining activities will no longer create new bitcoins. For example. the supply of bitcoin reached 18.1 million in December 2019, representing 86.2% of the supply of bitcoin that will ultimately be made available. 

2. Regulations and Legal Matters

The rapid rise in the popularity of bitcoin and other cryptocurrencies has caused regulators to debate how to classify such digital assets. While the Securities and Exchange Commission (SEC) classifies cryptocurrencies as securities, the U.S. Commodity Futures Trading Commission (CFTC) considers bitcoin to be a commodity. This confusion over which regulator will set the rules for cryptocurrencies has created uncertainty—despite the surging market capitalizations. Furthermore, the market has witnessed the rollout of many financial products that use bitcoin as an underlying asset, such as exchange-traded funds (ETFs), futures, and other derivatives.

This can impact prices in two ways. First, it provides bitcoin access to investors who cannot afford to purchase an actual bitcoin, thus increasing demand. Second, it can reduce price volatility by allowing institutional investors who believe bitcoin futures are overvalued or undervalued, to use their substantial resources to make bets that bitcoin's price will move in the opposite direction.

3. Competition

While bitcoin may be the most well-known cryptocurrency, there are hundreds of other tokens vying for user attention. While bitcoin is still the dominant option with regard to market capitalization, altcoins including ether (ETH), XRP, bitcoin cash (BCH), litecoin (LTC) and EOS are among its closest competitors as of January 2020.2 Further, new initial coin offerings (ICOs) are constantly on the horizon, due to the relatively few barriers to entry. The crowded field is good news for investors because the widespread competition keeps prices down. Fortunately for bitcoin, its high visibility gives it an edge over its competitors. 

4. Forks and Governance Stability

Because bitcoin is not governed by a central authority, it relies on developers and miners to process transactions and keep the blockchain secure. Changes to software are consensus driven, which tends to frustrate the bitcoin community, as fundamental issues typically take a long time to resolve.

The community is divided over the best way to increase the number of transactions. Changes to the rules governing the use of the underlying software is called “forks”. “Soft forks” pertain to rule changes that do not result in the creation of a new cryptocurrency, while “hard fork” software changes result in new cryptocurrencies. Past bitcoin hard forks have included bitcoin cash and bitcoin gold.