An Overview of Bitcoin's Price History
The price of bitcoin has experienced five major peaks since its creation in 2009, and five of those have been significant. Since its inception, the cryptocurrency has seen an all-time high of approximately 64,000 US dollars and has increased its mainstream adoption. In some ways, the journey has been volatile, often responding to events related to politics, the economy, or regulation.
On average, Bitcoin has experienced a 200% increase in value each year. At the end of August 2021, Bitcoin's market cap is approximately $710,000,000,000, and it's dominance in the crypto market is just over 50%.
Some short-term and mid-term price behaviour can be explained by events such as the Mt. Gox exchange hack of 2014 as well as the 2020 stock market crash. A macro view of a particular market may be obtained by using a model that uses technical, fundamental, and sentiment analysis on a long term basis.
Two of the most interesting models for technical analysis are Bitcoin's Logarithmic Growth Curve as well as the Hyperwave Theory. According to the Hyperwave Theory, investor sentiment can also be attributed to price movement in cyclical phases. In terms of fundamental analysis, both the Stock to Flow and the Metcalfe models have a fairly good track record of tracking Bitcoin's price. You could also combine all of these methods to achieve a balanced viewpoint by using all of them in combination.
Introduction
A massive rise in value of bitcoin (BTC) over the last few years has captured the imagination of people around the world. However, it has not always been smooth sailing with gains and bull runs. As a matter of fact, Bitcoin has experienced dips and bear markets as well. Even though the cryptocurrency has a high level of volatility, it has still outperformed all other traditional assets to date. In order to study the Bitcoin price history you can use different techniques and viewpoints depending on how a combination of multiple factors contributed to its formation.
How to analyze Bitcoin’s price history
Let's take a closer look at how you can look at historical data in order to begin analyzing the price of Bitcoin. There are three different methods that can be used: technical analysis, fundamental analysis and sentiment analysis. Although these types have their own strengths and weaknesses, they can be merged to create a more complete picture.
Predicting future market behavior through historical price and volume data. A 50-day Simple Moving Average (SMA) could be calculated by averaging the prices over the last 50 days. By plotting the SMA on the price chart of your asset, you can make inferences about it. Let's say, for instance, that Bitcoin has been trading beneath the 50-day SMA for a few weeks, but that it then breaks through the level. This may indicate that the currency is on its way back to recovery.
The collection of data based on data that represents the fundamental, intrinsic value of a project or cryptocurrency. To determine an asset's actual value, this type of research focuses mainly on the external as well as the internal factors involved. It would be possible, for example, to measure the popularity of Bitcoin by looking at the network's daily transactions. A rise in this number over time might suggest the project is valuable, causing the price to go up as a consequence.
Predicting price movements based on market sentiment. Market sentiment is a measure of investors' feelings and moods towards a particular asset. These sentiments can usually be categorised into bullish or bearish sentiments. An increase in trending Google search terms regarding purchasing Bitcoin, for example, could signify a positive sentiment amongst investors.
Which factors influenced early Bitcoin trading?
Our next step will be to look at factors that can influence trading and price movements. As we have seen over time, these have changed as Bitcoin has evolved. bitcoin was a very niche asset with very low liquidity as recently as 2009. Over-the-Counter (OTC) trades were made between users on BitcoinTalk about Bitcoin's worth as a decentralized currency as well as other forums. The kind of speculation we see now played a much less significant role.
The first block was mined by Satoshi Nakamoto on January 03, 2009, with the reward of 50 bitcoins. Nine days later, he sent 10 bitcoin to Hal Finney in the world's first ever Bitcoin transaction. Bitcoin was still trading at a price of less than $0.01 on May 22, 2010. Laszlo Hanyecz also made the first commercial Bitcoin transaction on that day when he bought two pizzas for 10,000 BTC. As of the time that the purchase was made, many users on the Bitcointalk forums regarded it as a novelty.
Since Bitcoin's price and popularity have soared, a small, unregulated industry has become increasingly involved in facilitating Bitcoin transactions and trading operations. This was mainly due to cryptocurrency exchanges and deep web marketplaces. As these markets and exchanges were hacked, closed, or regulated, the price of Bitcoin often suffered significant volatility. There are some exchanges that were hacked and had large stocks of Bitcoin, leading to significant price shocks and a lack of confidence on the market. We will discuss this topic in more detail later on.
Which factors influence Bitcoin trading now?
In recent years, Bitcoin has shared more in common with traditional assets than it did at the beginning of its existence. Bitcoin's price and trading are being affected by many factors as retail, finance, and politics are becoming more and more popular. Moreover, the institutional investment in virtual currencies is also growing, and this is resulting in an increase in speculation. These are some of the main reasons why today's factors impact Bitcoin's trading differently than they did back in its early days.
1.Regulation has become much more prominent now than it used to be during Bitcoin's earlier days. Governments are beginning to understand cryptocurrencies and the blockchain technology more and more, and as a result, their ability to control and regulate the industry is increasing rapidly. As governments tighten or loosen regulations, their impact is felt in both directions. BTC's price is sometimes affected by factors such as its banning in some places or its popularity in some other countries.
2.It's now a fact that the state of the global economy has a direct effect on the cost of Bitcoin and the price of Bitcoin. People in hyperinflationary countries use cryptocurrencies to hedge against inflation. A record-high volume of Venezuelan Bolivars has been traded on LocalBitcoins for the first time since the beginning of the economic crisis in Venezuela in 2016. A crash in the stock market in 2020 marked the beginning of an era of Bitcoin bull runs that would last over a year. Since then, Bitcoin has become something of a store of value much like gold. In times of low confidence in other parts of the economy, people buy these assets.
3.There is a possibility that the price of Bitcoin will increase with more mainstream adoption by large companies. PayPal, Square, Visa, and Mastercard have all shown that they support cryptocurrencies in some way, giving investors assurances. And even retailers are accepting Bitcoin. As Elon Musk announced on May 17, 2021, Tesla would no longer use bitcoin, withdrawal of support can also trigger selloffs. The price of BTC started off just under $55,000 per BTC, but by the end of the day, it had dropped to just under $48,500 per BTC.
4.The rise of speculation and derivative products such as Bitcoin futures has driven increased interest in the market and driven an increase in demand. A trader or speculator has shorted BTC for profit in the futures market, so there is downward pressure on its price as a result, instead of investors and speculators investing and holding BTC for its fundamental value. It means that Bitcoin's price is not anymore dictated by its utility.
Bitcoin’s price history
Bitcoin's price has been extremely volatile since 2009, when it first appeared. The factors mentioned above are all thought to have contributed to Bitcoin’s journey so far. Even though the price has fluctuated up and down, overall the price is still dramatically higher. As we compare Bitcoin against the NASDAQ 100 index and gold, it is obvious that Bitcoin has done much better than these two traditionally successful assets. The volatility of Bitcoin is evident as well, as its yearly losses are also higher in percentage terms than any losses suffered by gold or the NASDAQ 100 (data from @CharlieBilello).
BTC's CAGR (compound annual growth rate) over a ten-year period has been established at 196.7 %, according to CaseBitcoin. The CAGR indicates a rate of growth in an asset over a period of time, taking compound interest into account. It has been five years since the price of Bitcoin shot up from only $1 in 2011 to a record high of $65,000 in May 2021, showing that there has been five significant peaks in Bitcoin's price. Let us take a look at the history so far and break it down into five distinct peaks.
1. June 2011: Bitcoin went from a price of cents to $32 in a year. As Bitcoin experienced its first bull run, its price then declined to $2.10 and then began its first medium crash.
2. April 2013: Bitcoins experienced its first bull run of the year in April 2013, with a price of $260 on April 10, 2013 after beginning the year at roughly $13. Two days later, it crashed down to $45.
3. December 2013: Bitcoin's price experienced almost a ten fold increase between October and December. BTC prices were trading at $125 at the beginning of October before peaking at $1,160. By December 18, it was down to $380.
4. December 2017: Bitcoin prices soared to just under $20,000 in December 2017 from just under $1,000 in January 2017. As a result of the bull run, Bitcoin has become a household name, securing the attention of institutional investors as well as governments.
5. April 2021: After the stock market and crypto market crashed in March 2020, the price of bitcoin rose $63,000 by the 13th of April 2021. Due to the economic instability that resulted from the Coronavirus pandemic, some people considered Bitcoin a store of value. In May 2021, BTC and the crypto market suffered a huge selloff before price stagnation.
Short-term price events
Price behavior is not always reflected in fundamental and technical models we will use later. A large factor in determining the outcome is external factors, such as economic and political events, which can be analyzed individually. It is interesting to see one of the first famous hacks that took place in Bitcoin's early days.
The Mt. Gox exchange hack
In 2014, there was a significant Bitcoin hack which resulted in a temporary drop of Bitcoin's price due to the Mt. Gox hack. With a trading volume that was roughly 70% of Bitcoin's total supply at the time, the Tokyo-based crypto exchange was the largest on the market. A number of hacks have been launched since Mt. Gox's establishment in 2010, but it has managed to continue to exist.
In 2014, there was a hack that saw about 850 thousand bitcoins stolen, wiping out the majority of the exchange's digital assets. The suspension of withdrawals by Mt. Gox on February 14, 2014 caused the price of Bitcoin to drop roughly 20%, dropping from $850 during the course of the week to around $680.
The hackers were able to steal $450,000,000 (USD) of user's funds, and the Mt. Gox exchange then had to file for bankruptcy. Some former users of the website claim that there was a problem with the code of the website that was left unchecked. Even today, it is still not clear why the hack happened, which has led to several ongoing lawsuits and lawsuits against the CEO of the exchange, Mark Karpelès.
How do we explain Bitcoin’s long-term price history?
Prices are less impacted by smaller, less-important events in the long run. Therefore, it's interesting to explore other explanations for Bitcoin's overall positive trajectory. An option to consider is to study analytical models using the techniques that we discussed above.
Fundamental analysis: Stock to Flow model
Bitcoin's limited supply is used as an indicator in the Stock-to-Flow model. Bitcoins are somewhat similar to diamonds or gold. Their scarcity has caused their prices to rise over time. Investors use these commodities to store value.
This ratio can be used to predict Bitcoin's price over time by taking the total circulating global supply (stock) and dividing it by the total amount produced every year (flow). Moreover, we know roughly when new bitcoins will be sent to the miners and how much they will generate. The stock-to-flow ratio of mines is increasing as mining returns decline.
Due to its accuracy in predicting Bitcoin's price history to date, Stock to Flow has proven impressive. In the chart below, you will find a 365-day SMA along with Bitcoin's historical price data, along with its forecast for the future.
However, there are some downsides to the model. The model will break over time when Bitcoin's flow reaches zero since you can't divide by zero. Price predictions are thus implausible, tending towards infinity.
Fundamental analysis: Metcalfe’s Law
Bitcoin can also be explained by Metcalfe's law, a general principle in computing. As the number of users is squared, the value of a network is proportional. So what does that mean? Let's take the phone network as an example. A network gets exponentially more valuable the more people own phones.
The Metcalfe value for Bitcoin can be calculated using the number of active Bitcoin wallet addresses and other public information on the blockchain. Plotting Metcalfe value against price shows a reasonable fit. Tim Peterson has extrapolated the trend in the graph below to predict possible future prices.
Metcalfe's law can also be used in the Network Value to Metcalfe ratio (NVM). To get the ratio, take Bitcoin's market cap and divide it by a formula based on Metcalf's law. A specific day's number of active unique addresses is used as a proxy for a network's users. An address is unique if it has a non-zero balance and makes a transaction that day.
A value over one indicates an overvalued market, while a value below one indicates an undervalued one. The following chart from Cryptoquant shows how this looks visually. As shown on the diagram, the left axis is the NVM ratio, and the right axis is the network value.
Technical analysis: Bitcoin’s Logarithmic Growth Curve
Cole Garner created Bitcoin's Logarithmic Growth Curve as a technical analysis model. The x-axis of Bitcoin price charts displays the logarithmic (log) price against linear time. You can draw simple trend lines if you also log time, however, and they match the tops of the last three bull runs and Bitcoin market support levels.
Our original, logarithmic price graph can then be transformed into a growth curve that has matched Bitcoin's price history fairly accurately.
Technical Analysis: Hyperwave Theory
Tyler Jenks developed Hyperwave Theory to explain prices by analyzing investor emotions. According to this theory, market sentiment alternates between pessimism and optimism. Hyperwaves are often the result of these emotions where the price climbs for a period of time before turning into a bearish trend. Jenks theorizes the pattern originates from market sentiment, but the graph only uses technical analysis with price data to draw trend lines.
The price of the asset should remain below the resistance line in phases 1, 5, and 7. The price should remain above the support lines in phases 2, 3, 4, and 6. There is evidence of the pattern in some markets, but it is not true for every asset. Below is a rough illustration of the NASDAQ Composite 2000, provided by Leah Wald (CEO of Valkyrie Investments Inc.).
Let's review the 2017 Bitcoin bull run. Apart from phase one, the Hyperwave theory trends have a relatively good fit. The price is also rising at a rapid pace, followed by a large crash, which mainly follows the phases outlined above.