Bitcoin Bear Markets: What Why When

On Jan 15, 2022

Bitcoin has had its fair share of bear markets in the past. Let’s briefly recap the most significant ones and see what we can learn from them.

The 2011-2012 Bear Market

The bitcoin price fell from $29 on June 8, 2011 to $2.10 on November 18, 2011, followed by months of sideways action:

The first bear market, 2011-2012. Chart data source: CoinMetrics.io

The most painful bear market happened before most of us were even aware that something like bitcoin existed. More than ten years ago, the price of bitcoin reached almost $30 on the then-popular Mt. Gox exchange, only to be followed by a “stairway to hell” pattern that would take the price to $2.10 in a several months’ time.

Bitcoin dumped 93%! But consider this: buying bitcoin even at the all-time high (ATH) price of $30 would still have been a steal from today’s perspective. Who wouldn’t want to stack some bitcoin at $30 dollars, right? Of course few back then could anticipate that in ten years, bitcoin would sit around $50,000; that’s why after that initial drop, it took more than a year for the price to recover and climb to new heights. The perception of what bitcoin actually is evolved over the decade as it went from a geeky experiment to darknet currency to an inflation hedge, and potentially the basis of the future global monetary system.

When the price breached the previous ATH in early 2013, it never dipped below that price level again.

The 2014-2016 Bear Market

Bitcoin’s price later tumbled from $1,135 on December 4, 2013 to $175 on January 14, 2015, followed by months of sideways action:

The second bear market, 2014-2016. Chart data source: CoinMetrics.io

At the turn of 2013/2014, two major things happened: the Silk Road marketplace was shut down (Ross Ulbricht is now serving a double life sentence without the possibility of parole), and the Mt. Gox exchange collapsed. These were the two most likely causes of the subsequent bear market. With two major bitcoin venues shut down and major losses sustained by their users, it seemed to some like bitcoin was dead and useless.

As bitcoin dropped 85% from the top to bottom, many “bitcoin obituaries” were written, usually with smug told-you-so undertones.

But those that were there during the 2011-2012 period learned their lesson: Bitcoin comes back – with vengeance! Builders kept on building, and some of the most pivotal tech was created during the second bear market: Trezor One, the world’s first hardware wallet, was released in early 2014, and the Lightning Network whitepaper was published in January 2016.