Bitcoin's History of Wild Run-Ups Followed by Crashes and Prolonged Slumps May Be Coming to an End

The price of Bitcoin has a history of experiencing dramatic surges followed by crashes and prolonged slumps. However, the crashes are not as severe as they were in the earlier days of the cryptocurrency. For instance, in 2013, the price of one Bitcoin soared from around $13 to a then-astounding $1,100, only to slump to around $300 a year later.

A similar dynamic occurred during the crypto boom years of 2017 and 2021, when Bitcoin hit respective highs of around $20,000 and $69,000, and then fell over 80%.

But certain factors may distinguish the most recent bull market from previous cycles.

To begin with, the rally has occurred in two waves. The first wave came early this year when a wave of approvals for new Bitcoin ETFs saw the currency hit a then all-time high of $74,000 before sliding.

The second crypto surge followed the November elections, in which Donald Trump, a recent convert to crypto, prevailed alongside pro-crypto Republicans in both the Senate and House of Representatives. This political realignment has dramatically shifted the broader crypto narrative as the U.S. government is expected to embrace the industry after years of trying to stamp it out of existence.

In addition to the ETF and political tailwinds, Bitcoin and the crypto industry are also benefiting from big companies and even nation states. This highlights how support for Bitcoin is now far broader and deeper than ever before, suggesting that a dramatic crash of 80% or more—as happened in the past—is unlikely.

Despite these positive fundamentals, the latest rally has again failed to deliver the long-sought “killer application” that would integrate crypto into consumers' daily lives. Instead, it has brought the familiar wave of hype and hustles, as dubious secondary projects seek to capitalize on the speculative frenzy.

However, crypto veterans might argue that a popular use case has emerged in the form of stablecoins and Bitcoin itself, which has made a stronger case than ever that it is indeed “digital gold”—a rare and secure store of value that is accepted anywhere in the world.

Finally, despite the popular crypto narrative that Bitcoin is a hedge against macro-economic problems, recent weeks have shown again that crypto prices are still influenced by factors like stock market prices and central bank interest rate decisions.

Ultimately, history shows that Bitcoin is prone to prolonged slumps after hitting an all-time, but that a new set of fundamentals are likely to make it more resilient than during previous cycles.