Bitcoin’s Price Collapse: A Matter of Perspective

Bitcoin plunged anew on Friday, as prices threatened new bear market lows following two days of relative calm for the leading digital currency. As markets continue searching for a bottom, investors are reminded that the latest downturn is far from the worst bitcoin has experienced in its relatively short history.

BTC/USD Update

The bitcoin price reached a low of $4,238 on Coinbase, down roughly 4.5% from the previous day. At the time of writing, BTC/USD was valued at $4,244 on the San Francisco-based exchange. More extreme lows were recorded on Bitstamp, where prices briefly fell below $4,100. Meanwhile, Bitfinex continued to show a large premium relative to other exchanges with BTC trading hands at $4,358.

Aggregate data provided by CoinMarketCap show an average price-per-coin of $4,315. That represents a decline of 4% compared with Thursday. Trade volumes on digital currency exchanges approached $5 billion after leveling off in previous sessions. The large upsurge in futures trading suggests further losses are on the horizon as traders look to short the digital currency. Over the past 24 hours, crypto derivatives platform BitMEX processed more than a third of bitcoin trades.

The broader cryptocurrency market touched fresh 14-month lows Friday, as altcoins and tokens sold off sharply. The combined value of all coins in circulation reached a low of $136.2 billion, according to CoinMarketCap. The market is currently valued at $138.6 billion, having declined a staggering $73 billion since early last week.

All About Perspective

Bitcoin’s year-long correction has shaken investor sentiment and raised concerns that it may never fully recover its December peak. The fear of a prolonged price collapse has even tested the resolve of long-term holders who bought into the cryptocurrency before last year’s bull run. However, bitcoin’s decline is all a matter of perspective. Case in point: the roughly 80% correction is the smallest bear market bitcoin has incurred relative to its previous downward cycles.

Technical analyst Peter Brandt recently showed that, among the five major downswings since 2011, the 2018 bear market represents the smallest percentage drop. The largest percentage decline occurred in 2011 when bitcoin’s price collapsed 94.3% over five months. The bear market of 2013-15 saw bitcoin’s price shed 86.7% before bottoming at $152. Losses of 82.6% were also recorded over a two-day selloff in early 2013.

What makes the latest price collapse so unique is the number of eyes monitoring bitcoin’s price. An influx of new traders in early 2017 ignited a fresh speculative bubble that has all but subsided over the past six months. As such, the decline is not really about bitcoin’s viability as a store of value and emerging technology but rather a symptom of the same sort of speculation that drove prices north of $19,500 last December.

Disclaimer: The author owns bitcoin, Ethereum and other cryptocurrencies. He holds investment positions in the coins, but does not engage in short-term or day-trading.

Featured image courtesy of Shutterstock.

Chief Editor to and Contributor to, Sam Bourgi has spent the past nine years focused on economics, markets and cryptocurrencies. His work has been featured in and cited by some of the world's leading newscasts, including Barron's, CBOE and Forbes. Avid crypto watchers and those with a libertarian persuasion can follow him on twitter at @hsbourgi