Recently, on Bloomberg, an article connected the recent crypto plunges to Bitcoin’s boom and bust in 2017 due to their similar chart patterns and price movements. Flashing back, the largest cryptocurrency soared to about $20,000 mark in 2017 but crashed to $3,300 in early 2018, losing 65% of its value. Meanwhile, on May 19th, 2021, the price of Bitcoin fell by 31% to drop close to $30,000, less than half of its all-time-high of almost $65,000 in the previous month. Let’s examine some factors to see whether these two selloffs are similar or not and will it be a bubble bust for crypto this year.
2017 vs 2021
Pre selloff
In both events, the market sees the price of Bitcoin skyrocketed to its all-time high of that year. However, the impetuses are quite different.
- Several articles, including ones published on MIT Technology Review and CNBC, mentioned the research conducted by University of Texas finance professor John Griffin proposing the idea of price manipulation done by (mainly) one Bitcoin whale. Furthermore, in September 2017, JPMorgan CEO Jamie Dimon referred to bitcoin as a fraud which is worse than tulip bulbs — the most famous asset bubble in history; he also projected that the meteoric boom would eventually blow up. Around that time, the Nobel-winning author Robert Shiller also cited the bitcoin surge as “an amazing example of a bubble.” Overall, the crypto boom in 2017 was believed to be caused by speculative activities rather than reasonable growth and was opposed by many experts.
- However, things seem to change this year. Cryptocurrencies are more embraced by the public in 2021. In April, Coinbase, the largest cryptocurrency exchange in the U.S, closed at $328.28 per share in Nasdaq debut, well above its reference price of $250, valuing the crypto exchange at $85.8 billion. Giant financial institutions around the world, including Morgan Stanley, Goldman Sachs, BNY Mellon, UBS, Deutsche Bank, BlackRock start to accept Bitcoin as an asset class. And definitely, Tesla CEO Elon Musk plays a critical role in driving the prices of the crypto market up by publicly and continuously express his bullish stance on Bitcoin and Dogecoin (until he decides otherwise).
Market plunge
The reasons for cryptocurrencies crash and burn are somehow similar. They all start with the selloffs of crypto owners (who have already benefited from price surge) and then all the other uninformed buyers change from the FOMO into FUD and then fear of losing stage (reference: Fast Company). In 2021, there is an additional factor — sell the news. Prior to the tumbling, Elon Musk suddenly turned his back on Bitcoin and then China announced its further crackdown on crypto.
Price rebound
The pattern of market rebound after selloffs shows up visibly while examining the price chart of Bitcoin in both years; however, it still appears generally as a downward trend.
Moving forward
No one can exactly determine whether the recent crypto crash will lead to an actual bubble bust or it is just a necessary correction and how far this pullback can go if there will ever be a collapse. However, if we use the 2018 event as the reference, the dip can be $11,000, losing as much as 83% from its high and after a two-month downtrend, the market started to recover from its lowest in July 2018 or maybe Q4 of this year. A likewise scenario had already been predicted by the award-winning business journalist Clem Chambers in January 2021; he also forecasted that the next top is $80,000 and the next halvening would be 2024 as this is a foreseeable cycle for a fair amount of time.
However, it is noteworthy to keep in mind the use cases and positive impacts crypto in particular or blockchain in general has left in our real lives such as donations to support the people in need. Besides, many experts seem to stay optimistic about the lifelong of cryptocurrency (Reference: CNBC, Coin Telegraph). DeFi is there to stay, not to replace our current and traditional financial system but to coexist and implement each other, benefiting the human race.
Final words
“The same forces are at play: fear of missing out (FOMO), halvening and increased adoption. Until new drivers enter the picture this boom bubble bust cycle will play out over and over again just as similar cycles have played out in tech since the eighteenth century.” — Clem Chambers
(CEO of ADVFN.com and author of 101 Ways to Pick Stock Market Winners and Trading Cryptocurrencies: A Beginner’s Guide, Journalist of the Year in the Business Market Commentary category in the State Street U.K. Institutional Press Awards in 2018)
