The world of finance has evolved in the past 13 years since the creation and adoption of cryptocurrency. Bitcoin, created by an anonymous developer, Satoshi Nakamoto, in 2009 as a medium of exchange, grew to become a store of value and the most significant digital currency in the world. The emergence of Bitcoin has led to the development of other digital currencies, and according to Statista, there are over 10,000 cryptocurrencies as of 2022. With a market cap of $324 billion, Bitcoin has surged the global cryptocurrency capitalization to $882 billion.
However, there is a high level of volatility in the cryptocurrency market, and since 2010, when Bitcoin was listed on the first-ever exchange Bitcoinmarket, cryptocurrency investors have ended up in fortune and bankruptcy. After more than a decade of embracing digital currencies, cryptocurrency ups and downs sometimes put investors in propitious situations. Here are some of the biggest cryptocurrency crashes in history:
1. Bitcoin Crash of 2011
Bitcoin plunged from a peak of $32 in June 2011 to $0.01 within a few days. The crisis caused by the negligence of Mt. Gox, a Tokyo-based crypto exchange dominant at the time, created financial turmoil in the cryptocurrency market. Investors were distressed and crestfallen after Mt. Gox security was reportedly breached and hackers stole millions of dollars worth of Bitcoin.
2. Bitcoin Crash of 2013
Bitcoin went down by 73% in April 2013 after the Mt. Gox website crashed because of trading so much volume. Attackers leveraged the website’s vulnerability and increased the market’s selling pressure, causing BTC to plunge from nearly $260 to $54.25
In August 2013, Bitcoin lost 56% of its value after being scammed by a Bitcoin Savings and Trust (BCS&T) Ponzi scheme. The founder, Trendon Shavers, promised investors a 7% weekly ROI and claimed that he got approximately 500,000 BTC deposited into the scheme. In July 2016, he was sentenced to 18 months of imprisonment and fined for fraudulently obtaining 146,000 BTC, which amounted to $807,380.
December came with another dilemma for cryptocurrency after China’s central banks warned Chinese financial institutions against trading and storing Bitcoin. The incident caused Bitcoin to lose 50% of its value within hours, leaving some investors bankrupt.
3. Bitcoin Crash of 2018
After reaching its peak of nearly $20,000 in 2017, the Bitcoin price fell to $11,000 by approximately 45% due to investors who were taking their profits in January 2018. Aside from that, two technologically oriented countries, Japan and South Korea, were rumored to be preparing to ban cryptocurrency trading, causing BTC to tumble by another 12%.
4. Bitcoin Crash of 2020
The coronavirus pandemic impacted almost everything in the world in 2020, and even the powerful blockchain technology was not left out. In March 2020, Bitcoin experienced the brunt of the pandemic by losing half of its value in two days. BTC, which had been trading at $10,000 since the beginning of 2020, reportedly dipped below $4000.
5. Bitcoin Crash of 2021
In May 2021, the crypto market witnessed another crisis after Bitcoin tumbled from $64,000, putting investors who didn’t take their profits in dismay. At first, the market was troubled after Elon Musk made a switchover concerning his plan to accept Bitcoin as a means of payment in Tesla with uncertainty regarding the impact of cryptocurrency mining in June, and the same month, China declared cryptocurrency an illegal means of exchange.
6. UST and Luna Crash of 2022
Two native tokens of the Terra network, UST and Luna, which grew from $180 million at the beginning of 2021 to nearly $15 billion in March 2022, experienced a downturn in May 2022, leaving the slumpy cryptocurrency market in a hitch. Within 24 hours, its market cap dropped from over $40 billion to $500 million, about 99% of its value, with investors left in catastrophe.
The crash occurred as a result of Luna’s connection to TerraUSD (UST), the algorithmic stablecoin of the Terra network. In May, over $ 2 billion worth of UST was unstaked from the anchor protocol, a decentralized market that was offering a 20% yield yearly on UST. Traders were reportedly placing a futures bet on Luna prices, which were increasing the interest rate, and UST began to fall rapidly as traders’ sentiments were dropping towards the stablecoin. To create UST, you have to burn Luna, but later, the selling volume in the market reduced the price of UST from $1 to $0.9, and after a large amount was offloaded, UST began to decline, which increased the market’s selling pressure. The more UST sold off, the greater the circulating supply of Luna, and the situation prompted exchanges to begin delisting the tokens until they were worthless.
7. FTT Crash of 2022
FTX, the second-leading crypto exchange in the world, collapsed overnight, allowing the native token FTT to lose 80% of its value in less than 24 hours. The multi-billion-dollar company plunged after ChangPeng Zhao, the founder of the world’s largest cryptocurrency firm, Binance, announced to dump $2 billion of its share in FTT to his 7 million Twitter followers. This created selling pressure in the market, and investors began to panic sell their tokens, causing them to drop from $22 to $5.
What are the Best ways to Stay Safe During a Crypto Crash?
Cryptocurrency can sometimes take a downturn, and this potential risk can lead investors to a capital loss. However, staying safe in such unprecedented situations requires proper risk management strategies. Below are some of the best ways to stay safe during a crypto crash:
Invest What You Can Afford to Lose
The cryptocurrency market is highly volatile, and as a result, it is better to be critical in decision-making at all times. Before you invest in any coin or token, always consider the price volatility and ensure you invest the amount you can afford to lose in case the market flips.
Factors such as hype often contribute to poor investment decisions among investors. When a coin or token is widely shilled among cryptocurrency influencers on social media channels such as Twitter and Reddit, such action can trigger FOMO (Fear Of Missing Out) among investors. However, buying into the hype and investing with your valuable or emergency funds can sometimes lead to debt and emotional breakdowns during market reversals. So, always tame your greed and never invest using loans or emergency funds.
Diversify Your Portfolio and Practise Dollar-Cost Averaging
Even though it’s likely to have a promising or favorite crypto token you’re most excited about, putting all your investment into a single coin or token can lead to financial menace. Diversification helps you mitigate risks. When you invest in multiple cryptocurrencies, you spread your risk across different assets. So, if one cryptocurrency doesn’t perform well, the gains from others can potentially offset those losses. This can lead to a more stable overall performance for your portfolio.
Dollar-cost averaging provides a disciplined approach to investing in cryptocurrencies. Instead of committing a lump sum of capital all at once, DCA involves consistently investing a fixed amount of money at regular intervals, such as weekly or monthly. DCA reduces the anxiety of trying to time the market and enables you to accumulate a larger position in cryptocurrencies while benefiting from the potential growth in value over the long term. For instance, if you have $200,000 to invest in BTC, which currently costs $41,599 per one, instead of putting all your money in at once for a 4.8 value, DCA allows you to split it for a better profit. You can invest $25,000 for eight months at different price fluctuations.
Cryptocurrencies have experienced downturns in the past, and despite market crashes, credible projects have been proven to have bounced back several times in history. Although the cryptocurrency market goes through both bull and bear market cycles, it is crucial to mitigate investment risks to avoid financial turmoil and accumulate lucrative profits in your cryptocurrency journey.
Disclaimer: Cryptocurrencies are highly subject to market risks; always consult your financial advisor, as this is not financial advice.
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