A brief history of Bitcoin bubbles

A brief history of Bitcoin bubbles

It's been a breakout year for Bitcoin. In 2020 a wave of interest from mainstream investors and institutions helped push the price of the virtual currency from $7,200 in January to above $29,000 on December 31 (and then on past $32,700 by early January 2021). But the innovative digital asset, maintained by a decentralized swarm of so-called miners, has a long history of volatility. Most observers expect some retrenchment of that rally sooner or later.

For insight into why (or maybe when) a slump is likely, it's worth looking back at Bitcoin's many "bubble" periods: stretches when the price increased dramatically in a short amount of time, then fell, in most cases, even more sharply. "Bubble," of course, has negative connotations, implying popular delusions and the madness of crowds. But there's a growing understanding that financial bubbles can also be generated by temporary over optimism about real innovation that can still pay off in the long run. Examples of this include the British Railway Mania of the 1840s and the 1999 Dot-com bubble.