5 Big Bitcoin Crashes: What Happened and What They Really Teach

What were five big Bitcoin crashes and shocks?

Bitcoin has had many sharp falls and shocks. The five below are recorded in reliable sources, so we can say what happened and when. They are not ranked by size. How big a crash looks depends on the exchange, the currency and the dates you measure.

1. April 2013: an exchange stops trading. Mt. Gox, a big bitcoin exchange based in Japan, stopped trading for a day. A Federal Reserve research paper notes that this made the price drop sharply.
2. December 2013: China restricts banks. Chinese authorities banned banks and payment companies in China from dealing in bitcoin. It was a rule for financial firms in one country, not a ban on Bitcoin everywhere.
3. February 2014: Mt. Gox fails. Mt. Gox closed its website on 25 February, Japan time. Three days later, it applied to a Tokyo court for a form of bankruptcy protection. It said about 750,000 of its users' bitcoins and 100,000 of its own were missing, and that the numbers could still change.
4. July 2017: a fight over upgrades. Bitcoin fell below $2,000, about a third under its June peak near $3,000. Bloomberg linked the fall to a dispute over rival software upgrades that could split the network in two.
5. September 2017: China's crackdown. China's central bank banned initial coin offerings (ICOs) on 4 September. On 14 September, the BTCChina exchange said it would stop trading. That day, bitcoin fell 18% on BTCChina and as much as 10% on another exchange, Bitstamp, to $3,426.92. Just 12 days earlier, it had set a record near $5,000.

Can you profit from a Bitcoin crash?

Many crash articles promise to show you how to profit, usually by buying the dip: buying after a big fall. The honest answer is less exciting. A crash story is easy to tell once you know where the bottom was. While prices are falling, nobody knows if today's drop is the bottom or the middle of the fall.

A story that buys at the exact low and sells at the next high already knows the future. Test it with other dates instead. Buy a week too early, sell a week too late, or imagine the price never coming back. If the idea only works with perfect timing, it is not a plan.

Making money from a fall by short selling, meaning betting that the price will drop, is not a shortcut either. It uses a different kind of contract, often with borrowed money. If the price rises instead, the losses can grow fast.

Is a crashed price a bargain?

Not by itself. Say a coin was $200 and is now $100. The old price explains the 50% fall. It does not prove that $100 is good value. Write down what changed in the coin or the market, and keep it apart from what changed only in the price.

The maths of getting back is harder than it looks, too. A fall from $1,000 to $500 needs a 100% gain just to return to $1,000, before fees. A 50% rebound only takes it to $750. A fall from $100 to $40 needs a 150% gain.

That is arithmetic, not a forecast. A big fall is not proof that a rebound must come. The drawdown lesson has a table for bigger and smaller falls.

What if the exchange is the problem?

Mt. Gox shows that a crash can be about access, not just price. By September 2017, bitcoin had set a new record price near $5,000. But when an exchange fails, its customers are left with a claim against a company. A rising chart does not hand their coins back.

The SEC's custody bulletin warns that if a company holding your crypto is hacked, shuts down or goes bankrupt, you may lose access to it. Treat that risk as a separate question from the trade itself. Learn who holds the keys in wallets and custody.

Will a stop-loss save me in a crash?

Not always at the price you planned. Say you buy one coin at $100 and plan to sell if it falls to $90. In a fast fall, the first price on offer might be $84. Your loss is $16, not $10. Write down both numbers: the plan and what really happened.

If you used a limit order that never filled, you still own the coin. Record that too, instead of pretending you sold at your planned price.

The same thing happened on a much bigger scale in Ethereum's 2017 flash crash. A wave of automatic sell orders pushed the price on one exchange as low as $0.10 for a moment. Read the story in Ethereum's crashes.

What should I ask when I read 'Bitcoin fell 40%'?

A headline number leaves a lot out. Before you trust it, ask:

• On which exchange, and in which currency?
• From what date and time, to what date and time?
• Is it a closing price, or the lowest price for a moment during the day?
• Is it the price of a coin, or the loss in someone's account after fees?

September 2017 shows why this matters. On the same day, bitcoin fell 18% on one exchange and up to 10% on another. Both numbers were true.

Want to try a losing trade without real money? The crypto practice plan walks you through one on paper. Buying, short selling and doing nothing are all choices, and no single crash chart can tell you which one is right.