What can the past tell us about the future of Bitcoin?

Bitcoin has plunged more than 50 percent in value in the past six months, but holders of the cryptocurrency are used to volatility. Here we look at how the FT covered Bitcoin's previous booms and busts to see if history repeats itself.

Boom and bust in Japan (April 2017 to March 2018)

Before 2017, Bitcoin was trading at under $1,000. But on New Year's Day 2017, the cryptocurrency broke $1,000 and before the end of the year it had risen to $20,000.

The boom was triggered by a surge of interest, first in Japan and then in South Korea. Retail investors began gambling on Bitcoin, lured by prime-time television commercials and billboards offering high returns. After Japan approved trading on 11 crypto exchanges in April 2017, the country accounted for around 40 percent of daily trading activity worldwide.

But a crash soon followed. In early 2018, so-called Bitcoin whales, the largest holders of the cryptocurrency, began cashing out to take advantage of high prices. Sentiment then soured when Japanese exchange Coincheck was hacked and lost $530 million in XEM, another popular cryptocurrency.

Although no Bitcoin was stolen, the hack unsettled retail investors concerned about the security of holding digital currencies, especially after Japan's financial regulator raided Coincheck's offices in February.

The first Bitcoin winter (March 2018 to May 2019)

Between March 2018 and May 2019, Bitcoin traded below $10,000 as critics and regulators expressed doubts about its future.

In London, for example, traders and institutions have been wary of engaging with cryptocurrencies for fear of fraud, financial crime and other reputational risks.

The fire sale in early 2018 by Bitcoin whales raised concerns about the influence of large accounts on the price of the cryptocurrency. As of April 2018, about 1,600 Bitcoin wallets contained almost a third of all available Bitcoins. Of these, 100 wallets contained over 10,000 Bitcoin.

Cameron and Tyler Winklevoss, for example, who were best known for unsuccessfully suing Mark Zuckerberg over the idea that became Facebook, were some of the biggest whales, purchasing a reported 120,000 Bitcoins in 2012.

Winter intensified after a battle over a fork in the cryptocurrency as new versions of Bitcoin were created, sending the price to its lowest level since early 2017.

But in June, Bitcoin got a boost from an unexpected source: Facebook. The world's largest social media company revealed plans for Libra, its own digital currency. While Libra ultimately remained just a dream, the news that Facebook was planning to enter the sector increased confidence in Bitcoin's sustainability.

The pandemic boom (October 2020 to April 2021)

After the initial shock of the pandemic, Bitcoin began to gain ground after PayPal announced that it would allow users to hold cryptocurrencies.

Stuck in lockdown and with government stimulus checks to spend, retail investors began betting on the rise of Bitcoin. In six months, the cryptocurrency rose from under $12,000 to over $63,000.

The steep rise also caught the attention of institutional investors, and the excitement peaked with the IPO of Coinbase, the largest crypto exchange, which opened on Nasdaq in April 2021 with a valuation of nearly $76 billion.

But the high didn't last long. China banned crypto mining, the use of computers to solve puzzles to earn cryptocurrencies, in September 2021, although the activity quickly shifted to other countries.

Then the USA and Europe again held out the prospect of regulation.

Eventually, day traders were caught up in a frenzy of meme stocks, many of them cashing in their Bitcoins to play the stock markets, and further fears were raised, including by Elon Musk, about the environmental costs of crypto mining. Bitcoin slid to a low of just under $30,000 in late July.

Bitcoin Suffers When Stock Markets Fall (July 2021 to Present)

Bitcoin fans originally insisted that it was a hedge against inflation and immune to fluctuations in other markets.

In October 2021, the cryptocurrency went fully mainstream with the launch of an exchange-traded fund that allowed investors to participate in its rises and falls without directly holding Bitcoin. Days after the ETF began trading, Bitcoin hit an all-time high of nearly $69,000.

But as a mainstream investment, its fortunes are much more closely aligned with broader market sentiment.

Fears in the US economy in early December about rising inflation and future interest rate hikes caused the price of Bitcoin to fall sharply, and in the following months Bitcoin fell in line with the decline in US technology stocks.

As inflation worsened this year, Bitcoin continued to suffer, having its worst week in June since 2020. ProShares, the company behind the first Bitcoin EFT, launched a new fund to benefit from Bitcoin's decline.

What's next?

Bitcoin's previous booms have all been driven by retail investors rushing into the market hoping to make a notable profit in a short period of time. The subsequent crashes came as regulators, the broader market or concerns about the sector's risks caused Bitcoin holders to cash out.

These trends appear to be continuing. As Katie Martin, author of the FT's Long View column, said, Bitcoin is "the most speculative asset on the planet, possibly even the most speculative of all time."

Looking ahead, while regulators have promised to be “relentlessly tough,” it remains largely unclear how future rules around cryptocurrency will work in practice. But there is more evidence of joined-up thinking, and if regulators manage to set rules, they will help the crypto industry build more trust and perhaps finally provide some stability.