An Investor’s Guide to Cryptocurrency; Part 4: A deep dive into Crypto price trend analysis

We started a series on cryptocurrencies three weeks ago with the aim of providing our readers with information about the crypto market. In our last article, we provided a summary on the price trends of the top three traded coins: Bitcoin, Ethereum and Tether. This article seeks to build on the information provided in the previous article by explaining the factors that led to the changes in the prices of these three cryptocurrencies. Let us dive right into it.

Now, let us discuss the price trend of Bitcoin. The genesis block of the Bitcoin was mined in 2009 and was quoted at $0.00008 per bitcoin. The first major price change occurred in July 2010 when the price of bitcoin rose to $0.08 per coin but at that time, the digital currency had next to no real-world value. The first ever documented transaction involving the use of Bitcoin was in May 2010 when 10,000 Bitcoins were exchanged for two boxes of pizzas. Bitcoin has been the subject of many highs and lows in the cryptocurrency market. The coin has gained more exposure over the years. More retailers started accepting the digital currency as a form of exchange in 2012 and 2013.  Mt. Gox, a Japanese company was the world’s largest Bitcoin exchange until it lost 850,000 Bitcoins belonging to its customers during a hack in 2014. At that time, the company was responsible for 70% of all Bitcoin transactions. The company was able to recover about 200,000 coins but the remaining 650,000 missing coins destabilized the market. The estimated value of the missing coins at that time was USD 450 million; the loss of the coins forced the company into bankruptcy. The bitcoin market closed at about USD 315 per coin in December 2014. 

The bitcoin market began to stabilize mid-2015 and experienced a record high in early 2017 when it traded for USD 1,000 per coin. The price of the coin rose to USD 5,000 per coin and doubled in price in November 2017. The market closed in December 2017 around USD 19,783 per coin. Many market spectators tagged the growth as a “price bubble”. The bubble burst in 2018 when the price of the Bitcoin fell to USD 7,000 in April 2018 and further decreased to USD 3,500 in November 2018. A new price and volume surge began in 2019 but did not last for long as the price of the coin fell again from USD 10,000 in mid-2019 to USD 7,000 at the end of 2019. However, a new era of record-high prices for the coin began in 2020 when the number of investors with more than 1,000 Bitcoins increased. This led to an increase in the demand for the crypto and consequently an increase in the price of the coin. The price of the coin rose to USD 18,353 in November 2020 despite the pandemic. The market reached its peak in December 2020 when the coin was trading at USD 24,000 per coin. As at February 4, 2021, the price of bitcoin closed at USD 37,776.80 per Bitcoin (BTC).

Moving on to Ethereum, Ethereum was released in 2015 by a Canadian developer named Vitalik Buterin. Buterin envisioned a new platform that would allow for decentralized applications to pave a way for a new era of online trading. 72 million Ethers were mined and circulated to the supporters of the project during the initial release. The platform allowed for both permissioned and permissionless transactions.

In April 2015, when the coin was released, it was trading for USD 1.25 to one coin; the price of the coin rose steadily over the next year. The market for the Ether opened at USD 10.51 in January 2017 and the coin experienced its first price hike in April 2017 when the price of an Ether rose to USD 75.04. The demand of the coin increased alongside that of its competitor (the Bitcoin) and by January 2018, it crossed the one-thousand-dollar mark when the coin was trading for USD 1,066.72. However, just like the Bitcoin, the digital currency experienced a price bubble burst and the price of the Ether began to fall. By December 2018, the Ether was trading for USD 131.37. The supporters of the ICO were initially optimistic that the digital currency would surpass the Bitcoin and would be traded as a mainstream investment. This led to the initial price hike as institutional investors were expected to invest in the coin.

During the price boom in 2017, many developers rushed to create other tokens using Ethereum’s underlining technology and many of these ICOs were accepting Ether in exchange for the new coins. However, as some of the ICOs failed, many of the fundraisers who had previously held Ethers sold the balance of the Ethers held; this put pressure on the price of Ethereum and led to the bubble burst. The price of the Ether continued to rise steadily in 2019 and 2020 and experienced another major price surge in January 2021 when it began trading for USD 1,385.5 as a result of the increased demand for the coin. As at early February 2021, the Ether is trading for USD 1,368.90.

Lastly, let us discuss the stable coin among the group, Tether. Unlike other cryptocurrencies, Tether attempts to offer price stability and is backed by an underlying reserve. The coin tries to offer instant transaction processing, security and privacy of transactions. Tether was released in November 2014. It was originally founded by Brock Pierce who, at the time, was the director of the Bitcoin Foundation. The coin is backed by Fiat currencies as it is pegged against the U.S. Dollar. The coin was first traded on the exchange on February 25, 2015 and was quoted at USD 1.21 to 1 Tether. Over the years, the value of the coin has experienced some slight changes and as at February 4, 2021, it is trading at USD 1.001. The changes in the price of the digital coin is fairly as a result of the changes in the price of the underlying Fiat currency (the U.S. Dollar). It is also important to note that the coin has been a subject of a manipulation controversy. In 2017, there were concerns raised that Tether was being issued by Bitfinex, a Hong Kong based cryptocurrency exchange. The original concern was that there was a close relationship between the coin and the exchange. However, it was later uncovered that Tether Limited did not have enough U.S. Dollars to back the coins in circulation. There were other suspicions that the coin was being used to manipulate the price of other cryptocurrencies like the Bitcoin as the main use of the coin is to purchase other cryptocurrencies. Both Tether Limited and Bitfinex were subpoenaed by the U.S. Commodity Futures Trading Commission in December 2017. According to Forbes, in 2020, Bitfinex won a motion in the New York Supreme Court which means it will not have to turn over documents pertaining to its use of Tether.

The aim of this series was to provide more information about the cryptocurrency market considering the increase in volume of digital coins traded. The increased price volatility of the market makes it attractive to investors who want to earn the most return on their investment in the shortest possible time but like any other investment, it requires sound decision making and scepticism. We hope you enjoyed the series and we were able to achieve our objective of enlightening all stakeholders of the cryptocurrency world.

Please drop your questions, comments and other suggestions in the comment box.

Thank you for reading and look out for our next series!

REFERENCES

Castillo, M. (2019, October 1). Bitfinex And Tether Win Stay In $900 Million New York Supreme Court Case. Forbes. https://www.forbes.com/sites/michaeldelcastillo/2019/09/24/bitfinex-and-tether-win-appeal-from-new-york-supreme-court-in-900-million-case/?sh=6b728d332bc2

Edwards, J. (2020, December 17). Bitcoin’s Price History. Investopedia. https://www.investopedia.com/articles/forex/121815/bitcoins-price-history.asp

Frankenfield, J. (2020, February 2). Mt. Gox. Investopedia. https://www.investopedia.com/terms/m/mt-gox.asp

Hayes, A. (2020, June 30). Stablecoin. Investopedia. https://www.investopedia.com/terms/s/stablecoin.asp

Jenkinson, G. (2018, October 17). Untethered: The History of Stablecoin Tether and How It Has Lost Its $1 Peg. Cointelegraph. https://cointelegraph.com/news/untethered-the-history-of-stablecoin-tether-and-how-it-has-lost-its-1-peg

Kharpal, A. (2018, February 3). All you need to know about tether, the cryptocurrency that could have “devastating” effects on the market. CNBC. https://www.cnbc.com/2018/02/02/tether-what-you-need-to-know-about-the-cryptocurrency-worrying-markets.html

Leising, M. (2021, January 15). CoinLab Cuts Deal With Mt.Gox Trustee Over Bitcoin Claims. Bloomberg. https://www.bloomberg.com/tosv2.html?vid=&uuid=8a217af0-656e-11eb-85fa-49ed5575c86e&url=L25ld3MvYXJ0aWNsZXMvMjAyMS0wMS0xNS9jb2lubGFiLXJlYWNoZXMtZGVhbC13aXRoLW10LWdveC10cnVzdGVlLW92ZXItYml0Y29pbi1jbGFpbXM=#:%7E:text=Based%20in%20Japan%2C%20Mt.,is%20working%20to%20reimburse%20creditors.

Liebkind, J. (2018, January 2). How Did Ethereum’s Price Perform In 2017? Investopedia. https://www.investopedia.com/news/how-did-ethereums-price-perform-2017/

Murphy, H. (2018, October 19). The rise and fall of Ethereum. Financial Times. https://www.ft.com/content/a8d2c280-d2b6-11e8-a9f2-7574db66bcd5

Plus 500. (n.d.). The History of Ethereum | Plus500. Retrieved February 3, 2021, from https://www.plus500.com/Instruments/ETHUSD/The-History-of-Ethereum%7E4

Statista. (2021, February 1). Ethereum (ETH) price history from 2015 to February 1, 2021. https://www.statista.com/statistics/806453/price-of-ethereum/

Yahoo. (2021, February 2). BTC-USD History. Yahoo Finance. https://finance.yahoo.com/quote/BTC-USD/history/

One Reply to “An Investor’s Guide to Cryptocurrency; Part 4: A deep dive into Crypto price trend analysis”

Leave a Reply

Please log in using one of these methods to post your comment:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.