The big bubbles in the crypto markets

To date, three large speculative bubbles have formed in the crypto markets. 

In reality, many more have formed, but they have often been short-lived, limited to only a few cryptocurrencies or not particularly large. 

On the other hand, the ones that have been huge, widespread and especially long have been only three. And in all cases, they occurred, not surprisingly, the year after the one in which a Bitcoin halving occurred. 

The term halving means cutting in half the rewards for miners, which is the only source of issuance of new BTC. Halving the reward therefore also halves the production of new BTC, consequently reducing the supply of BTC in the market. 

There have been only three Bitcoin halvings, namely in November 2012, July 2016, and May 2020. 

The first of the three crypto bubbles

The first major speculative bubble in the crypto markets occurred in 2013, which was the year after the first halving of Bitcoin. 

In reality, there was one on the price of Bitcoin in 2011 as well, but it involved only Bitcoin and lasted less than a year. 

By contrast, the one in 2013 affected the entire crypto market, even though it was still almost totally dominated by Bitcoin at the time, and lasted more than 12 months. Indeed, it actually followed the rebound following the 2011 bubble burst, so the 2011/2013 bull run actually lasted two years. 

At the time of Bitcoin’s halving, in November 2012, the crypto market capitalized less than $150 million, more than 90% of which was Bitcoin. The great speculative bubble of 2013 skyrocketed this capitalization even to $16 billion at its peak, between November and December. 

In other words, in about thirteen months, the increase was almost 12,000%. If, on the other hand, we take as a reference the minimum value following the 2011 bubble, the increase in two years was 75,000%. 

So this was for all intents and purposes a giant bubble, very widespread, and of considerable duration. 

The 2011 one was just as large but slightly shorter in duration, and mostly concentrated on Bitcoin. In contrast, the one in 2013 involved the entire crypto market, although still 89% dominated by Bitcoin. 

For example, in 2013 Ethereum did not yet exist, while Ripple and Litecoin already existed. 

The second crypto bubble

In the following two years, 2014 and 2015, there was a terrible bear market that produced an 81% collapse in the overall market capitalization of cryptocurrencies to $3.1 billion in January 2015. 

By then Bitcoin’s dominance had dropped to 80%, and until the following year’s halving there was no way back to 2013 levels. 

By late May 2016, however, ahead of the halving, the crypto market capitalization had already risen to $10 billion, and it began to soar again starting in October. 

During that speculative bubble, an important role was played by Ethereum, which contributed in no small part to both the sharp increase in the overall capitalization of the crypto markets and the reduction of Bitcoin’s dominance. 

The peak of that cycle was in early January 2018, although Bitcoin’s price touched it in mid-December 2017, with a total market cap of more than $800 billion. 

Compared to $3.1 billion in January 2015, the growth had been 26,000%, while the growth after the halving was 6,000%. 

The third bubble

2018 and 2019 were also difficult years, followed in March 2020 by the collapse of global financial markets due to the onset of the pandemic. 

The lowest point in that cycle was reached in December 2018 with market capitalization falling to 100 billion, or a loss of 88%. 

Bitcoin’s dominance, which had fallen to 32% in January 2018, had risen again to 55%. 

In May 2020 there was the third halving, and in October of that year the last big bull run was triggered. 

It peaked in November 2021, when the crypto market touched $3 trillion, or an increase of 2,900% from the 2018 low, and 667% from October 2020. 

As is easily guessed, this third bubble was much less large than the previous two, perhaps in part because of the exponential increase in the number of cryptocurrencies.

It is enough to mention that Bitcoin’s dominance has fallen from 60% in October 2020 to 42% in November 2021. 

In other words, since the bubble of 2017-2018 there has been a strong dispersion of investments in cryptocurrencies, which were previously mainly concentrated on Bitcoin. This has generated more distributed performance overall, with a reduction in the primary role of Bitcoin, and the secondary role of Ethereum. 

For example, Ethereum’s dominance was 7% in July 2016, while it also rose above 20% in January 2018. After returning to 7% in 2020, it has never again been able to break through the 20% wall except for a very short time. 

This rather clearly indicates that crypto markets over the years have expanded quite a bit, which is perhaps part of the reason why bubbles have become more and more contained. 

From its peak in November 2021, the total capitalization of the crypto markets has since fallen to $780 billion in November 2022, a loss of 74% that is significantly less than those of the previous two bubbles.