Those who have experienced the Mentougou, 94, 312, 519, and LUNA/FTX crises are definitely old hands in the cryptocurrency circle.
It’s 519 again soon. Today, I will review the tragedies in the cryptocurrency circle with you all, and remind you that investment is risky and you need to be cautious when entering the circle~
Let's sort it out with you from the chronological order of the tragedy.
01. Mentougou Incident
The Mt. Gox incident in February 2014 was considered one of the most serious incidents in the history of the cryptocurrency industry. At that time, the world's largest Bitcoin exchange, Mt. Gox, suffered a hacker attack and lost nearly 850,000 Bitcoins, accounting for about 7% of the world's total Bitcoin. This incident not only caused the Bitcoin price to plummet by 80%, but also triggered a crisis of confidence in the cryptocurrency market.
This incident happened 10 years ago. If this happened in other industries and so much assets were stolen, the money would definitely not be recovered.
However, the bitcoin price has risen too fast in the past decade, and the judicial department's compensation is based on legal currency. Therefore, the remaining bitcoins after the liquidation of Mt. Gox can actually compensate all the losses of the creditors. Therefore, there is news recently that Mt. Gox is preparing to distribute about 142,000 bitcoins (BTC) and 143,000 bitcoin cash (BCH) to creditors, with a total value of more than 9 billion US dollars.
02. 94 Incident
The 94 incident occurred in 2017 and was triggered by supervision in mainland China.
That year, various myths of getting rich quickly were born in the cryptocurrency circle. Billions of people were eager for financial freedom, and they were eager to make a move. How could they let go of such a good opportunity? Therefore, a large number of ICO projects were rampant like a virus, and even the aunties who danced in the square stopped dancing and began to study ICO. At one time, many junk projects and junk coins emerged like mushrooms after rain.
How could the regulatory authorities ignore such a chaotic and lively situation?
On August 21, the central bank headquarters received an emergency report that clearly pointed out that ICO was a disguised form of illegal fundraising. People from the central bank studied a large number of ICO white papers and concluded that "90% of ICO projects are suspected of illegal fundraising and subjective intentional fraud, and the actual amount of funds raised by ICOs for project investment is less than 1%."
A blockchain conference that was supposed to be held on September 2 was stopped by the relevant department (Beijing Financial Bureau). The reason behind the suspension of the conference is that the regulator has made a judgment on ICO and the relevant regulatory documents will be issued in the near future.
On September 4, 2017, the bombshell finally dropped. Seven ministries and commissions jointly issued the "Notice on Preventing the Risks of Token Issuance and Financing", defining ICO (initial coin offering) as an act of illegal public financing without approval. The notice stated that ICO was suspected of illegal sale of token tickets, illegal issuance of securities, illegal fundraising, financial fraud, pyramid schemes and other illegal and criminal activities, which seriously disrupted the economic and financial order.
As soon as the big move was released, Bitcoin fell 32% and Litecoin fell 57.3%. This drop also shows the influence of mainland China on Bitcoin.
Faced with the sickle of regulation, many exchanges were forced to move overseas, project parties began to withdraw coins, the currency circle plummeted, and panic continued to spread.
However, after the brief impact of the 94 incident, Bitcoin still experienced a super bull market. By the end of 2017, Bitcoin reached its historical high of US$20,000, increasing sixfold in three months.
The exchange discovered that it could continue trading in China through currency-to-currency trading and over-the-counter fiat currency trading. Binance also took advantage of this opportunity to achieve a super counterattack and stood at the top of the exchange until today.
Maybe without the 94 incident, there would be no Binance today?
03. March 12 Incident
Time flies and it is already 2020.
On March 12, 2020, according to Binance data, Bitcoin fell from a high of $7966.17 to a low of $4410. On March 13, it reached its darkest moment, falling to a low of $3782.13. The maximum drop in two days exceeded 50%, while Bitcoin had just returned to $10,000 in the previous few weeks.
At that time, affected by the epidemic, the global economy was in recession and US stocks had begun to plummet. Many crypto investors regarded Bitcoin as a safe-haven asset, but whether a target is a safe-haven asset still depends on the consensus of more investors.
It has only been 4 years since the 312 incident, and the more than 3,000 U of bitcoins have increased more than 20 times this year!
04. May 19th Incident
The 519 incident occurred in 2021. From 312 to 519, it was only a little over a year. Before that, Bitcoin had soared to more than 60,000 US dollars. Those who bought the bottom of Bitcoin on 312 realized more than ten times the profit in one year.
On May 18, 2021, the central bank issued a document, and the three major associations of the financial industry spoke out: providing virtual currency trading services is suspected of engaging in illegal financial activities!
The market was relatively stable that day, and even had a slight increase. Until May 19, many people believed that this was not the first time such a thing had happened and that a slight drop was normal. By evening, Bitcoin had fallen from $44,000 to $29,000, a drop of 34%!
During this period, mining farms were shut down, mining machines were shipped overseas, and financial products were removed from shelves. For a time, the cryptocurrency circle was in a state of panic, and the leeks all felt that the bull market was over. This is the impact that 519 brought to the cryptocurrency circle. The aftershocks are still there, and the leeks can't forget the fear of being dominated by 519.
After 519, many air traders who survived the bull market felt that they had found an opportunity and opened short positions one after another, thinking that they could hold short positions for a few years and would definitely make a fortune. However, they never expected that Bitcoin would suddenly make a comeback and break through the new high to reach $67,000. This back and forth basically cleared out the contract players, and the market really went according to the script, and the remaining air traders were also slaughtered by this wave.
05. LUNA/FTX crash
The time has come to 2022. This year, Luna and FTX have collapsed one after another, which in turn triggered a crisis of trust in the entire cryptocurrency market, and the market entered a deep bear market.
Around 2018, Do Kwon, a Korean who graduated from Stanford University with a degree in computer science, established a public chain ecosystem Terra around stablecoins. The main gameplay of this ecosystem is completed by these two coins:
One is the token Luna in the Terra ecosystem
The other is the stablecoin UST that exists on the Terra chain
Here’s how these two coins interact:
One UST = Luna worth 1 USD. This means that if the price of Luna is 1 USD, one UST can be exchanged. If the price of Luna rises to 100 USD, 100 UST can be exchanged.
2. UST and Luna have a "two-way destruction and casting" relationship. This means that when you exchange Luna for UST, there is one less dollar of Luna and one more UST in the market, and when you exchange UST for Luna, there is one less UST in the market.
This gameplay is the algorithmic stablecoin that was popular at the time, and the market value of LUNA once reached 40 billion US dollars.
This type of stablecoin has a fatal flaw, which is that Luna must have value. No matter how low the price is, it cannot be too close to zero. Otherwise, no matter how many Luna you issue, it will not affect the price fluctuations of UST.
In May 2022, many big investors started to sell UST, causing the price of Luna to plummet by more than 90% to $10, and UST completely decoupled and fell to $0.6. But at the same time, a large number of people began to buy Luna at the bottom.
On May 11, Do Kwon issued a statement saying that he could not save the market and could only rely on the arbitrage mechanism to help UST restore its price. Luna fell by more than 90% after hearing the news, and the price fell below $1. UST once plummeted to $0.3.
On May 12, Luna continued to plummet by 99%, almost to zero, and the UST price fell below $0.2.
On May 13, many exchanges removed Luna from the shelves and suspended trading, and the Terra public chain was shut down.
If the LUNA incident can only be said to have falsified the business model of algorithmic stablecoins, then the FTX incident that occurred at the end of 2022 really surprised many crypto users.
As the second-largest exchange in the crypto market at the time, FTX received investments from a number of well-known and formal large funds such as Sequoia/Temasek/BlackRock. It is said that it also conducted due diligence for several months and its valuation in the primary market reached 32 billion US dollars.
Such a promising project collapsed at the end of November 2022. Its internal management was a mess and customer funds were misappropriated at will.
With the collapse of FTX, Binance has further consolidated its position as the number one exchange.
Affected by LUNA and FTX, the price of Bitcoin also dropped from 60,000 at the beginning of 22 to a low of 15,000 at the end of the year, a 75% drop.
06. Is it a good opportunity to buy at the bottom after the financial crisis?
After saying so much, have you noticed?
After every tragedy, there is a long-awaited opportunity to buy at the bottom!
The five thunderstorms we talked about today are:
There were only two incidents that were truly related to encryption technology, namely the Mentougou theft in 2014 and the LUNA/FTX crash in 2022.
When the Mentougou incident broke out in 2014, Bitcoin fell for a year and a half before recovering and rising again. During this period, many crypto investors had a deep distrust of cryptocurrencies, but those who have persisted are now OGs.
After the LUNA/FTX crash in 2022, both investment institutions and ordinary investors developed a deep distrust of cryptocurrencies, and Bitcoin fell for a year and a half before recovering.
The other two times were affected by the policies of the Chinese mainland government, which shows how profound our Chinese influence is on the crypto community.
Just two months after the 94 level in 2017, prices recovered and saw another surge at the end of the year.
Just four months after the 5.19 incident in 2021, Bitcoin hit a new high.
The 312 incident was more affected by the epidemic, which was considered a natural disaster. The price of Bitcoin recovered in two months.
To sum up, Bitcoin is not afraid of natural disasters and policy influences. The plunges caused by these factors are often good opportunities to buy at the bottom.
It is recommended that everyone pay more attention to the tragedies caused by encryption technology itself. Whether it is being attacked by hackers or the application scenarios being falsified, these factors often affect the consensus of encryption investors and lead to long-term depression.
event
Time of occurrence
Bitcoin decline
Guard time
Cause of the incident
Bottoming out multiples
Mentougou
February 2014
80%
2 years
Hacker attacks cause investors to lose trust in crypto
5x
94
September 2017
32%
One month
China's policy repression
6x
312
March 2020
50%
Two months
The epidemic caused global markets to plummet
2 times
519
May 2021
34%
Five months
China's policy repression
2 times
LUNA/FTX crash
May 2022
70%
One and a half years
The barbaric development of the project has caused investors to lose trust in encryption
4x
I would also like to remind you that when buying at the bottom, the rebound time from the bottom is relatively short due to tragedies caused by policies or natural disasters. However, if investors lose trust in the industry due to cryptocurrencies themselves, it may take more than a year to recover.
Many big names believe that this year is the eve of the explosion of encryption application scenarios, so the audience should pay close attention!
If a large-scale application scenario really emerges, then we can continue to enjoy the bull market.
Cryptocurrency is never afraid of policy regulation or natural disasters. We are only afraid that people in the crypto circle will mess around and lose the trust of the majority of investors. Then, it will be a disaster.
