REKT

In 2017, Bitcoin rose by more than 1,800%. In 2018, it gave most of that back. The year got off to a bad start, with rumours circulating that South Korea would ban cryptocurrency trading, sparking panic selling. Bitcoin was already on the way down by that point, but the story did nothing to help an already troubled market. Then, on January 16, BitConnect abruptly shut down its lending program, putting an end to the giant ponzi that had lured in thousands of gullible investors. Just to compound January’s run of bad news, on the 26th, Japanese exchange Coincheck was hacked for $530M.

Two days later, U.S. regulators subpoenaed Bitfinex and Tether as they dug into the stablecoin underpinning much of Bitcoin’s trading. The very same day, Facebook announced a ban on cryptocurrency ads with Google and Twitter swiftly following suit. Bitcoin, which had rebounded to $13K, swiftly dropped back below $10K off this double-whammy of negative news. By February 6, Bitcoin was down 70% from its December high and was trading for around $6,000.

It was the worst possible start to the year for Bitcoin investors, many of whose paper wealth had evaporated, leaving late investors deep in the red. With China exacerbating matters by shutting down domestic cryptocurrency exchanges and targeting the mining sector in early 2018, it seemed like Bitcoin couldn’t get a break. Just to rub salt in the wounds of disheartened investors, in February, Bank of America, JPMorgan, and the UK’s Lloyds Bank banned customers from buying cryptocurrency with credit card, cutting off a source of easy leverage that had helped to fuel the 2017 bull run.

Betting Against the Bubble

Of course, none of these events in themselves dictated the price of Bitcoin. Rather, it was how traders reacted to the news that determined its trajectory. As everyone from regulators to national governments took potshots at Bitcoin, in the background, institutions were shorting the news on CME and CBOE. And it didn’t require sophisticated trading knowledge to read the room and realise there was no reason to be long Bitcoin in early 2018. While its long-term value proposition was still clear, in the short term, there were few grounds for optimism.

One of the most persistent cases for concern that crystallised in 2018 was what came to be known as “Tether FUD”: the rumour that Tether’s USDT stablecoin wasn’t fully backed and that the tokens may have been printed out of thin air. Observers noted that any time the price of Bitcoin dipped, hundreds of millions of dollars of USDT would be issued, fuelling fears that the stablecoin was being used to artificially prop up the price of BTC.

The 2018 crash was a case study in how quickly investor psychology can turn from greed to fear. In December 2017, the mantras being chanted across social media were all about “HODL” and “Bitcoin to the moon.” It was easy to share these slogans when BTC was on the way up. But when the mood flipped as the market dipped, those confident cries now seemed foolhardy.

Once Bitcoin broke below $10K and the bad news kept coming, capitulation set in. Some sold because they despaired of Bitcoin ever approaching its all-time high again. Others did so because, despite their conviction, they had bills to pay and couldn’t wait forever for the market to recover. Across the internet, REKT investors lamented evaporated savings, ruined marriages, and friendships impaired due to borrowing investment money. Some felt they had failed by not selling earlier while others beat themselves up for ever believing the hype.

But if there was one upside to the 2018 crash, it was that those who remained began preaching caution rather than betting the house on Bitcoin. A hard lesson in profit-taking and risk management had been dealt out – particularly when it came to the allure of altcoins, many of which would never reach the heights they had fleetingly attained. Bitcoin, in comparison, would survive the crash but it would take years before the market was ready to retest those heady heights of late 2017 again.