Here we are in our third installment of Chasing Bitcoin, the blog taking you through Bitcoin’s history so we can try to predict its future. This week, bitcoin reached a new all-time high of over $68,000. These peak prices and bull-run behavior we’re seeing are thanks to Bitcoin’s third halving event, which cut mining rewards from 12.5 BTC to 6.25BTC per block mined in May of 2020. In today’s post, we will discuss the first halving event, which created the first-ever post-halving bull cycle.
Before we can talk about the original bitcoin bull-run, we must first discuss the group dedicated to fixing bitcoin’s tattered reputation, the Bitcoin Foundation. Founded in September 2012, by the likes of Gavin Andreesen, Charlie Shrem, Mark Karpelés, Roger Ver, Peter Vessenes, and Patrick Murck. Modeled after the Linux Foundation, the group’s stated mission was to “standardize, protect and promote the use of Bitcoin cryptographic money for the benefit of users worldwide.” The foundation quickly came under scrutiny for its relationships with Charlie Shrem, who pleaded guilty for his role in assisting with the Silk Road, and Mark Karpelés, former CEO of the Mt. Gox exchange. The Bitcoin Foundation still exists today, but their role has become far less important, ironically due to their own scandals.
In June of 2012 with the price of one bitcoin around $5, Airbnb engineer, Brian Armstrong, and a former Forex trader at Goldman Sachs, Brian Ehrsam, launched their original Bitcoin product – a wallet they called Coinbase. The wallet allowed users to buy bitcoin via bank transfer and Coinbase would then securely store the coins. Coinbase’s approach has always been to make the process of buying and selling crypto as painless as possible for new users. This approach allowed Coinbase to become the biggest crypto exchange in the US. In April of this year, Coinbase made history when it became the first crypto exchange to be a publicly listed company.
The next major event in the Bitcoin timeline is the first halving event, cutting rewards given to miners from 50 BTC to 25 BTC per block. The event took place on November 28, 2012. At this time investors had to pay a measly $12 per BTC. Bitcoin halvings create scarcity in the bitcoin supply and lead to major price bubbles. Typically these bubbles build up for about a year (or more) post-halving and eventually correct with the market. In the case of the first halving, the price of one bitcoin ballooned up to $1,178 in November 2013 before correcting to $152 just a few weeks later.
Just before the final leg of the 2013 bull market, authorities closed down the Silk Road Marketplace. During the FBI raid and arrest of Ross Ulbricht in October 2013, the FBI seized 26,000 BTC from the Silk Road. Ulbricht was indicted on charges of money laundering, computer hacking, conspiracy to traffic narcotics, and attempting to have six people killed. Ulbricht was given two sentences of life in prison without the possibility of parole and was forced to forfeit $183 million. The day Ulbricht was arrested the price of BTC dropped 25% from $145 to a low of around $109. Despite the short-term volatility the shutdown caused, bitcoin shed some of the negative publicity it gained from being associated with the marketplace. Today, the Silk Road is considered by many to be the first major e-commerce platform to use bitcoin.
That does it for this chapter in Chasing Bitcoin. Join us next time when we discuss China’s first Bitcoin ban and the downfall of Mt. Gox.