Bitcoin: This is Not the Same as 2013

AccessTimeIconJan 13, 2017 at 3:55 p.m. UTC
Updated Sep 11, 2021 at 12:59 p.m. UTC

Chris Burniske is blockchain products lead at ARK Invest, an investment manager focused on disruptive innovation and co-author of the new white paper, "Bitcoin, a New Asset Class".

In this CoinDesk opinion piece, Burniske pushes back on the mainstream media, arguing that the idea bitcoin is merely repeating the infamy of 2013 is misinformed.


A common but mistaken refrain is building that bitcoin's behavior of late has been a replica of the infamous late 2013 rise and crash.

Certainly, a similar narrative could be spun: bitcoin breaks $1,000, the People's Bank of China issues some comments that scare people, bitcoin crashes. But if a few marketplace characteristics are investigated, I think the difference in bitcoin's maturity between then and now becomes clear.

On 5th December, 2013, a short while after bitcoin broke $1,000, the People’s Bank of China (PBOC) sent out a statement claiming bitcoin was "not a currency in the real meaning of the word". The PBOC went on to restrict financial institutions from getting further involved with the technology.

Last week, on 6th January, 2017, a short while after bitcoin broke $1,000 for the second time in its eight-year life, the PBOC sent out new statements indicating that its representatives had met with major China-based bitcoin exchanges to reinforce the importance of remaining compliant with "relevant laws and regulations."

The tenor of the statements was markedly different, but let’s focus on the numbers.

Then and now

Following both announcements, bitcoin quickly fell below $1,000, which is what has led to the false proclamation that bitcoin hasn’t changed a bit since 2013.

I believe such a proclamation is born of ignorance around the specific market dynamics.

As shown below, the daily percent changes in bitcoin's price both leading up to the PBOC announcement, and after the announcement, have not been nearly as severe as they were in 2013.

On the X-axis of the graph is a metric called, 'Days Removed from People’s Bank of China Announcement'. In other words, the zero point for 2013 is 5th December, while for 2017 it's 6th January: those are the days when the PBOC announcements went public.

"-60" is sixty days before the PBOC announcement, in each respective year.

 Source: ARK Investment Management LLC, data sourced from CoinDesk BPI
Source: ARK Investment Management LLC, data sourced from CoinDesk BPI

Taking the standard deviation of these daily percent price changes yields one of the most common metrics for volatility, as shown below.

In 2013, the volatility in the 60 days leading up to the PBOC announcement was more than 3x the volatility preceding the PBOC announcement in 2017.

The volatility in the week after was twice as great in 2013, as well.


It appears, however, that some bitcoin investors are suffering PTSD. After all, the 2013 announcement precipitated a long slide in bitcoin’s price through 2014, bottoming in January 2015.

Such fear may explain why volatility on a relative basis jumped more after the recent announcement than it did in 2013. In other words, in 2013 the volatility roughly doubled after the PBOC announcement, while this year it has roughly tripled.

That said, volatility after the PBOC announcement this time around is still less than the volatility before the PBOC announcement in 2013.

Critics have come out of the woodwork recently, many once again proclaiming bitcoin is too volatile for most portfolios.

However, if an investor has held Twitter, LinkedIn, Workday, Netflix, GoPro, Tableau and many more high-flying tech names over the last few years, then they have endured single day drops greater than bitcoin has experienced over the last week.

A new asset class

I think bitcoin's subdued volatility in the face of fears over China is a sign of its maturing markets.

For instance, liquidity has improved considerably, with global trading volumes roughly 30x greater than they were in late 2013.

Meanwhile, it appears a more informed base of investors now has the conviction to hold through the whims of nation-states, picking up the slack from weak hands.

Yet, at the moment, bitcoin may not be stable enough to be a currency.

Its price swings are still great enough that they could cause havoc if bitcoin was a broadly used unit of account (and they do wreak havoc on other cryptocurrencies, where bitcoin is often used as the unit of account).

Furthermore, changes in bitcoin’s price make it harder to use bitcoin as a means of exchange, because significant exchange rate risk can arise.

But, if bitcoin is a new asset class — as I've put forth in paper authored with Coinbase — then it doesn’t need to behave like other assets we already know in order to gain mainstream adoption.

I think it just needs to mature, and signs are that it’s doing just that.


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