Like gold or oil or any other asset, bitcoins have a value that can be priced in USD or any other currency. This means there are people who are willing to exchange BTC with USD, usually using cryptocurrency exchanges, marketplaces which attract buyers and sellers. On exchanges you can see indications of supply and demand for cryptocurrencies at any price level (more on these later). You can also buy and sell bitcoins with anyone in the world, physically on the streets or over the internet, or using brokers who mediate between buyers and sellers, or who trade on their own behalf. To trade BTC, you simply need the ability to send or receive BTC and the ability to receive or send the other asset, usually a local currency.

Like any other market-traded asset, the price of Bitcoin fluctuates with supply and demand. At any point in time, people trade at prices that they are comfortable buying or selling at. If there is more buying pressure and people want to buy more bitcoins, prices will increase. If there is selling pressure and people want to sell more bitcoins for fiat currencies, then the price at which the bitcoins change hands will drop. Later we will go into more detail about how cryptocurrencies and tokens can be priced, but here we will look at specifically Bitcoin’s price.

Bitcoin’s price has been a wild ride. A recent price rise to almost $20,000 USD per Bitcoin and subsequent fall the $6,000 levels has caught the media’s attention:

But this is not the first time Bitcoin has been this volatile. Bitcoin appears to be cyclically volatile, with each cycle as dizzy as the previous. Here is the 2013/14 bubble in detail:

The peak price on Mt Gox was almost $1,200 per Bitcoin, and then crashed to below $200, rebounded and then traded lower and lower over to the $200-300 range during the ‘Bitcoin winter’ of 2014. These were painful times for holders of Bitcoin, if good times for far-sighted buyers. There are different theories for the cause of this bubble including the activities of trading bots—programs that automatically buy and sell—and the fact that you couldn’t withdraw fiat from Mt Gox. Anyone wanting to withdraw value from Mt Gox had to buy bitcoins (pushing the price up) and withdraw bitcoins. The Chinese government then announced that they were going to ban Bitcoin trading and the price crashed.

But this was by no means the first bubble. Here is early 2013, close up, when in April the price rose from $15 to a peak of $266 before crashing to around $50:

A common theory about this was that people in Cyprus were buying bitcoins. At the time, there was financial chaos in Cyprus. Some bank accounts were frozen, some ATMs were empty, and one-off taxes were applied to large bank account balances. Another theory was that some large institutional funds were buying bitcoins to build a position, buying up available supply. I am not sure how likely these theories are to have directly affected prices, but all it takes to move markets is for people to believe stories.

This bubble may seem quaint as the numbers are smaller than the range we are used to today, but an 80% drop is an 80% drop, as stressful then as it would be today.