2017 Crypto Bubble: Bitcoin's Run to $19,783

Key Takeaways

• Bitcoin climbed from near $1,000 in January 2017 to $19,783.21 on December 17.
• Initial coin offerings raised billions in 2017 and 2018, many for unbuilt projects.
• The SEC's July 2017 DAO Report applied securities law to many tokens.
• Bitcoin fell more than 70 percent in 2018, ending near $3,747.

Background

By 2017, cryptocurrency had existed for almost a decade but remained a niche interest. Bitcoin, launched in 2009, was the original digital currency, and Ethereum, live since 2015, added programmable "smart contracts" that let developers build applications and issue their own tokens on a shared network. That second feature mattered enormously for what came next.

Ethereum made it trivial to create a new token and sell it to the public. A team could write a smart contract, publish a white paper describing a future product, and accept ether or bitcoin from buyers worldwide. This fundraising method became known as an initial coin offering, or ICO, a deliberate echo of the initial public offering. The crucial difference was that an IPO is a regulated sale of registered securities, while early ICOs operated with almost no oversight.

The setup looked irresistible to both founders and speculators. Founders could raise money in days without giving up equity, accepting venture terms, or registering with any regulator. Buyers believed they were getting in early on the next Bitcoin or Ethereum, hoping a token bought for cents might multiply many times over. Rising prices in the underlying coins, ether especially, gave ICO treasuries paper gains on top of the money raised, which fed the sense that the whole thing only went up.

What made the period dangerous was the gap between price and substance. Many tokens had no product, no revenue, and no claim on any cash flow. Their value rested entirely on the expectation that someone else would pay more later. That is the defining feature of a speculative mania, and 2017 produced one of the purest examples in modern markets.

What Happened

Bitcoin began 2017 trading between roughly $930 and $978 and crossed $1,000 around New Year's Day, per CoinDesk's Bitcoin Price Index. From there the climb was relentless. The price passed $2,000 for the first time as May ended, surpassed $3,000 weeks later in early June, and exceeded $5,000 by the first week of September. The final months turned vertical.

Ether ran even faster in percentage terms. It started 2017 above $8, passed $10 in the first week of January, broke $100 for the first time in early May, and pushed above $800 by December 19, according to CoinDesk. Because most ICOs were priced and funded in ether, its rise and the token boom reinforced each other.

The acute phase of the mania played out in the final quarter of 2017.

• July 25, 2017: The SEC issues its DAO Report, concluding that DAO tokens were securities.
• September 2017: Bitcoin first exceeds $5,000.
• December 10, 2017: Cboe launches the first regulated Bitcoin futures contract.
• December 17, 2017: Bitcoin hits its all-time high of $19,783.21 on the CoinDesk index.
• December 18, 2017: CME Group launches its own Bitcoin futures contract.
• December 2017: Ether reaches a 2017 high above $800.
• November 14, 2018: Bitcoin breaks below the $6,000 level it had held for months.
• December 2018: Bitcoin bottoms near $3,200, ending the year around $3,747.

The arrival of regulated futures is often cited as a turning point. Cboe began trading Bitcoin futures on December 10, 2017, and CME Group followed on December 18, after self-certifying the contract with the CFTC. For the first time, large institutions could bet against Bitcoin through a familiar, exchange-listed instrument. The all-time high landed in that same window and was not seen again for nearly three years.

Then the slide began. Bitcoin opened 2018 around $13,062 and ground lower all year. It held the $6,000 area for months before breaking down on November 14, 2018, then fell to roughly $3,200 in December. By December 31, 2018, it closed near $3,747, down more than 70 percent for the year, the worst calendar-year performance in its history at that point. Many ICO tokens fell far more, and a large share went to zero.

Why It Happened

The 2017 crypto bubble grew from several forces acting together. No single one explains it, but each amplified the others.

The first was a genuine technology story stretched past its evidence. Blockchains and smart contracts were a real innovation, and Ethereum showed they could do more than move coins. That truth gave promoters a credible-sounding pitch, and buyers extended it to almost any project with a white paper, regardless of whether the team could deliver.

The second was a fundraising mechanism with the brakes removed. An ICO let anyone raise money from a global pool of buyers in a few days, with no prospectus, no audited accounts, and no gatekeeper checking whether the promised product was feasible. When raising capital is that easy, supply explodes, and quality collapses. A later study by the Satis Group classified roughly 78 percent of 2017's larger ICOs as scams, with only about 15 percent ever reaching an exchange.

The third was the absence of any valuation anchor. A stock can be measured against earnings or assets. Most 2017 tokens had neither. Their price was set purely by what the next buyer would pay, which is a recipe for reflexive booms. Rising prices drew in more buyers, whose purchases pushed prices higher, which seemed to confirm the thesis, until the inflow stopped.

The fourth was crowd psychology operating at internet speed. Social media, messaging groups, and a 24/7 market created intense fear of missing out. Stories of teenagers and early buyers turning small sums into fortunes spread widely, pulling in people with no background in markets at the very top of the cycle.

The fifth was regulatory ambiguity that promoters exploited. Even after the SEC signaled in July 2017 that many tokens were securities, the rules were not yet enforced broadly, and many issuers told buyers their tokens were "utility" assets outside securities law. That gray zone let questionable offerings keep selling for months while authorities built cases.

By the Numbers

• Bitcoin start of 2017: traded roughly between $930 and $978, crossing $1,000 around New Year's Day. (CoinDesk)
• Bitcoin all-time high: $19,783.21 on December 17, 2017, on the CoinDesk Bitcoin Price Index. (CoinDesk)
• Bitcoin 2018 open and close: opened around $13,062 and closed near $3,747, down more than 70 percent. (CoinDesk)
• Bitcoin 2018 low: roughly $3,200 in December 2018. (Contemporaneous reporting; CoinDesk)
• Ether 2017: rose from above $8 in January to above $800 by December 19. (CoinDesk)
• The DAO raise: about $150 million worth of ether before the SEC deemed the tokens securities. (SEC, contemporaneous reporting)
• 2017 ICO funding: roughly $5.3 billion raised, per CoinDesk's ICO Tracker. (CoinDesk)
• Q1 2018 ICO funding: $6.3 billion, more than all of 2017, including Telegram's $1.7 billion sale. (CoinDesk)
• EOS ICO: about $4 billion raised by Block.one between June 26, 2017, and June 1, 2018. (SEC; contemporaneous reporting)
• ICO outcomes: about 78 percent of 2017's larger ICOs were classed as scams, roughly 15 percent reached an exchange, per the Satis Group. (CoinDesk)

Aftermath

The most consequential regulatory marker came before the peak. On July 25, 2017, the SEC issued a Report of Investigation under Section 21(a) of the Securities Exchange Act of 1934 concerning The DAO, a token project that had raised about $150 million in ether and was later drained by an exploit. The SEC concluded that DAO tokens were securities, meaning their offer and sale were subject to federal securities laws. Stephanie Avakian, then co-director of the SEC's Division of Enforcement, said the technology "does not exempt securities offerings and trading platforms from the regulatory framework designed to protect investors and the integrity of the markets." The SEC chose not to bring an enforcement action against The DAO's organizers in that instance.

The DAO Report put issuers on notice, and the SEC's Office of Investor Education and Advocacy followed with an Investor Bulletin on initial coin offerings warning of fraud risk. Enforcement then escalated. In a notable example, the SEC ordered Block.one, the company behind the roughly $4 billion EOS ICO, to pay a $24 million civil penalty in 2019 for conducting an unregistered securities offering. Block.one settled without admitting or denying the findings. Dozens of other token issuers faced charges, settlements, or trading suspensions in the years that followed.

The market damage was severe and lasting. Bitcoin lost more than 70 percent of its value in 2018, and many ICO tokens lost nearly all of theirs. Studies of the era found that a large share of 2017 projects failed, were abandoned, or were outright scams. The downturn became known as the crypto winter, a prolonged bear market in which trading volumes, prices, and public attention all fell sharply and stayed low for an extended period. Bitcoin would not revisit its December 2017 high until late 2020.

Lessons for Investors

1. A real technology can still produce a fake market. Blockchains and smart contracts were genuine advances, yet that did not make every token built on them worth owning. The 2017 crypto bubble shows that a true innovation and a sound investment are different questions. Judge the asset in front of you, not the trend behind it.

2. No cash flow means no anchor. Most 2017 tokens had no earnings, assets, or contractual claim on anything, so their price rested entirely on the next buyer. When value depends only on finding a more eager buyer, the floor is zero. Demand a credible link between price and something real before you buy.

3. Easy fundraising is a warning, not a feature. The ICO let founders raise money in days with no prospectus, no audit, and no gatekeeper, and that frictionlessness is exactly why roughly 78 percent of the larger 2017 offerings were later classed as scams. When the barrier to raising money disappears, so does quality. Treat the absence of disclosure as a red flag.

4. Fear of missing out is a selling signal in disguise. The mania peaked when stories of overnight fortunes pulled in first-time buyers at the top, just before the December 2017 high. Crowd enthusiasm that drives you to buy quickly is usually a sign that the easy gains are already gone. Size positions so that being wrong, or early, does not wipe you out.

5. Regulation arrives after the damage, not before. The SEC flagged token sales as potential securities in July 2017, but broad enforcement and the $24 million EOS penalty came later, after most buyers had already lost money. Do not assume that the existence of a market means a regulator has vetted it. The protection you want often appears only in hindsight.

Frequently Asked Questions

What was the 2017 crypto bubble in simple terms? The 2017 crypto bubble was a speculative surge in Bitcoin, Ethereum, and thousands of new tokens that peaked in December 2017 and then collapsed. Bitcoin rose to nearly $19,800 and then fell more than 70 percent in 2018.

Why did the 2017 crypto bubble happen? A genuine technology, the smart-contract blockchain, was paired with a fundraising tool, the ICO, that let anyone sell tokens with no disclosure or oversight. With no earnings to anchor prices, value rested on finding the next buyer, and fear of missing out pulled in crowds until the buying stopped.

How much money was lost in the 2017 crypto bubble? Bitcoin fell more than 70 percent in 2018, from around $13,062 to about $3,747, and many ICO tokens lost nearly all their value. ICOs raised roughly $5.3 billion in 2017 and $6.3 billion in early 2018, and studies later found a large majority of those projects failed or were scams.

Could the 2017 crypto bubble happen again today? Speculative manias in new assets recur, and later crypto cycles repeated parts of the pattern. Rules and enforcement have since clarified that many tokens are securities, but crowd psychology, thin disclosure, and assets with no cash flow have not gone away.

What is the main lesson from the 2017 crypto bubble? A true technological breakthrough does not guarantee that any given token is a sound investment. The most transferable takeaway is to tie price to something real and treat assets with no cash flow and no disclosure as speculation, not investment.

Sources

1. U.S. Securities and Exchange Commission. SEC Issues Investigative Report Concluding DAO Tokens, a Digital Asset, Were Securities (Press Release 2017-131). https://www.sec.gov/newsroom/press-releases/2017-131
2. U.S. Securities and Exchange Commission. Investor Bulletin: Initial Coin Offerings. https://www.sec.gov/oiea/investor-alerts-and-bulletins/ib_coinofferings
3. U.S. Securities and Exchange Commission. SEC Orders Blockchain Company to Pay $24 Million Penalty for Unregistered ICO (Press Release 2019-202). https://www.sec.gov/newsroom/press-releases/2019-202
4. CME Group. CME Group Self-Certifies Bitcoin Futures to Launch Dec. 18. https://www.cmegroup.com/media-room/press-releases/2017/12/01/cme_group_self-certifiesbitcoinfuturestolaunchdec18.html
5. Cboe Global Markets. Cboe Plans December 10 Launch of Bitcoin Futures Trading. https://ir.cboe.com/news/news-details/2017/Cboe-Plans-December-10-Launch-of-Bitcoin-Futures-Trading-12-04-2017/default.aspx
6. CoinDesk. From $900 to $20,000: Bitcoin's Historic 2017 Price Run Revisited. https://www.coindesk.com/markets/2017/12/29/from-900-to-20000-bitcoins-historic-2017-price-run-revisited
7. CoinDesk. What DAO? Charting Ether's Epic 2017 Price Climb. https://www.coindesk.com/markets/2017/12/30/what-dao-charting-ethers-epic-2017-price-climb
8. CoinDesk. Down More than 70% in 2018, Bitcoin Closes Its Worst Year on Record. https://www.coindesk.com/markets/2019/01/02/down-more-than-70-in-2018-bitcoin-closes-its-worst-year-on-record
9. CoinDesk. $6.3 Billion: 2018 ICO Funding Has Passed 2017's Total. https://www.coindesk.com/markets/2018/04/19/63-billion-2018-ico-funding-has-passed-2017s-total
10. CoinDesk. Report: More Than Three-Quarters of ICOs Were Scams (Satis Group). https://www.coindesk.com/markets/2018/07/12/report-more-than-three-quarters-of-icos-were-scams

Disclaimer

This article is educational content only and is not financial advice. Nothing here is a recommendation to buy, sell, or hold any security. Consult a licensed advisor before making investment decisions.