- It is the main of the last 50 years
- Outperform the dotcom bubble
The crypto sector does not win for dislikes. When it seemed that the waters had calmed down after the crash experienced in the middle of the year, the cryptocurrency platform FTX has officially declared bankruptcy due to its liquidity problems. A new blow that has dragged with it the main cryptocurrency by market value, bitcoin, in what is already the fifth largest collapse of all time and the main one since 1970, according to Bank of America (BofA).
In just one year, the price of bitcoin has fallen by 77%, from $69,000 to just over $16,500. As a pioneer and main reference for cryptocurrencies – it accounts for about 40% of the total market – its decline has dragged down the system as a whole. Thus, the capitalization of the cryptocurrency market has been reduced by more than 2.1 trillion dollars, to 900 million dollars.
BofA takes as a reference the falls from its recent highs to compile a league table where the crash of bitcoin is located in the fifth historical place of greatest financial debacles. Thus, its decline surpasses the ‘Black Monday’ of 1987, the bursting of the housing bubble in Japan in the 1980s, or the crash of the stock market in Saudi Arabia in 2006, as far as financial collapses are concerned.
What is most striking, however, is that they have managed to outperform the dotcom bubble, to which they have often been compared. In that case, investors’ bet on technology companies made the Nasdaq rise 375% in just two years, but then fell 76% due to the absence of a business plan for them. As a consequence, billions of dollars were lost.
In fourth position is the real estate boom of 2005 in the US, according to Fortune. After years of soaring prices, home sales plummeted, and with it, the value of homebuilder shares. A fall of 83% that gave rise to the greatest economic and financial crisis of this century.
Although it may be surprising, given that it came to be considered a “financial apocalypse”, the Great Depression does not hold the first position, but the third. For the American economy, the 1920s were a boom period that ended dramatically on October 24, 1929. On that day, panicked investors sold their stocks, causing the Dow Jones – whose value had shot up 281% since 1927 – sank nearly 90%. This event was followed by an economic crisis that lasted in the US until 1934.
In second place is what is known as the bubble of the South Sea of the 18th century. In 1711, The South Sea Company was founded to control and reduce Britain’s national debt, as well as help increase its then highly profitable slave trade. With the prospect that this market was going to grow, the corporation dedicated itself to offering its investors 6% interest. Likewise, he took over the national debt of 32 million pounds for 7.5 million pounds. However, this explosion never took place and the company chose to trade with that debt. The disaster materialized in September 1720. In just four months, the value of the titles went from 1,000 pounds to a mere 124 pounds, according to Historic UK.
The Mississippi bubble is the one that crowns this ranking. In the 1710s, John Law created the Banque Générale -an entity with authority to issue banknotes- and the Compagnie d’Occident -dedicated to commercial exploitation in the Mississippi River Valley (USA)-, which allowed him to monopolize the French trade in tobacco and African slaves, and the finances of the country. As with The South Sea Company, the prospect of big profits sent the company’s share price skyrocketing. The point is that Law then decided to merge both entities, which in practice meant linking the French debt with their titles, according to Britannica. The result was that, when the French government took advantage of the stock market boom sweeping Europe to print money, inflation soared, dragging Compagnie d’Occident shares down with it, plummeting 95%.
