Step 6 / The Bitcoin Story
The market and the machine.
Separate a network problem, a broken business promise, and a falling price.
Imagine reading two headlines on the same morning. One says an exchange has stopped withdrawals. The other says bitcoin’s price has fallen sharply. You want to know what happened to your money.
The headlines may be connected, but they describe different things. A working Bitcoin network cannot force a failing company to return assets. It also cannot make buyers keep paying the same price.
We will follow three parts of the story: what the network did, what businesses promised, and what buyers paid. Keeping them separate helps you see where a loss came from.
A rising price can attract people before they understand the product
In 2017, rising prices and token fundraising brought many new people into crypto. A team could offer tokens to raise money for a project, sometimes before it had a working product. This was called an initial coin offering, or ICO.
A white paper described what the team planned to build. A purchase page made the token easy to buy. Together, they could make an early proposal feel like an established business. The ability to buy was not evidence that the product already worked.
The downturn that followed is often called a crypto winter. Prices fell, new funding became harder to find, and many projects disappeared. Some teams kept building. Surviving the quiet period did not, by itself, show that their work was useful.
In March 2020, bitcoin also fell during the wider market shock around the pandemic. It did not automatically rise when people became frightened about other financial markets. That episode is a counterexample to such a guarantee.
A fall from an earlier price peak is called a drawdown. Bitcoin’s history includes several severe drawdowns and later recoveries. Those records show what happened then. They do not promise a recovery in every future episode.
A familiar company can make access easier
In the following years, some companies bought bitcoin for their own holdings. Payment companies added crypto products, and more assets reached trading platforms. These changes gave people new ways to buy or hold an investment linked to crypto.
A familiar company can make the process easier. You still need to know who holds the keys, what fees apply, and what happens if its service fails. Convenience changes how you use the asset; it does not remove the company’s responsibilities.
These developments show changes in use and access. They do not strengthen every signature or stop large price swings. A well-known name is a reason to examine the arrangement, not evidence that it fits every household.
Policy examples need dates
El Salvador made Bitcoin legal tender in 2021. Its approach later changed. The IMF-supported program agreed in 2025 included making private-sector acceptance voluntary and reducing the public sector’s role. The 2021 headline alone does not explain the later policy.
In March 2025, a US executive order created a Strategic Bitcoin Reserve framework using certain assets already held by the government. That dated decision was not a permanent promise to buy at any price or prevent prices from falling. Laws and the way policies are carried out can change.
Follow the promise that each firm or token made
Suppose you hold 100 tokens that are meant to stay worth one dollar each. A token designed to stay near a reference price is called a stablecoin. Its intended link to that price is called a peg.
The target is not enough on its own. To turn your 100 tokens into 100 dollars, you need a buyer at that price or a working way to exchange them for dollars. Exchanging a token with its issuer for the asset behind it is called redemption.
In a simple reserve-backed design, the issuer holds assets and allows eligible customers to redeem under its terms. That route can help support what other buyers will pay. Terra used a different design, based on conversions and incentives involving linked tokens. It was not an ordinary promise to redeem each token for a dollar sitting in a bank.
Terra’s UST and its linked LUNA token collapsed in May 2022. The mechanism meant to support UST’s dollar peg did not keep it near that value during the crisis. A person could still have a record of tokens without having the purchasing power they expected.
FTX collapsed in November 2022. It was an exchange holding customer assets. Those assets had been misused, including for its related trading firm, Alameda. The criminal case established fraud. This was a different mechanism from a token failing to hold its price target.
Trouble can spread when firms depend on each other. BlockFi’s bankruptcy declaration reported loans to Alameda and assets held at FTX. The loans depended on Alameda repaying. The exchange assets depended on getting access at FTX. These were two different routes by which another firm’s failure could hurt BlockFi.
Use a fictional lender to see the problem. It has lent 60 units to a trading firm and left 40 units at an exchange. It owes customers 100. Adding 60 + 40 gives a recorded total of 100, but the lender does not have those units ready to hand back.
If the borrower cannot repay and the exchange blocks access, that recorded total cannot fill withdrawal requests. Later recoveries will affect the final loss. The immediate problem is that customers were promised access the lender cannot provide.
A stable price, an available withdrawal, and a profit are different promises. Trace what assets and people each depends on. The later stablecoin lesson compares the main designs after we learn how shared programs work.
Other firms faced different obligations
Three Arrows Capital, Celsius, and Voyager also faced failure or distress in this period. Their businesses were not the same as a base blockchain. Borrowing, the ability to meet payments, the assets they held, and their custody arrangements all mattered.
BlockFi filed for bankruptcy later in November 2022. Its court declaration described both the Alameda loans and the assets trapped at FTX. That filing is evidence of what the company reported about those connections; it does not make every statement by its management a court finding.
Buying a share is different from holding the spending keys
In January 2024, the US Securities and Exchange Commission, or SEC, approved listing and trading for a group of spot Bitcoin exchange-traded products. These products let investors buy shares through brokerage systems. The approval did not endorse Bitcoin or promise a safe return.
A spot product holds bitcoin through a custody arrangement. As an investor, you generally hold a share in the product. You do not automatically receive the keys to spend the bitcoin it holds.
A futures product gets its exposure through contracts instead of the same direct holding arrangement. Its costs and structure can differ. Similar-looking price exposure does not mean the investor owns the same thing.
Now suppose one investor sells an existing share to another. The share changes owners. The product does not necessarily buy more bitcoin because of that trade. Creating or redeeming shares is a separate process that can change its underlying holdings.
The April 2024 halving was a different event again. It changed the permitted new subsidy under Bitcoin’s schedule. An investment product changes access; a halving changes new issuance. Neither rule tells us what future buyers will pay.
The product holds bitcoin through a custodian. Its shareholders do not automatically gain direct signing control.
The idea to keep
For a market headline, ask what changed on the network, what a business promised, and what buyers paid. Then trace your own connection to the event. A correct payment record cannot guarantee a withdrawal, a stable token price, or a profitable investment.