Pirateat40 Default (BST Collapse)
Trendon Shavers defaults on Bitcoin Savings & Trust, erasing 7% of the Bitcoin supply and crashing the market.
On August 17, 2012, the inevitable collapse of the Bitcoin Savings & Trust (BST) occurred when Trendon Shavers ('Pirateat40') declared default. After months of aggressively marketing 7% weekly returns and amassing over 700,000 BTC in pass-through volume, Shavers posted a bizarre message on the BitcoinTalk forum claiming that he was closing the fund due to the 'volatility of the market' and harassment from community members. He promised to refund investors, but admitted he did not have the liquidity to do so immediately.
The sheer scale of this default is difficult to comprehend in modern terms. The 700,000 BTC involved represented a massive percentage of the total economic activity of the network. The default caused a liquidity crisis as panicked investors sold off whatever remaining coins they had, causing the price of Bitcoin to drop by over 30% in the days following the announcement (falling from ~$15 to ~$10).
This event was the first major 'credit crisis' in the crypto world. It shattered the naive trust that characterized the early community, where anonymous forum reputation was considered sufficient collateral. The SEC eventually charged Shavers with operating a Ponzi scheme, noting that he used new investor money to pay old investors and siphoned funds for personal use (including Las Vegas gambling). The BST collapse remains a definitive case study in High Yield Investment Program (HYIP) fraud and marked the end of the 'Wild West' era of unregulated, anonymous Bitcoin banking.