Bitcoin is known for its volatility, but even by the cryptocurrency’s own high standards, the recent decline of almost 40% off all-time highs is quite large. As shown in the chart below, there have been four other drawdowns which bottomed out at larger declines off ATHs than the current one: the first half of 2011, the first half of 2013, and the 2013-2015 period. At one point near the start of 2012, the cryptocurrency had fallen by 93%! Things may be “different” this time in the sense that the market value of BTC is much higher, there are a broader set of speculators involved, and there are more ways to be exposed to the space including ETPs, futures, and derivatives. All of that said, the drawdown stats on the digital asset are remarkable. On average for the price history we have access to, BTC has been in a 25% drawdown. It’s been in a drawdown of 25% or more 71% of the time! Furthermore, it has closed at a record level on only 173 days (8.9% of all days in our price history). While BTC is up 14237510% since July of 2010, all of those gains have come on less than 180 discrete trading days. Pretty remarkable!
The chart is also a good cautionary note for any investor looking to get involved in cryptocurrencies. Regardless of your long-term view, price action can and will move against you quite aggressively for long periods of time. Make sure to keep this in mind when considering anything related to the space as an investment.
