Written by: David Canellis
Translated by: Baihua Blockchain
The extreme volatility of Bitcoin has long taught us to 'go with the flow'.
We seem to have become accustomed to this expectation: that even in a roaring bull market, we are bound to encounter significant corrections that shatter our hopes, dreams, and wallet balances.
Thus, we all find the idea that Bitcoin could suddenly drop 50% while sprinting towards six figures or even higher completely understandable.
Is this expectation reasonable?
First, it should be clarified that Bitcoin indeed has a 'tradition' of falling about 80% from the peak of a bull market to the trough of a bear market. Since Bitcoin's first significant rise in 2011, there has been almost no exception in each cycle.
However, this article is not discussing retracements during a bear market (for this, please refer to our previous analysis). Instead, we will focus on corrections during the bull market, as we are currently experiencing.
The chart below shows Bitcoin's price performance over six different time spans, ranging from three days to three months, presented in a rolling manner from the cycle's starting point (trough) to the historical peak (summit).
Each line represents a time span. For example, the dark purple line indicates the percentage difference between each daily low and the opening price three days prior, while the green line represents a similar comparison over a three-month period.
The dashed line at the bottom represents the 50% retracement level. As shown, there was never such a large retracement during the bull market from August 2015 to December 2017.
During this cycle, the largest retracement occurred near the end of September 2017, with a decline of 40% over two weeks.
However, during the subsequent bull market from 2018 to 2021, there were three instances of retracement exceeding 50%.
One such instance was the market crash triggered by the pandemic in March 2020, during which the stock market experienced a series of 'Black Mondays'.
Bitcoin has fallen 50% or more across almost all time spans, with only the three-month span slightly below 50% at 47%.
Another two significant retracements occurred in May and July 2021, when Bitcoin fell from its historical high of over $60,000 to $30,000. However, in the following four months, Bitcoin quickly rebounded to nearly $69,000.
This time, the retracement was relatively mild, with the most significant correction during the bull market occurring in the first week of August.
Bitcoin fell 30% across multiple time frames, dropping from over $70,000 in June to a low of $49,200.
Of course, this does not mean that Bitcoin has lost its volatility. I still believe the future market will continue to fluctuate.
It is worth noting that historically severe retracements often occur at the end of a bull market.
Therefore, the longer the bull market continues without a significant correction, the more uncertainty it brings about future trends, which is also the unique 'excitement' of investing in Bitcoin.
