Author: David Canellis
Translation: Blockchain in Plain Language
The dramatic volatility of Bitcoin has long taught us to 'go with the flow.'
We seem to have become accustomed to the expectation that even in a roaring bull market, significant corrections are inevitable, shattering our hopes, dreams, and wallet balances.
Therefore, it is entirely understandable for us to think that Bitcoin could suddenly drop 50% while sprinting towards six-figure or even higher price levels.
Does such an expectation make sense?
First, it is necessary to clarify that Bitcoin indeed has a 'tradition' of plummeting 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 to this pattern in each cycle.
However, this article does not discuss drawdowns during bear markets (for this, refer to our previous analysis). Instead, we will focus on corrections during bull markets, 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 comparative analysis over a three-month period.
The dashed line at the bottom represents the 50% drawdown level. As shown, during the bull market from August 2015 to December 2017, such a significant drawdown never occurred.
During this cycle, the largest drawdown occurred near the end of September 2017, with a 40% decline in two weeks.
However, in the subsequent bull market from 2018 to 2021, there were three occasions of drawdowns exceeding 50%.
One of these instances was the market crash triggered by the pandemic in March 2020, when the stock market experienced a series of 'Black Mondays.'
Bitcoin has dropped 50% or more across almost all time spans, with the only exception being the three-month time span, which is slightly lower at 47%.
The other two significant drawdowns occurred in May and July 2021, when Bitcoin fell from over $60,000 to $30,000. However, in the following four months, Bitcoin quickly rebounded to nearly $69,000.
This time, the correction is relatively mild; the most significant correction during the bull market occurred in the first week of August.
Bitcoin has dropped 30% across multiple time frames, falling 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 that future market conditions will continue to fluctuate.
It is worth noting that historically, the most severe drawdowns often occur at the end of bull markets.
Therefore, the longer a bull market lasts without significant corrections, the more unsettling the uncertainty about future trends becomes—this is also the unique 'thrill' of investing in Bitcoin.
