We have already learned to "accept and endure" the violent fluctuations of Bitcoin.
We seem to have become accustomed to this kind of expectation: even in the midst of a rampant bull market, we are bound to encounter a significant correction, shattering our hopes, dreams, and wallet balances.
Therefore, the idea that Bitcoin could suddenly plummet 50% in the midst of its surge towards six-figure or even higher prices is completely understandable.
Is this expectation reasonable?
First, it needs to be clarified that Bitcoin does have a "tradition" of plummeting about 80% from the peak of a bull market to the bottom of a bear market. This has been the case in almost every cycle since Bitcoin's first major rally in 2011.
However, this article is not about discussing the retracements in a bear market (for this, you can refer to our previous analysis). Instead, we will focus on the corrections during a bull market, as we are currently experiencing.
The chart below shows Bitcoin's price performance over six different time frames, ranging from three days to three months, presented in a rolling manner from the cycle's starting point (the bottom) to the historical high (the peak).
Each line represents a time frame. For example, the dark purple line shows the percentage difference between each daily low and the opening price three days prior, while the green line represents the same type of comparison on a three-month cycle.
The dashed line at the bottom represents the 50% retracement level. As shown, during the bull market from August 2015 to December 2017, there was never such a significant correction.
In this cycle, the largest correction occurred towards the end of September 2017, with a 40% decline over two weeks.
However, in the subsequent bull market from 2018 to 2021, there were three major corrections exceeding 50%.
One of them was the market crash triggered by the COVID-19 pandemic in March 2020, when the stock market experienced a series of "Black Mondays".
Bitcoin fell 50% or more across almost all time frames, with only the three-month time frame slightly below 50% at 47%.
The other two significant corrections occurred in May and July 2021, when Bitcoin plummeted from over $60,000 to $30,000. However, over the following four months, Bitcoin quickly rebounded to a new high near $69,000.
This latest correction has been relatively mild, with the most notable adjustment in the bull market occurring in the first week of August.
Bitcoin fell 30% across multiple time frames, from the over $70,000 high 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 be turbulent.
It is worth noting that the most severe corrections have historically occurred towards the end of a bull market.
Therefore, the longer the bull market lasts without a significant correction, the more uncertainty it creates about the future trajectory - and this is part of the unique "thrill" of investing in Bitcoin.
