Bitcoin’s Volatility

Summary

Bitcoin's price volatility is a recurring pattern, with significant drawdowns being a common occurrence, and long-term investors typically remain profitable and unfazed by short-term fluctuations.

Abstract

The article discusses the historical volatility of Bitcoin (BTC), emphasizing that dramatic price swings are not a new phenomenon in the cryptocurrency market. It references a graphic from Visual Capitalist that shows 15 of the most significant BTC price corrections since January 2012, with three of the top seven drawdowns occurring in the last four years. The article suggests that investors should anticipate and be prepared for such volatility. It also highlights data from glassnode indicating that while recent price drops have affected short-term holders, long-term holders, or "HODLers," are still in profit and are not selling. The piece advises that to benefit from potential exponential returns, investors should avoid becoming "weak hands" who sell during drawdowns. The author, who has written on various investment topics, including blockchain stocks and the concept of antifragility, provides this insight for those who understand the implications of tail-risk and asymmetric risk-reward.

Opinions

Investors should expect and be prepared for Bitcoin's price volatility, as it is a consistent characteristic of the cryptocurrency market.
Despite recent price drops, long-term Bitcoin holders have not sold their positions and remain profitable.
Short-term Bitcoin holders have been more affected by the latest market downturns.
To capitalize on the potential for exponential returns, investors need to withstand short-term volatility without succumbing to panic selling.
The article is aimed at informed investors who are familiar with the concepts of tail-risk, convexity, and asymmetric risk-reward.

Putting the latest BTC price volatility in perspective

The above graphic is from Visual Capitalist, which depicts 15 of the most significant BTC price drawdowns dating back to January 2012.

Pronounced BTC price volatility is nothing new.

Three of the top seven drawdowns (45% or greater) have occurred in the last four years. As such, investors should expect this level of price volatility to continue, periodically, in the foreseeable future — and size their allocation to BTC accordingly.

The graph below, created by glassnode, illustrates the magnitude of the most recent losses compared to those during the 2018 and 2020 sell-offs. Given the prevalence of new investors in the cryptocurrency space, the current BTC price drop appears to have shaken out short-term BTC holders.

The latest BTC price action should nonetheless be put into perspective: long-term HODLers are in the black. And they are not selling.

Source: Author

Investors that reap the benefits of exponential returns are able to look beyond short-term volatility.

They position their portfolio to not become one of the weak hands, turned forced sellers, during drawdowns.

Disclaimer: Topics covered herein are for informational purposes. Before acting on investment information, consult with a financial professional. This article is intended for people who understand the pro/con impacts of tail-risk, convexity, and asymmetric risk-reward in the context of an investment portfolio.

Bitcoin’s Volatility — Nothing New

Putting the latest BTC price volatility in perspective