Crypto chaos nothing new for been-there, done-that traders
15:04, 26 May 2021
The past six weeks have been nothing short of a roller-coaster ride for bitcoin. The world's No. 1 digital asset has plunged 40% from a mid-April record high close to $65,000, spooking a market that lured hordes of new buyers during a prior 12-month rally that boosted its value by more than tenfold.
The cryptocurrency slid almost 9% on May 23 alone, only to rebound by 11% the very next day. Still, a closer look at its price history suggests such dizzying volatility is nothing new to it. Since 2013, bitcoin has seen over 50 daily declines in excess of 10% and on five of those occasions, losses were more than twice as much. On the other hand, the cryptocurrency also has had 65 one-day gains of more than 10%.
Indeed, it still remains to be seen if the recent crypto selloff marks the bursting of an asset bubble or just a sharp correction that doesn’t alter the longer-term trend.
While a measure of the digital token's swings has climbed from levels at the start of the year, it is still well below historic peaks. Bitcoin volatility, measured as the standard deviation of its daily fluctuations versus a 200-day average, currently stands at about 4.35%, compared with 2.67% in early 2021 and only slightly up from a year ago. The indicator climbed as high as 6.6% in March 2018 and 7.6% in April 2014.
Bubble or correction?
Bitcoin's latest slump unnerved new investors and prompted some commentators to suggest that the crypto asset bubble may have burst. However, those who have been in the market longer would remember that the digital token has had worse patches in the past.
In late 2013, the price halved to $550 in less than three weeks after a tenfold jump over the previous two months, extending declines to $200 by January 2015. The next crash came during January-February of 2018, with the coin losing 65% of its value after approaching $20,000 in late 2017. And then the market saw another big selloff in March 2020, when the cryptocurrency briefly fell more than 50% during the global financial turmoil caused by the pandemic.
On its worst day on record, bitcoin lost 27% on 13 March, 2020. Its best gain till date was on day ever for bitcoin was on 19 November 2013, when it surged 35%.
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Long-term trends
While past trends can't predict future developments, asset-price movements tend to have a certain cyclicality over the longer term. Thus, if bitcoin has indeed entered a bear market, investors can expect this to last about a year, during which the price swings may alternate between declines to new lows and brief recovery periods.
After the November 2013 high, bitcoin prices fell by over 80% in a period of 13 months and then took two years to recover. Thus, an investor who bought bitcoin on 30 November 2013 could see the first profit on 24 February 2017.
Similarly, someone who bought bitcoin on 17 December 2017 and held on to it lost over 80% of the money in one year to recover all the losses within another two years.
Thus, if the large trends of the past were to repeat, in the case of a bear market, an 80% drop from the all-time high would translate into a low of $10,000 to $13,000 for bitcoin in the following year, which is between a quarter and a third of the current level, after which the price could climb again to $65,000 in the first half of 2024.
Read more: What comes next after the recent bitcoin price crash?
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