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Bitcoin's Volatility and Drawdown History — Cases of -80% Plunges

The news that 'Bitcoin was cut in half' is actually nothing to be surprised at. Bitcoin has fallen more than -80% from a peak several times in its history. Just how much has it swung?

Why does Bitcoin swing this much

Volatility means how greatly a price moves up and down. Bitcoin's volatility is incomparably larger than stocks'.

There are several reasons. With no 'reference value' like dividends or earnings, it's hard to gauge a fair price; its history is short; and it has a market structure where prices are pushed greatly even by relatively little money. Depending on news, sentiment, and regulatory reports, it rises and falls tens of percent even within a single day.

So knowing Bitcoin's drawdown history is not 'to scare you' but to accurately understand what kind of asset this is.

2017→2018: a winter of about -80%

Bitcoin soared to about $19,700 (near $20,000) at the end of 2017, becoming a worldwide sensation. But a year later, at the end of 2018, it collapsed to about $3,200.

The drawdown from the peak was about 80–84%. That is, if you had put ₩1 million equivalent (about $740) in at the peak, it was a decline leaving only about $120–$150. This period is commonly called the 'crypto winter.'

The peak and trough figures differ slightly by exchange and compiling institution. Cross-referencing various sources (OANDA price history, Bankrate, etc.), the drawdown for this stretch converges to roughly around -80%.

2021→2022: about -77% again

Bitcoin set a new all-time high of about $69,000 in November 2021. But in 2022, U.S. rate hikes and the collapse of various crypto firms and exchanges coincided, and it plunged, falling to near about $15,500 in November 2022.

The drawdown from the peak was about 77%. In just four years, 'more than three-quarters from the peak' evaporated a second time. There is also a compilation that more than $2 trillion of value disappeared across the entire crypto market during this period.

Many sources put the trough at about $15,476, and the drawdown is reported in the range of roughly 75–78% depending on the source (CNBC, Bankrate, etc.).

Comparing with stocks — and the problem of recovery

How large this drawdown is becomes clear when you compare with stocks. Even the historically worst drawdown of the U.S. S&P 500 index was roughly in the -50% range (the 2008 financial crisis, etc.). Bitcoin repeated the -80% range, far exceeding that -50%, several times.

What's more important is 'recovery.' To recover your principal from an -80% decline, you need to rise a whopping +400% (5-fold) from the trough. In fact, Bitcoin has at times recovered past drawdowns and then made new highs, but in the meantime it had to endure several years of a long stretch of losses.

The fact that it recovered in the past is no guarantee that it will necessarily recover going forward. What this site emphasizes is simple: not hiding the fact that behind large upside potential there is always an equally large drawdown and a long stretch of losses attached.

This article does not predict Bitcoin's future price. Past drawdown and recovery cases are merely a reference for understanding the asset's character, not a claim that the same pattern will repeat.

よくある質問

Q. Bitcoin eventually rises again, so can't I just hold on even if it falls?

It's true there are past cases where it recovered, but that does not guarantee the future. It took several years to recover principal from an -80% drawdown, and many people, unable to endure that stretch of losses, sold at the trough. 'Hold on and it will rise' is hindsight, and there is no basis that it will recover going forward too.

Q. How much larger is Bitcoin's volatility than stocks'?

To simplify, you could say it's 'on a different level.' The historically worst drawdown of the stock market is roughly in the -50% range, while Bitcoin has gone through -80%-range plunges several times. Its daily swing range is also far larger than stocks'. Large upside potential and large downside risk are attached like two sides of a coin.