No, Bitcoin has never seen a bear market before: Be careful

Key Takeaways

• Bitcoin has been through many bear markets before, always surging back to higher highs
• Dan Ashmore, our Head of Research, cautions against naive extrapolation of past returns, however
• Until this past year, stock markets had done nothing but rise during Bitcoin’s existence
• Bitcoin was launched in 2009 as the stock markets bottomed, and the bull run afterward was one of the longest in history
• This needs to be considered, cautions Ashmore, whilst sample size of Bitcoin trading with any sort of liquidity is also small

Bitcoin is volatile. Also true: water is wet and the sky is blue. 

A quick glance at a Bitcoin chart will tell you all you need to know about the meteoric rises and bone crushing pullbacks that the asset has produced over the years. In truth, it should be plotted on a scale, too. 

When looking at Bitcoin markets, therefore, it is tempting to jump to the conclusion that “we have been here before”. Bull markets and bear markets, easy come and easy go. Or, as Jeff Bridges put it so poetically in the Big Lebowski, “strikes and gutters, ups and downs”. 

While Bitcoin has drawn down many times before and, at least previously, always bounced back, I believe it is naive to extrapolate past resurgences into the present. Because no, we have not been here before. 

To be clear, I am not saying Bitcoin will not rise to new heights again. It easily could (I hold Bitcoin as part of my portfolio, albeit via a monitored allocation and obeying the boring all adages of diversification and risk management, but hey – that is for another time). My point, however, is that we have zero point of reference for the current situation. Despite a surge of 75% in the last six months, Bitcoin is 60% off its high in Q4 of 2021, with many investors underwater if they opened positions in the past three years as Bitcoin truly established itself on the mainstream stage.  

Let me explain why things are different this time around, and why assuming with blind confidence that Bitcoin will surge upward imminently may be misguided. First, the below are the biggest peak-to-trough drawdowns in Bitcoin history (the recent/current one is highlighted in yellow): 

Clearly, Bitcoin has been here before. Right? 

Well, no it hasn’t. Look at the dates of the above: all these drawdowns are from 2012 onwards. This is because Bitcoin…