Everyone knows bitcoin is a volatile beast, even if last week’s price action was especially crazed.
Bitcoin plunged 30 per cent to $30,000 in early trading last Wednesday, before rallying 35 per cent over a four-hour period. By Thursday, bitcoin was again trading above $40,000, although the scale of the recent losses – bitcoin peaked at $64,000 last month – invariably generated headlines aplenty as to whether the bubble had burst.
Most investors – 75 per cent, according to the latest Bank of America monthly fund manager survey – do see bitcoin as a bubble. Whether it has burst, however, is anyone's guess.
Yes, the price more than halved in little over a month, but this is par for the course with bitcoin. Since 2010, it has survived four separate declines of at least 80 per cent. Ritholtz Wealth Management's Michael Batnick notes there have been 10 times since 2017 that bitcoin was at all-time highs only to then fall 30 per cent.
Despite those stomach-churning declines, it has risen more than 50-fold over that period.
Historically, Bitcoin's average drawdown from a record high is nearly 50 per cent, says Bespoke Investment. Indeed, Bespoke notes that on 69 per cent of all trading days over the past decade, bitcoin has been down more than 40 per cent from its record high.
You can be sceptical regarding the claims of bitcoin's fervent believers, but at this stage it may be wise to give up "predicting imminent demise", tweeted Nobel economist Paul Krugman last week. "There always seem to be a new crop of believers."
