As crypto prices fell last month, bitcoin entered the 70% drawdown zone somewhere between $20,000 and $21,000. This was a challenging period for investors, but it is not unprecedented. From April 27, 2014 through June 15, 2021 [1] (2,607 days), bitcoin spent 4.3% of the days in this uncomfortable situation [2] (113 days).

While the future may not look like the past, we can take a look at the data and see what happened one year after days when bitcoin was in the 70% drawdown zone, as a raw reference to help understand what may happen a year from now. What the data tells us is very informative and, in our opinion, mostly bullish. Our key takeaways from this analysis are as follows:

a. the average return following each of the 113 days was 84.4%;

b. there were positive returns in 92.0% of the cases;

c. the most negative return was -27.4%;

d. in 29.2% of cases, returns exceeded 100%;

e. the highest return was 186.2%.

Source: Prices from Vinter’s database

Assuming that the most recent 70% drawdown will follow this same pattern, we can anticipate three potential outcomes one year from now:

1. things can get worse (“c” above)...but this is unlikely (“b”);

2. it’s far more probable we see a significant positive return (“a” and “d”);

3. even in the best case, crypto will not fully recover from the 70% drawdown in just one year (“e”).

Under these circumstances, we believe there is no reason for panic. There is a largely favorable asymmetry regarding both the frequency of positive returns and the magnitude of the returns. 

Long-term holders have been rewarded handsomely in the upswings that have followed these large drawdowns. Investors who bought bitcoin close to its highs have to be patient and may want to consider current levels an attractive buying opportunity. For those who have not entered yet, our analysis points to this potentially being an excellent opportunity to get exposure. 

At Hashdex, we strongly believe that investments in bitcoin or other crypto assets should be made for the long term, and allocation size should be compatible with the investor’s risk tolerance. Despite recent drawdowns, we believe this asset class has enormous potential and will continue to reward investors with long-term horizons.

^Footnotes:

^{[1] Price data from the Vinter database, using all the data available from 4/27/2013 until 06/15/2022.}

^{[2] Drawdown of 70% or more relative to the maximum price over the previous 365 days.}

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