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Bitcoin Carnage​: Easy Gains, Easy Losses...

  • Despite the constant flow of global macro and geopolitical news, the recent carnage in the cryptocurrency market stole the 'show' in the past two weeks with Bitcoin experiencing a 50-percent drawdown from peak to trough.
  • It is interesting to see that some media news and market participants have been surprised by the plunge in the crypo market; however, it is important to recall that the recent consolidation comes after a fifteen-fold rise in the price (from its low reached in March 2020 to its record high of 64,870 in mid-March).
  • We know that one fundamental rule in finance is 'Easy gains come with easy losses'; there has never been an asset in history of finance that has continuously trended higher without ever experiencing a moderate to significant drawdown.
  • This chart (Bitcoin in log term) shows that periods of significant appreciation in Bitcoin prices have generally been followed by short periods of sharp consolidation.
  • For instance, Bitcoin experienced three significant drawdowns (of 35%, 40% and 26%, respectively) during the 2017 rally, and then was eventually followed by a LT retracement of 84% in 2018.
  • 2021: is it just a short-term retracement or the start of a LT bear consolidation?

Source: Bloomberg/MNI

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