May 15, 2021

Let's compare the current correction with the previous ones.

Again, everything is the same. Bitcoin undergoes another significant correction and re-emerges from somewhere commentators from the world of traditional finance to herald the beginning of the end. But time drawdowns are an integral part of a bull market and have always been good buying times.

Obviously, when it comes to real money, price swings tend to trigger strong emotional reactions in people. It `s naturally.

With a rapid price decrease, you may have thoughts such as:

"Will I lose my money?"
"Should I be selling right now?"
Is the bull market over?
"Did I make a mistake buying last week?"

These are all reasonable questions to ask yourself, but there is no reason to panic. Instead, try to put your current situation in perspective.

Here is one possible approach, with two questions:

  • Is the current correction the result of some event that invalidates your investment thesis?
  • Is the current correction different from anything you've seen in the past?

Why exactly these questions?

Well, if your investment thesis turned out to be wrong, then there is no point in keeping your position. Sell ​​and move on.

If the correction is completely unprecedented, then perhaps you should think carefully about the first question again: Have you missed something?

But if the answer to both questions is negative, then, most likely, you better either do nothing, or buy a little more on the decline.

So what are we dealing with now?


Bitcoin investment theses can be very different, so obviously I cannot cover every case. But I can share with you what I think about this myself.

Bitcoin is in the making.The price can fluctuate significantly in the short term, but as bitcoin becomes a full-fledged store of capital, more money will inevitably flow into it.

This doesn't give us any specific short-term price targets, but I think there are some milestones to look out for:

  1. $ 110k per BTC - at this price, Bitcoin will surpass all existing companies in market capitalization.
  2. $ 135 thousand per BTC - at this price, the capitalization of Bitcoin will be more than the value of gold enclosed in financial instruments.
  3. $ 500K per BTC - at this price, Bitcoin's capitalization will surpass the entire physical gold market.

My guess is that points 1 and 2 will be reached in this cycle.

So does the current correction have anything to do with Bitcoin adoption?

The chain of events that triggered the correction, as ifis not entirely clear. To some extent, it is due to excessive leverage and overheating of the futures market, to some extent - to "selling on the news" about the direct placement of Coinbase and partly, probably, to rumors about an estimated 80% tax on profits from cryptocurrency transactions for US residents. Mix this cocktail, add a dash of fear and a dash of doubt to it - and you have a sale on the way out.

Over-leverage in the futures market and “selling on the news” have nothing to do with the spread and emergence of Bitcoin, which is a very long-term process.

An 80% tax on profits from cryptoassets in the US would certainly be bad news. But:

  1. This is just a rumor and sounds completely implausible.
  2. These kinds of laws invariably contain loopholes,that institutional investors can take advantage of. So it might be bad for small players, but it is unlikely to be a defining factor for smart money.
  3. The United States is the whole world, so even though this would be a negative event, it would not mean the end of cryptoassets.

So should we worry about the investment thesis? Not.

What about the technical characteristics of the current correction? How does it compare to the past?

One way to consider a correction is to measure how deep it is and how long it lasts. This is what the diagram below is about.

Each point on the diagram is a correction.Color codes indicate belonging to one or another halving cycle. The lower the point on the vertical axis, the deeper the correction (measured from the last record high to the bottom point). The further the point is shifted to the right, the longer it took for the price to fully recover and reach a new record high.


If we count only those corrections that exceed 10% and exclude 80% + corrections that occurred at the end of the two previous cycles, then we get:

  • 7 significant corrections after the first halving;
  • 13 significant corrections after the second halving;
  • 13 significant corrections after the third halving.

At the time of this writing, the bottom of the current correctionis at the level of -27%. This makes it the second largest in the current cycle, but compared to what happened in 2017, it looks pretty standard.

You can dig a little deeper and look atthe trajectory of these significant corrections. Each of them starts from an all-time high on Day 1 and draws down 0%. Then the price falls and for each day we fix the low point as a percentage of decline from the all-time high. After a certain number of days, the price retraces to at least the last all-time high and we revert to a 0% drawdown.

The result is shown in the following graph.Each blue curve is a price retracement trajectory that begins with a dip from an all-time high and continues until the price recovers completely. The vertical axis shows the size of the drawdown (the percentage of decline from the record high), the horizontal axis shows the number of days since the last record high. The curves are divided into several panels according to their belonging to halving cycles. For comparison, the current correction has also been added, it is highlighted in orange.

Check it out:


The first thing that can be said is that with each new cycle, the largest corrections become smaller. This correlates with the idea that volatility decreases as it is adopted and spread.

The second observation is that the current one does not stand out among other spaghetti price corrections.

Conclusion: the current correction is no different from those that we have seen in the past.

This means that she isbest time to buy. Based on the historical distribution of corrections, there is less than a 1 in 5 chance that you will be able to buy BTC below the April 25 level. So there is no reason to expect anything more.

In short: nothing suggests that this time everything is somehow different. So put your satoshi aside and move on.

The article does not contain investment recommendations,all the opinions expressed express exclusively the personal opinions of the author and the respondents. Any activity related to investing and trading in the markets carries risks. Make your own decisions responsibly and independently.