Bitcoin Déjà Vu: What You Can Learn From Previous Downturns

As Mark Twain once said, “The news of my death was an exaggeration.” The same can be said for bitcoins (CRYPT: BTC). Experts have predicted its demise at least four times in the past. There have been two previous “crypto winters” and four previous bear market crashes. Each time, experts said the cryptocurrency could not recover.

So the current market crash for Bitcoin is nothing new. We’ve seen this story before. Call it Bitcoin Already seenbecause it keeps repeating itself. If we are seeing the same pattern now in 2022, then now is not the time to dump cryptocurrency. Here’s what we can learn from its previous market downturns.

Bitcoin will recover, but it will take some time

A big lesson is that Bitcoin doesn’t transform overnight. You have to be patient and take a long-term perspective. There have been four previous downturns, and in three of them, the cryptocurrency took at least 20 months to recover. In two of these, it took 36 months or more to regain full health. The important thing to keep in mind is that Bitcoin has been surprisingly resilient throughout its history.

Image source: Getty Images.

Not only did it rebound each time, but it hit a new all-time high each time on its recovery.

  • In 2011, Bitcoin plunged from a high of $32 to $0.01, but later recovered to hit a high of $1,000 in November 2013.
  • It then returned to $200 in 2015 before bouncing back again, this time to a staggering high of $20,000 in 2017.
  • The next dip was down to the $3,200 level in December of 2018 before bouncing back again, this time to the $63,000 level.
  • Another crash took the major cryptocurrency back to $29,000 last summer before climbing again, this time to $68,000. And now it has collapsed again, falling below $16,000.

Pressure to capitulate

In every Bitcoin downturn, there has always been tremendous pressure to capitulate. There is usually a completely unexpected market event that crashes the entire cryptocurrency market, and this is quickly followed by the brunt of regulators and a large loss of confidence in cryptocurrencies by retail investors. This usually leads to even more panic selling.

At one point or another, every Bitcoin investor has probably felt some pressure to capitulate. When the smartest talking heads on financial news channels tell you that Bitcoin is a “fraud” or an “illusion,” it can be hard to argue otherwise.

Take 2011, for example, which was arguably the worst Bitcoin crash ever. The high-profile hack of Mt. Gox, a major Japanese cryptocurrency exchange, has precipitated a completely unexpected sell-off in the cryptocurrency. At the time, Mt. Gox was trading the majority of Bitcoin in the world, so investors were rightfully concerned about the future of the cryptocurrency.
Investors now refer to this event as Bitcoin’s “flash crash” because it lost 99% of its value almost overnight. It crashed from $32 to $0.01 and only true Bitcoin believers thought it would ever come back.

Buy and hold is the optimal market strategy

There’s a reason Bitcoin investors often use terms like “diamond hands” to describe what it takes to hold onto it during the worst of these market downturns. You must have nerves of steel and hands of diamond. During these tough times, they are constantly begging each other to “buy and HODL” for the long haul. Yes, there is tremendous pressure to capitulate, but the people who can claim truly life-changing gains on their Bitcoin holdings are the investors who have continued to HODL through dramatic market crashes in the past.

If there’s one cryptocurrency to buy and hold for the long term, it’s Bitcoin. The returns speak for themselves. Someone who invested in Bitcoin from the very beginning and held it through two crypto winters and four bear market crashes would now be up 16.175%. That’s not to say that Bitcoin will continue to experience notable market recoveries in the future, or that it will emerge unscathed from the current cryptocurrency winter, but based on its historical price performance, it’s certainly not out of the question.

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Dominic Basulto has positions in Bitcoin. The Motley Fool has positions and recommends Bitcoin. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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