Opportunities to prove bitcoin skeptics wrong have been plentiful throughout the first half of 2021. Most notably, this rollercoaster ride hit a dramatic twist last Sunday, when bitcoin’s value plunged to $47,073.37 — a steep dive from its freshly minted all-time peak of $64,888.99, set just 11 days prior.
What Does a Bitcoin Bear Market Really Look Like?
A staggering 27.5% tumble in under two weeks rocketed bitcoin squarely into the conventional bear market zone. Traditionally, a “bear market” tag in the stock world requires a 20% or bigger slump, making that drop a textbook case. But bitcoin’s bounceback was swift and forceful, implying that the crypto arena marches to a different drummer when it comes to defining bulls and bears. Those routine 20% drops? They’re more like routine jitters in a longer upward surge than signs of a trend flip.
Jason Choi chimed in on Twitter, highlighting this point:
“Calling a Bitcoin bear market at -20% is a bit of a trap. During the 2016-2017 bull run, we saw six hefty corrections topping 30%. The real mood swing is better pegged to breaking below the 20-week moving average.”
Repeated Drops and Rapid Recoveries
The recent sell-off wasn’t a one-off; earlier in 2021, bitcoin also made headlines with similar 20%+ pullbacks. Remember January 25? Headlines screamed “Bitcoin enters bear market, brace yourself” as prices dipped to around $30,480.27 according to CoinDesk’s Bitcoin Price Index (XBX). Yet, in typical fashion, bitcoin soon found its footing and rocketed to a fresh all-time high of $58,353.78 just three weeks later, proving the doomsayers premature.
Dissecting the Market Moves: Patterns or Pandemonium?
Looking back, it’s clear how mistaken those early bear market calls were — the charts vividly depict price surges following the January slumps. Similarly, the significance of April’s 25th dip remains an open question. That April 13 record of $64,889 could either mark the crest before a prolonged downtrend or be just another chapter in bitcoin’s volatile saga of setting new highs, retracing beneath moving averages, and then climbing higher once again.
Establishing Bull and Bear Criteria for Bitcoin
To credibly label market regimes as bullish or bearish, conditions must linger beyond fleeting weeks. With this in mind, analysts have crafted a pragmatic framework tailored to bitcoin’s whims:
- The price shifts by more than 20%
- Following this shift, the price fails to revisit its prior peak or trough within 90 days
Applying this lens reveals that cycle lengths of bull and bear markets trimmed down between 2018 and 2020. However, the ongoing bull run, which ignited in the aftermath of the March 2020 COVID-19 crash, has now stretched over 407 days and counting (as of the date this analysis was compiled).
Quick Market Stats to Keep in Mind
Bitcoin’s historical volatility is staggering: during 2017, bitcoin soared from $1,000 to nearly $20,000, a near 2,000% increase. The number of corrections exceeding 30% during bull runs underscores the asset’s rollercoaster nature, making brief dips less indicative of overarching trends.
Beyond Price: The Tale Told by Volatility
Price isn’t the only story bitcoin’s cycles tell; realized volatility offers another compelling narrative. The chart below segments bitcoin’s 30-day volatility of daily log returns into three buckets:
- Low volatility: < 0.5
- Medium volatility: ≥ 0.5 and < 1.0
- High volatility: ≥ 1.0
A volatility cycle here is defined as any stretch during which the 30-day moving average of volatility clings to one category without wavering to another.
Volatility Cycles: From Long Gestations to Rapid Flips
Historically, volatility cycles extended progressively longer from 2014 through 2018, only to contract dramatically in 2019 — a brevity that has persisted since. At the time this data was recorded (a recent Tuesday), the current volatility cycle sat at 45 days, holding steady since then.
The Present Landscape: Calm or Brewing Storm?
Since mid-February, bitcoin has been oscillating within a relatively narrow corridor of $50,000 to $60,000 — a range that feels drawn-out during these pandemic-tinged months. Yet, this current volatility phase registers below its recent historical norm, hinting at a potential season of modest new record highs peppered with unexpected, sharp retracements.