On January 20, Bitcoin (BTC 0.20%) reached a new all-time high exceeding $109,000. At that moment, many investors anticipated that the pro-crypto policies of the incoming Trump administration would propel Bitcoin’s price even higher.
However, the reality has been quite different. Since January 20, Bitcoin has dropped approximately 25%. With a current price of $82,000, it is nearing levels observed back in November 2024, when the crypto frenzy was revitalized. Should investors be worried?
Bitcoin’s Historical Performance
The first thing to understand is that Bitcoin has experienced numerous price fluctuations throughout its history, many of which have been far more drastic and unexpected than the current situation. Notably, Cathie Wood from Ark Invest has documented at least five occasions when Bitcoin has lost 77% or more of its value.
In comparison, the current decline is relatively mild. Still, maintaining a long-term perspective is crucial. This is because Bitcoin can take time to bounce back after a downturn. According to Wood, it is advisable to hold your Bitcoin for several years to optimize your investment returns.
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In 2024, Wood assessed Bitcoin’s performance across various time frames (three, four, five, six, and seven years) and discovered that Bitcoin outperformed every major asset class during all these extended durations. Specifically, Bitcoin recorded average annualized returns of 44%, unlike other key asset classes that averaged just 5.7%. This is particularly noteworthy, considering Bitcoin’s 65% value loss in 2022.
Even more remarkable is that returns continued to improve over time. This means that an investor who held Bitcoin for four years yielded better results than one who held it for three years. Likewise, an investor who stayed in for five years outperformed one who held it for four years. The longer you retain your Bitcoin, the better your results tend to be.
Bitcoin’s Volatility
Another positive aspect is that Bitcoin’s volatility has been decreasing over time. This may surprise many investors, given the numerous headlines regarding Bitcoin’s volatility in the past month. Volatility can be described as the degree to which Bitcoin’s price fluctuates (whether up or down) in a given time frame.
The crypto data platform Coinglass monitors Bitcoin’s historical volatility over rolling 30-day periods. As per its most recent data, Bitcoin’s current 30-day historical volatility stands at around 3.5%, consistently remaining below 4% over the past two years.
In contrast, during the previous crypto bull market from 2020 to 2021, Bitcoin’s 30-day volatility occasionally peaked at 9%. Earlier in its history, it even reached volatility levels of up to 15%. Thus, if you examine a Bitcoin volatility chart, you’ll notice that price fluctuations have been relatively less extreme over time.
Despite the ongoing market turbulence, you’ll frequently encounter headlines posing the question, “Why is Bitcoin’s price stagnant?” Up until recently, investors had expressed concerns that Bitcoin wasn’t volatile enough to escape a tight trading range.
This may serve as a reminder of the need for caution in what you wish for. Investors desired increased volatility, and they certainly received it. The only issue, however, is that Bitcoin moved out of its confined trading range downwards, rather than upwards.
Is Bitcoin a Safe-Haven Asset?
In conclusion, Bitcoin’s recent price drop is not out of the ordinary, and its volatility is, in fact, lower than historically observed. This should offer some reassurance to investors contemplating selling their Bitcoin.
Nevertheless, one significant change has occurred: investor perceptions. It is becoming increasingly difficult to argue that Bitcoin serves as a store of value or a hedge against recession while it consistently declines alongside stock markets. In essence, Bitcoin may not be the safe-haven asset it was once deemed to be.
This shift is reflected in the outflow of investments from new spot Bitcoin exchange-traded funds (ETFs). During the 30 days ending March 14, $5 billion exited Bitcoin ETFs, while $10 billion flowed into gold ETFs. This clearly suggests that investors now favor gold as a more reliable store of value compared to Bitcoin.
So, what does all of this imply for investors? If your outlook on the market is short-term, reallocating some funds from Bitcoin to gold might be prudent. However, for those adopting a medium- to long-term perspective, the best course is to do what Bitcoin investors have been doing for over 15 years: HODL (Hold On for Dear Life) your Bitcoin and wait for it to begin ascending in value again.
