Bitcoin – New All-Time High Followed by a 10% Drop

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on Mar 17, 2021

Updated: Dec 19, 2022

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Bitcoin’s volatility remains unchanged despite the fact that its adoption rate increases by the day. More public companies announce investments in the “digital gold”, and those that invested early also add to their position.

In the first week of March, MicroStrategy, a software company from the United States that converted its treasury to Bitcoin, announced another $10 billion cash purchase of 205 bitcoins at the average price of $48,888. In total, the company now holds 91,064 bitcoins, and its total investment exceeds $2.2 billion, at an average price of $24,119.

Tesla announced a $1.5 billion investment in February, Square another $150 million, and the list can go on, as institutional investors expressed their interest too. However, despite increased adoption, its volatility remains the same. Recently, Bitcoin’s market capitalization exceeded $1 trillion. One would think that volatility will decrease following the exponential rise, but it did not. Is it just a betting game poised to remain volatile despite more players arriving?

Bitcoin Milestones Throughout the Years

For a clearer picture of Bitcoin’s volatility, it is perhaps useful to check out some historical price action. The data in the table below shows the number of days between different milestones, such as the round numbers in thousands.

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For example, it took Bitcoin 1,269 days to rise from $1,000 to $2,000, seven days to reach $9,000 from $8,000, and less than a day to reach $60,000 from $59,000. Such a statistic is useful as it shows the historical prices and how active the market was in hindsight. However, it shows only one side of the story – the upside, thus having a bias.

Last weekend, as it is often the case with cryptocurrencies, the price of Bitcoin reached a new all-time high, hitting $60,000. It quickly dropped 10% in less than 24 hours, a move you won’t see on a statistic such as the one above, but it does not mean that it did not happen.

As an investor, such a drop is devastating for a portfolio. It proves that the volatility remains elevated even as the price rises and more investors pour in. Yet, it also shows something that every Bitcoin holder fears. Namely, on every sharp drop of 10% or more in a day, every retail trader hopes that there will be a strong hand buying – a Tesla, Square, MicroStrategy, etc. So far, it was, but the high volatility levels indicate that larger drops are not only possible but probable.

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