No, Bitcoin has never experienced a bear market: be careful

the central theses

• Bitcoin has already gone through many bear markets and has repeatedly increased to higher highs
• Dan Ashhor, our research manager, warns of a naive extrapolation of past returns
• until last year the stock markets had only increased during the existence of Bitcoin
• Bitcoin was introduced in 2009 when the stock markets reached their low point, and the subsequent bull market was one of the longest in history
• This must be taken into account, warns Ashmore, since the sample size of the Bitcoin trade with any kind of liquidity is also low

Bitcoin is volatile. Also true: the water is wet and the sky is blue.

A quick look at a Bitcoin diagram tells you everything you need to know about the comet-like climbs and bone-breaking setbacks that the asset has brought about over the years. Actually, it should also be shown on a scale.

If you look at the Bitcoin markets, you are therefore trying to prematurely come to the conclusion that "we have been here before". Bull markets and bear markets, there is an easy coming and easy to walk. Or as Jeff Bridges Lay as poetically in the big Lebowski: "Strik and Gossen, heights and deep".

While Bitcoin has decreased many times and, at least before, has recovered again and again, I think it is naive to transfer past re -swings to the present. Because no, we have never been here.

to make it clear: I don't say that Bitcoin will not reach new heights again. That could easily happen (I think Bitcoin as part of my portfolio, albeit through a monitored allocation and taking into account the boring proverbs of diversification and risk management, but hey - that's another time). However, my point is that we have no reference point for the current situation. Despite an increase of 75 % in the past six months, Bitcoin is 60 % below his high in the fourth quarter of 2021, and many investors are under water if they have opened positions in the past three years, since Bitcoin has really established itself on the mainstream stage.

let me explain why things are different this time and why the blind assumption that Bitcoin will soon increase will be wrong. In the following, the biggest declines from the climax to the low point in the history of Bitcoin are listed (the recent/current decline is highlighted):

Obviously Bitcoin has already existed here. Right?

well, no, it doesn't. Take a look at the above data: All of these use date from 2012. This is because Bitcoin was only introduced in 2009. In fact, it had no liquidity or infrastructure until 2012 (e.g. stock exchanges or a marketplace) (and even then the liquidity was extremely low).

and consider what happened in the overall economy since Bitcoin was introduced in 2009. On March 9, 2009, two months after the introduction of Bitcoin, the Nasdaq reached a low of 1268. The S&P 500 did the same and reached a low of 676.

Since then, the markets have experienced one of the most remarkable, longest and most explosive upward trends in recent history when the interest rates in the basement level drove the wealth prices to dizzying all -time highs. At the end of 2021, the Nasdaq reached a value of 16,057 at its climax, the S&P 500 a value of 4,793. Since the above -mentioned deep stalls in March 2009, this corresponds to a return of 12.7 and 7.1. A historical time of profits.

representation of the returns both of the Nasdaq and the S&P 500 since the introduction of Bitcoin in January 2009 (note - this decreases a few months before the low point of the stock market in March this year and therefore the returns are not as sensitive as above) shows visually the increase in the markets during the entire life of Bitcoin:

or maybe the next diagram is better, which shows how lively the stock market was throughout Bitcoin throughout the entire lifespan in the period up to and including 2021.

Each individual decline took place in the history of Bitcoin, while the wider financial markets grumbled smoothly. Of course, that changed everything in 2022, when inflation scored up and the central banks in the world began to lift the interest more quickly than ever before.

suddenly, for the first time in the existence of Bitcoin, it continued to block block by block, while the financial markets fell elsewhere. And they fell quickly: the S&P 500 lost almost 20 %in 2022, the Nasdaq lost over a third of its value. These losses were not only the worst in the history of Bitcoin, apart from minor declines in 2011 and 2018, they were also the greatest there were only losses that it had ever experienced.

So this time it is so different. It is a dangerous assumption to blindly trust that Bitcoin will recover aggressively because you simply come to the conclusion that it has already existed. Here, too, Bitcoin could easily do this, but it would be foolish to assume that it is a guarantee because it has already happened in the past.

The reality is that the world had no idea until last year how Bitcoin would be acted outside of zero interest rates, in which we have been operating on for a decade. There is no trading history for Bitcoin that goes back to previous recessions, no diagram that could be assessed on the basis of how inflation survived in the 1970s, no clue to anything other than a stock exchange that prints one green candle after another.

All of these earlier swings not only took place at a time cheap money and growing central bank balance, but the Bitcoin markets were also incredibly illiquid. Hardly a drop of capital was required to move the prices, since Bitcoin exploded from a fraction of a cent to thousands of dollars per coin. The existence of Bitcoin is only short -lived at the age of 14, but his status as a financial asset of any kind of liquidity is even shorter.

again: This is not an article that makes any forecasts about the future of Bitcoin. I don't want to wade in such cloudy waters (at least not here!). Rather, it is a warning that we can work with Bitcoin with such a small sample size, and it is important to be aware of it when judging how it is traded.

Bitcoin has never experienced a bear market in the overall economy before. Until now. To overlook this crucial fact is a dangerous game.