Bitcoin Déjà Vu: What You Can Learn From Previous Downturns

by James · November 22, 2022

As Mark Twain once famously said, “The report of my death was an exaggeration.” The same can be said about Bitcoin (BTC -0.75%). Pundits have predicted its demise at least four times before. There have been two previous “crypto winters” and four previous bear market crashes. Each time, experts said that the cryptocurrency could not possibly recover.

So the current Bitcoin market collapse is nothing new. We’ve seen this story before. Call it Bitcoin déjà vu, because it keeps happening over and over again. If we see the same pattern now in 2022, now is not the time to dump the cryptocurrency. Here’s what we can learn from the past market declines.

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Bitcoin will bounce back, but it will take time

One big lesson is that Bitcoin doesn’t turn around overnight. You have to be patient and have a long-term perspective. There have been four previous downturns, and in three of them it took at least 20 months for krypton to recover. In two of these it took 36 months or more to regain full health. What is important to remember is that Bitcoin has been surprisingly resilient throughout its history.

Image source: Getty Images.

Not only has it bounced back each time, it has hit a new all-time high each time after recovering.

Back in 2011, Bitcoin crashed from a high of $32 to $0.01, but later recovered to reach a high of $1,000 in November 2013.
It then crashed back to the $200 mark in 2015 before recovering, this time to an incredible high of $20,000 in 2017.
The next dip fell back to the $3,200 level in December 2018 before recovering again, this time to the $63,000 level.
Another crash took the leading crypto back to $29,000 last summer before rallying again, this time to the $68,000 level. And now it has crashed again, falling below $16,000.

Push to surrender

In every Bitcoin downturn, there has always been tremendous pressure to capitulate. It is usually one completely unexpected market event that causes the entire crypto market to crater, and this is quickly followed by regulators weighing in and a major loss of confidence in crypto by private investors. This usually leads to even more panic selling.

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

Take 2011 for example, which was arguably the worst Bitcoin meltdown ever. The high-profile hack of Mt. Gox, a major Japanese cryptocurrency exchange, triggered a completely unexpected selloff of the cryptocurrency. At the time, Mt. Gox most of the Bitcoin in the world, so investors were rightfully worried about the crypto’s future.

Investors now refer to this event as the Bitcoin “flash crash” because it lost 99% of its value almost overnight. It plunged from $32 to $0.01 and only the Bitcoin true believers thought it would ever come back.

Buy and hold is the optimal market strategy

There’s a reason why Bitcoin investors often use terms like “diamond hands” to describe what it takes to hang on during the worst market downturns. You must have nerves of steel and hands of diamond. In these difficult moments, they constantly ask each other to “buy and HODL” for the long term. 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 continued to HODL through dramatic market crashes in the past.

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