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The Biggest Corrections in Bitcoin History

Just as Bitcoin has experienced meteoric highs, it has also seen intense lows. This week alone, Bitcoin has been on a roller coaster and has dropped or recovered 10 or 15% of its value in various swings. However veteran investors and long-term Hodlers shrug off these corrections, often completely unfazed. To them, cryptocurrency’s volatility is nothing new.

Just last month (January), Bitcoin lost roughly 28.5% of its value in 4 days. In dollar terms, that was the largest correction in Bitcoin’s history. However, in terms of a percentage, this correction wasn’t even in the top ten of all time. In fact, there were over six major corrections during the incredible bull market of 2017.

Despite these severe corrections, the value of a single Bitcoin was up 1000% throughout the course of 2017. Early adopters captured that gain only if they resisted the urge to sell during rough patches of intense volatility.

A similar theme plays out when you take a look at Bitcoin’s price action over a longer timeline. BTC’s value declined 87% between 2013 and 2015 – effectively erasing billions in investor wealth. However, if a hypothetical investor bought BTC at the top of the market in 2013 and held on until today she could have captured a remarkable 4,300% gain.

A noteworthy trend that has played out throughout Bitcoin’s history is the rising floor of prices. As the chart below demonstrates, the lowest price of a single BTC after every significant correction has consistently grown larger.

Source: John Taskinsoy

This phenomenon can be attributed to growing adoption, recognition by key mainstream players, and the rise of cryptocurrencies as a whole. These factors act on the demand side of the equation.

On the supply side of things, the reduction of the daily supply caused by the halving every 4 years also helps increase the “floor” price.

 

BTC’s growing adoption

A growing number of large-scale permanent stakeholders is another key reason for BTC’s steadily rising price floor. Investors with deep pockets and the capacity to hold through turbulent times have driven the market’s value consistently higher. Many within the community are now convinced that the long-term, buy-and-hold strategy (known within the crypto space as “HODLing”) is the most pragmatic way to invest in this sector.

Hodling can be traced right back to Bitcoin’s origin. The one and only Satoshi Nakamoto (creator of Bitcoin) reserved over 1 million BTC and to date, hasn’t sold or moved a single one. Assuming the mysterious creator is an individual, that hoard is the largest personal fortune in history.

Over time, billionaires and institutions have adopted this strategy to accumulate vast fortunes as well. Tech investor Peter Thiel has been accumulating since 2012. The Winklevoss twins are also notorious hodlers. Billionaire Mark Cuban has also held onto his stake for several years.

Over the past year, hedge fund managers such as Stanley Drunkenmiller and Paul Tudor Jones added some exposure to this asset class. Meanwhile, tech companies such as Twitter, Square, and Tesla added BTC to their corporate holdings. Meanwhile the number of wallets with over 1,000 BTC continues to expand.

Source: Elias Simos

This expanding base of multi-billionaire investors and trillion-dollar corporations adding BTC to their permanent hoard should push the price floor higher over time.  Miners such as Argo are also in on the Hodling game, and have steadily added to their BTC treasury over the last two quarters.

Historically, Bitcoin’s highs and lows have proved promising for hodlers in the long-term. It’s important to remember that Bitcoin has a way of correcting itself and that we’re all in for the ride no matter what because of its potential.

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