History Shows Bitcoin's Volatility Is Net Positive

Today’s letter is brought to you by Bitcoin Investor Day!

I am hosting the first Bitcoin Investor Day in New York City on March 22nd this year. It is an annual meeting for sophisticated Wall Street investors who are interested in bitcoin.

Speakers include Cathie Wood, Mike Novogratz, Anthony Scaramucci, Mark Yusko, Head of Digital Assets at BlackRock, Bitwise CEO, Head of Research at Fidelity & VanEck, and many more.

Tickets are only $50 and the venue is incredible. This will be one of the highest quality bitcoin conferences of the year. See you there!

To investors,

Bitcoin briefly broke the previous all-time high of $69,000 yesterday. The digital currency then proceeded to drop more than 10% shortly after. This type of volatility is unheard of in traditional financial markets, but it is just a normal day in the world of cryptocurrencies.

Alex Thorn, the Head of Research at Galaxy Digital, correctly pointed out it is important to “remember that in December 2020, BTC touched its prior all-time high of ~$20k twice, then ranged and traded -11.3% lower over 15 days before definitively breaking ATH.

It is likely to look similar here, and some consolidation would be healthy after +62% YTD / +77% from YTD low (jan 23).”

Thorn went on to present an analysis of the volatility in the last two bull markets. First, he showed “bitcoin had 13 corrections of 10% or more between the March 12, 2020 covid-low ($3858) and the April 14, 2021 ATH ($64,899).”

If we go back to the 2017 bull market, “from January 1, 2017 to December 17, 2017 bitcoin ATH ($19,891) there were thirteen 12%+ drawdowns (of those, 12 were 15%+, and 8 were 25%+).”

Bitcoin is volatile. You need the volatility to get the upwards movement in price, so most holders view the thrashing of price to be a net positive over the long run. Now that bitcoin is larger than the entire US high-yield bond market, or larger than the entire silver market, some believed the volatility would subside.

Personally, I have even talked about volatility dampening over the long-run.

But bitcoin has not paid attention to those opinions in the short-term. The asset continues to oscillate in ranges of thousands of dollars per day. This is important to understand if you are buying bitcoin for the first time or if you have a weak stomach for volatility.

The good news is that “Bitcoin is not only the best performing asset class of 2024, up 62% YTD, it also has the highest Sharpe ratio at 2.1,” according to Zerohedge. This continues to reinforce the point that bitcoin is one of the best, if not the best, risk-return assets available in the market.

I write this to all of you because the market continues to be a little crazy. At the exact moment that the euphoria hits from breaking the all-time high, holders are immediately met with a 10% drawdown. It is easy for outsiders to say bitcoin holders “got lucky,” but the truth is that very few people in the world can hold an asset through this type of volatility.

I hope this helps as we go through the next few weeks. Talk to everyone tomorrow.

-Anthony Pompliano

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Mauricio Tovar is the Co-Founder at Tropykus.com and CEO at TRUWeb3. Tropykus Fiance offers simple digital loan and credit products focused on emerging economies.

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