April 7

Bitcoin All-Time High: What Has Happened Next Historically (Statistics and Probability)?

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Last Updated on 7 April, 2022 by Samuelsson

As with most assets, from time to time, Bitcoin (BTC) breaks previous all-time highs and sets a new one. There’s always a great fanfare whenever BTC makes a new all-time high, and investors may feel tempted to buy in on the fear of missing out, or “FOMO.” But historically, what has happened after Bitcoin makes a new all-time high?

From historical data, Bitcoin usually makes a deep pullback after making a new all-time high. While the duration and depth of the pullback vary, the cryptocurrency always reverses and continues to rise until it breaks the all-time high and makes a new one.

In this post, we will explain what Bitcoin is and the importance of its all-time high. Then, we will examine what happened historically each time Bitcoin made a new all-time high.

What is Bitcoin?

Bitcoin is a virtual currency or a digital currency, which is often described as a cryptocurrency — a type of money that is completely virtual. It was created in 2009, making it the first cryptocurrency to ever exist. As with any cryptocurrency, each Bitcoin is basically a computer record that is stored in a ‘digital wallet’ on a smartphone or computer or in the cloud.

You can send Bitcoins to other people’s digital wallets, and people can also send the cryptocurrency to your wallet, with every single transaction recorded in a public list called the blockchain. Blockchain technology makes it possible to trace the history of Bitcoins to stop people from spending coins they do not own, making copies, or reversing transactions.

Bitcoin is like an online version of cash; you can use it to buy products and services from establishments that accept it. Interestingly, compared to its early years, many companies are beginning to accept it.

Apart from using it to exchange value, Bitcoin is recognized as a tradable asset by many security exchange regulators around the world. The cryptocurrency can be traded on crypto exchanges, just the same way stocks are traded on stock exchanges. Some futures exchanges, such as the CME Group have also listed Bitcoin futures, and in October 2021, a Bitcoin futures exchange-traded fund (ETF) was also floated on the US stock exchanges.

The importance of Bitcoin all-time high

An all-time high is the highest price level a security, such as a commodity, stock, or Bitcoin has reached as of the moment during trading. It is a record high and is measured from when the instrument first starts trading and updates whenever the last record high is exceeded.

Typically, all-time highs represent significant price news for a security, and it is the same for Bitcoin’s all-time highs. The hype about Bitcoin increases whenever it makes a new all-time high, and this can tempt bullish investors to keep buying, believing the coin will continue to perform well in the future.

On the other hand, investors employing a more contrarian strategy may consider new record highs as an indicator that Bitcoin will go down in price, presenting an opportunity for shorts. Also, many investors who bought at lower levels may want to take profit or simply sell out of a “fear of heights,” the coin starts edging upward into uncharted territory.

Bitcoin has made several all-time highs in the past and continues to surge higher. But as with other securities, Bitcoin price increases don’t always go up in a straight line. Over the long-term, prices go up more than down, so when someone sells at a record high, the odds may not be in their favor over the long term. Even in the short term, timing the market is very difficult.

What usually happens when Bitcoin makes a new all-time high?

Historically, Bitcoin makes a pullback after reaching a new all-time high. But then, when it reverses, it surges past the previous high. See the chart below:

The table below shows the forward returns (the percentage increase it makes above its previous all-time high) for the first one week (1Wk), one month (1Mo), and two months (2Mo) after reaching an all-time high on 8 different occasions.

XBT forward returns after 8 events 7/19/2010 – 10/14/2021

Event Dates 1Wk 1Mo 2Mo
10/08/2010 22.22% 166.67% 155.56%
04/18/2011 34.48% 519.83% 1580.17%
02/20/2013 4.22% 138.95% 297.98%
11/04/2013 47.96% 377.68% 231.91%
02/23/2017 5.26% -12.05% 0.51%
04/25/2017 12.05% 51.24% 110.82%
08/06/2017 9.88% 45.19% 27.53%
11/30/2020 -1.85% 19.42% 75.27%
Average after Signals 16.78% 163.37% 309.97%
Average All Periods 3.03% 16.40% 43.93%
T-Statistic 2.29 2.19 1.44
# Events Up/Down 7/1 7/1 8/0
Significance 97% 97% 91%

 

Notice that the returns are generally greater for the 2Mo than 1Mo and 1WK. So, while you may experience a huge drawdown if you buy at an all-time high, the odds are in your favor to make profits over time.

 


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