Retracements of more than 20% are nothing new for Bitcoin (BTC +3.47%). Throughout Bitcoin's history, it has gone through more significant corrections than this current one.
Those that have been around long enough to remember other meltdowns of more than 50% in less than a month can attest that this is just another bump in the road. There have been roughly seven corrections since Bitcoin's creation that led to the price being reduced in half. From each one of these corrections Bitcoin rebounded -- every single time.
In April 2013 Bitcoin retreated 83% in a short amount of time. It lost another 50% when China originally banned Bitcoin in December of the same year.
The year of 2018 was brutal. Although it hit an all-time high of nearly $20,000 in December 2017, by December 2018 it was only trading for barely $3,000.
More recent investors probably remember the crash of March 2020, when Bitcoin lost 50% in just a couple days. The same thing happened in May of 2021.
And yet today, markets are in disarray about Bitcoin falling more than 20% in the last week, and down more than 50% from its all-time high in November 2021.
Image source: Getty Images.
What the charts say
Sometimes knowing where Bitcoin has been is enough to have confidence of where it will go. There are some useful statistics and charts that put Bitcoin's current position into perspective, and shed some light on where we might be headed.
Realized price is the value of all the coins at the price that have been bought divided by the amount of Bitcoin that is in circulation. The realized price of Bitcoin has served as a consistent support line for Bitcoin throughout most of its history. Realized price is useful to gauge Bitcoin's future action because it represents the average price that holders bought their Bitcoin at. History shows that as the actual price gets closer to the realized price investors tend to buy more because they don't want to sell below the value they bought.
The true price of Bitcoin has fallen under the realized price only three times in history. Currently, Bitcoin's actual price is around $29,000. The realized price is about $24,000.
Likely the most reliable and simple chart to provide some context on Bitcoin's current position is the 200 week moving average (WMA). It typically bounces off of the 200 WMA quickly. Bitcoin has gone below the 200 WMA only twice in history, and it was only for a brief amount of time. It has never stayed below the 200 WMA for more than a month.
Bitcoin's 200 WMA is at about $22,000 currently. With the actual price around $29,000, it could certainly go lower or even trade sideways for a while, but the worst of the damage is likely over.
Perspective, perspective, perspective
As the old saying goes, all models are wrong, but some are useful. There is no chart that is going to predict exactly what Bitcoin does next. However, some statistics can provide context on the current situation Bitcoin finds itself in.
Traditionally, these two metrics have served as great support for Bitcoin's price. There is still downside risk. But investors should not try to time the market. The difference between the 200 WMA or the realized price and Bitcoin's actual price is minuscule. Ignore the noise and consider getting some exposure at these historically valuable prices. When looking back, these have been some of the best times to buy Bitcoin for the long haul.
