Those words have caused a lot of headache for self-rationalising investors in the past. But really, this time is different when it comes to the current crypto pullback.
We’re currently in the throes of the 3rd biggest BTC retraction since 2015. Today’s pullback is distinct from the 1st and 2nd biggest pullbacks, because it’s being driven by broader macro factors rather than scandals and bad operators. It’s a more ‘mature’ meltdown.
Let’s look at how this current pullback stacks up against other comparable periods.
2018-2019
BTC down ~83% peak to trough
Caused by the burst of the ICO bubble. 2017 saw thousands of new projects raise billions in unregulated crowdfunding. By 2018, regulators began cracking down with many ultimately revealed to be outright scams. This regulatory pressure, combined with far lower levels of institutional infrastructure and adoption, triggered a prolonged and drawn-out ‘crypto winter’.
2022-23
BTC down ~75% peak to trough
Sparked by the $60bn collapse of the Terra/Luna stablecoin in May 2022, a domino effect of systemic failures swept through major crypto institutions. This resulted in a bank run on FTX, revealing the world’s second largest exchange was fundamentally insolvent and one of the biggest frauds in financial history.
Today
BTC down ~50% peak to trough
Today is different. This pullback hasn’t been caused by a bad operator or a specific scandal. Rather, after a powerful rally driven by ETF inflows, institutional adoption, and renewed retail interest, prices have retraced. This pullback has been caused by a number of macro factors which are affecting risk assets in general.
A recent survey by Crypto Insights Group helps put the BTC selloff in perspective. As shown below, respondents attributed the recent movements to forced deleveraging and macro risk-off dynamics rather than crypto-specific shocks.
Around 35% of respondents cited forced deleveraging as the main driver, followed by 30% pointing to macro risk-off conditions and 25% to positioning unwinds. ETF flow shocks and crypto-specific events ranked much lower. This breakdown is reassuring in that it appears to be less about integrity to the crypto thesis and more about liquidity and positioning stress.
Bitcoin correlation to real yields increases
As Bitcoin continues to mature into a macro-sensitive asset, its price action is increasingly influenced by broader financial conditions. One of the most critical factors in the current environment is the movement in real yields.
Bitcoins’ inverse correlation to US 10-year treasuries has increased in recent years. When inflation-adjusted rates fall, liquidity eases and BTC tends to rally. When real yields rise Bitcoin typically corrects. This relationship has been even more pronounced during this latest pullback, which has coincided with rising real yields and higher-for-longer rate expectations.
This reinforces the idea that Bitcoin remains a long-duration asset sensitive to discount rates, much like growth equities.
Closely tracking Mag7
Over the past several years, Bitcoin’s correlation with equities, particularly large-cap, AI-focussed stocks like those in Mag7, has also increased. Both Bitcoin and AI stocks share sensitivity to rates, narrative-driven flows, ETF leverage and momentum participation.
When tech and AI equities correct, Bitcoin often follows. This supports the CIG survey’s finding that macro risk-off forces are a primary driver of the current weakness.
That said, correlations are cyclical. In prior crypto-native bull phases (2016–2017, parts of 2020), BTC temporarily decoupled from equities when internal adoption catalysts dominated macro.
An environment of extreme fear
Source: coinglass, 24/02/2016
We’re currently in one of the deepest periods of ‘extreme fear’ in BTC’s history. The only time this reading has been lower was in August 2019 in the throws of the ICO bubble burst.
FUD (fear, uncertainty, and doubt) is prevalent, with naysayers claiming ‘the cycle is over', ‘institutions are exiting’ and, our favourite, ‘BTC is dead’. While the underlying drivers may be different, it’s not the first time we have been here. Bitcoin has been declared dead 467 times in its history. If you invested $100 each time, you’d have $69,000,000 today.
Sentiment cycles in crypto are compressed and extreme. Historically Extreme Greed (>75) often coincides with local tops, while Extreme Fear (<25) frequently aligns with buying opportunities. In our view, while the underlying drivers of this cycle are different, the outcome will be the same.
History shows that 50–70% drawdowns are features, not bugs, of Bitcoin’s cycle. Volatility is inevitable. The opportunity for allocators lies in recognizing that these extreme fear periods, not the euphoria, have historically provided the best entry points for patient, systematic investors.
Disclaimer: Not Financial Advice
This document and its contents are for informational and educational purposes only and should not be construed as professional financial, investment, or trading advice.
The author is not a licensed financial advisor or registered investment professional. All content, views, and opinions expressed are subject to change without notice.
Investing in cryptocurrencies involves significant risks, including the loss of principal. Past performance is not indicative of future results. You should consult with a qualified financial professional before making any investment decisions. Any reference to past performance is for illustrative purposes only. The information provided does not take into account your personal financial objectives, risk tolerance, or financial situation.
Do your own research (DYOR) before making any investment.