Explanation
An 80% decline requires a 400% rise to break even. That is why limiting maximum drawdown matters more than maximising return.
01
The measure that matters
A drawdown is the loss from the highest point to the lowest point afterwards. Bitcoin has repeatedly seen declines above eighty percent, with recovery periods of two to three years. That figure says more about what you must be able to endure than an annual return, because it describes the worst experience along the way.
02
Recovery mathematics
After a fifty percent decline you need one hundred percent to break even; after eighty percent, five hundred percent. That asymmetry is why capital preservation weighs more heavily than chasing the last few percent of return.
Key takeaways
- Measures the pain, not the average.
- Recovery mathematically demands far more than the fall.
- Stress-test your position against -80 percent.