Drawdown
By Menno — 13 years in crypto, 3 bear markets survived, zero paid promotions
Last updated: March 2026
A drawdown is the decline from a portfolio's peak value to any subsequent trough, expressed as a percentage. It measures how much an investment is 'underwater' from its high-water mark at any given moment.
Drawdown is the real-time measure of how far a portfolio or asset has declined from its most recent peak. If Bitcoin reaches $70,000 (its all-time high as of late 2024) and then trades at $42,000, the current drawdown is -40% from ATH. Drawdown is expressed as: (Current Value - Peak Value) / Peak Value × 100%. Unlike maximum drawdown (which is a historical worst-case measure), current drawdown tells you where you are now relative to your high point.
In practice, most crypto investors spend significant portions of time in drawdown. Bitcoin is at all-time highs only about 5% of trading days since 2013; the remaining 95% of days involve some degree of drawdown. The psychological challenge of drawdowns is well-documented: investors tend to feel losses about twice as intensely as equivalent gains (loss aversion). A -50% drawdown doesn't just mean you need to recover 50% — you need to double your money just to break even. This asymmetry compounds the emotional burden.
Professional portfolio managers track 'drawdown duration' in addition to depth — how long a portfolio spent in drawdown before recovering. Bitcoin's 2018-2019 bear market drawdown lasted approximately 14 months from the December 2017 peak to the January 2019 local bottom, and another 28 months to full ATH recovery. A -20% drawdown that lasts 2 years may be more psychologically damaging than a -40% drawdown that recovers in 3 months, because the extended period compounds doubt and regret.
Frequently Asked Questions
At what drawdown percentage do most retail investors sell?
Research suggests -30% to -50% is where most retail investors capitulate, typically near the late stage of bear markets. Historically, Bitcoin's bear market bottoms have coincided with capitulation events where long-term holder cost basis is tested. The best buying opportunities often occur at maximum drawdown when fear is highest — but that's also when it's psychologically hardest to act.
How do you manage emotionally through a large drawdown?
Pre-defined rules help most: set a position size you can genuinely hold through -80% without panic selling. Use DCA to average down systematically rather than trying to catch the bottom. Define in advance (when rational) what would cause you to exit — specific fundamental changes, not price levels. Avoiding frequent portfolio checks during drawdowns reduces psychological pain significantly.
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Related Terms
Maximum Drawdown
Maximum drawdown (MDD) is the largest peak-to-trough decline in a portfolio's value over a given period, expressed as a percentage. It measures the worst-case loss experienced by an investor who entered at the worst possible time.
Volatility
Volatility measures how much an asset's price fluctuates over time. Crypto is significantly more volatile than traditional assets, meaning larger potential gains but also larger potential losses.
HODL
HODL (Hold On for Dear Life) is a crypto term for holding your investments long-term through volatility instead of selling. It originated from a misspelling of 'hold' in a 2013 Bitcoin forum post.
Market Cycle
The crypto market cycle is the recurring pattern of accumulation, uptrend, distribution, and downtrend that crypto markets follow — typically tied to Bitcoin's 4-year halving schedule.
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