Will Bitcoin Keep Falling After Its 50% Decline or Is It Time to Buy? History Offers a Clear Answer.

The past few months have been rough-going for cryptocurrency investors. Bitcoin (CRYPTO: BTC) fell more than 50% from its October high by early February. While it's recovered a bit since hitting that 52-week low, the leading cryptocurrency is still about 47% below its record high as of this writing.

The current plunge is the biggest we've seen since 2022. It looks like Bitcoin's four-year cycle is repeating itself, or it could be a self-fulfilling prophecy, as long-term holders look to front-run the expected drop in price. For investors, the question is whether it's worth buying Bitcoin now or if more declines are coming. History provides a clear answer.

Image source: Getty Images.

The last three major cycles

The current Bitcoin collapse ranks as the seventh-largest in history. The previous six tumbles were bigger than the current decline, at least so far, and some of the times when Bitcoin's price fell, a quick rebound occurred rather than an extended bear market.

There are two reasons to believe this retreat will look more like the latter than the former. First, declines that ended with sharp recoveries reached their price trough much faster than this time around. The Bitcoin low on Feb. 6 took place 123 days after its peak price on Oct. 6. Previous declines with sharp turnarounds reached lows much sooner and were already on the road to recovery within four months.

The second factor to consider is Bitcoin's four-year cycle. Since late 2013, Bitcoin has peaked near the end of every four-year period. There are multiple reasons this occurred, some coincidence and some to do with the inherent nature of Bitcoin, such as its periodic halving, when the reward for mining new bitcoins is cut in half. At this point, however, it may be more of a self-fulfilling prophecy as investors sell Bitcoin to get ahead of the anticipated decline in price, thus flooding the market with supply and sending the value of the cryptocurrency lower.

Regardless, the last three major Bitcoin cycles could give us a clue of how long the current slump will last and how far it could drop. The table below shows the drawdowns of the last three Bitcoin cycles.

Data source: NYDIG

If history repeats itself and we're in the midst of another four-year cycle event, Bitcoin could be headed much lower. While each decline has been sequentially less severe, we could still see Bitcoin fall 70% to 80% from its October peak. What's more, we might not see that bottom until the fourth quarter of this year as the average peak-to-trough cycle takes at least one year.

But there also are reasons Bitcoin might not fall much further this time and the market could recover more quickly.

Is it time to buy anyway?

Bitcoin may, in fact, be closer to its near-term low in this cycle than in previous four-year cycles.

First, Wall Street and institutional investors are crypto buyers now. The launch of spot Bitcoin exchange-traded funds (ETFs) in early 2024 made it much easier for institutional investors to buy and sell Bitcoin. Even the U.S. government is holding Bitcoin and other crypto assets. As a result, there's a much bigger market for the crypto, which should provide support for its price.

In fact, Bitwise's Matt Hougan suggests that the current Bitcoin down cycle would have started last January were it not for the amount of cash flowing into Bitcoin ETFs and Bitcoin treasury companies throughout the year. As such, we may be closer to the trough of the cycle (13 months in) based on historical data.

There are other bullish developments for Bitcoin and cryptocurrency in general that could offer price support. The Federal Reserve will likely continue its rate-cutting campaign later this year and President Donald Trump's nominee for chairman, Kevin Warsh, is a cryptocurrency proponent. The Securities and Exchange Commission and Commodity Futures Trading Commission are also working on a regulatory framework for facilitating and governing blockchain transactions.

Although it's too early to call the bottom for Bitcoin, it may be worth buying at the current price. History suggests it could be months before it reaches its cyclical low, but there are a lot of factors that could shorten that timeline and prevent it from dropping much further.

Adam Levy has positions in Bitcoin. The Motley Fool has positions in and recommends Bitcoin. The Motley Fool has a disclosure policy.