Why Bitcoin’s 32% Drop From Its $126K Peak Isn’t as Bad as It Looks

Bitcoin has lost 32% since reaching its record above $126,000 a year ago, a relatively modest decline compared with the much deeper bear markets that followed previous cycle peaks.

The cryptocurrency hit its all-time high above $126,000 on Oct. 6, 2025. On Oct. 6 this year, bitcoin was trading at $85,453, down 32% from the record.

By traditional-market standards, that would be considered a major crash. Bitcoin’s historical performance puts the move in a different context.

One year after its 2013 peak, bitcoin had fallen 69.7%. Following the December 2017 high, it was down 82.3% after 12 months. After the November 2021 peak, the cryptocurrency had dropped 74.6% a year later, according to CoinDesk calculations.

The current cycle has also produced a smaller peak-to-trough loss. Bitcoin fell to just below $59,000 on June 30, more than 53% below its record. Earlier bear markets saw bitcoin lose between 77% and 85% from their respective highs.

The timing of the bottom is another important difference. In past cycles, bitcoin often took a year or longer to reach its lowest point. This time, the trough came roughly nine months after the record, followed by a relatively quick recovery.

“The most notable changes are the significantly shortened duration of the drawdown and the reduced time spent at the bottom,” Tim Sun, senior researcher at HashKey Group, told CoinDesk.

A Different Investor Base

The change in bitcoin’s behavior is closely tied to the investors driving the market.

Retail traders and leverage played a much larger role in previous bull markets. When those rallies ended, forced liquidations often accelerated losses, while fund blowups and exchange failures added to the damage, particularly in 2022.

The 2023–25 rally was increasingly supported by institutional capital entering through regulated investment vehicles such as ETFs. Asset management firms, family offices and corporations also became more prominent participants.

As a result, the subsequent correction was more closely linked to macroeconomic shifts and changes in asset allocation than to a broad collapse in retail leverage.

“While previous cycles were driven primarily by retail investors and leverage, buyers in this current cycle increasingly stem from outside the crypto market, including ETFs, asset management giants, family offices, and even corporations,” Sun said.

He said the growing use of bitcoin as an allocation by investors outside the crypto sector is a key reason the market has behaved differently.

Sun said the latest selloff was not primarily caused by “black swan” events. Instead, capital outflows reflected changes in the external macroeconomic environment and the way investors allocated money across assets.

“Consequently, despite undergoing significant adjustments, the market did not trigger the persistent negative feedback loops seen in the past,” he said.

Griffin Ardern, co-founder and volatility desk portfolio manager at Primal Fund, said institutional ETF capital is structurally different from speculative retail flows.

“ETF allocation money rebalances to target weights — it buys weakness by construction,” Ardern said.

He added that the market’s leverage was largely cleared near the peak and did not return at the same scale.

“Hence nine months to grind out a 53% decline, rather than a few months of cascading liquidations taking it down 80%,” he said.

The market nevertheless experienced a major deleveraging event on Oct. 10 last year. A macro-driven selloff resulted in more than $19 billion in liquidations across crypto derivatives markets. Temporary price deviations on Binance involving USDe, wBETH and BNSOL increased the pressure, while auto-deleveraging mechanisms at several exchanges forcibly closed profitable positions to help cover losses.

Bitcoin’s Volatility Is Falling

The milder downturn is also consistent with bitcoin’s broader decline in volatility.

“As bitcoin evolves and more participants come to market, the realized volatility of the asset will decrease. This means shallower drawdowns and lower peaks and is likely a contributing factor to the more muted sell-off we saw in the last cycle,” Jeff Anderson, head of U.S. at market-making firm STS Digital, said.

Bitcoin’s volatility has declined steadily since U.S. spot ETFs launched in early 2024, helping reduce the asset’s once-common “Wild West” reputation.

Sun said bitcoin’s annualized volatility is now around 40%, compared with historical levels exceeding 80%.

The options market is similarly subdued. Ardern said bitcoin’s DVOL index, which tracks annualized implied volatility, has remained near 35 points.

“The shape going forward is probably a staircase — grind up, air pocket, fast repair — rather than a parabola,” he said.

Lower volatility does not mean bitcoin has lost its ability to rally sharply. Sun pointed to the cryptocurrency’s supply dynamics.

Bitcoin’s maximum supply is 21 million, while long-term holders control a large share of existing coins. Strong ETF inflows concentrated over a short period, a rapid improvement in macro liquidity or heavy short covering could therefore create a sudden imbalance between demand and available supply.

In those circumstances, “marginal demand can still exert a powerful upward push on prices, potentially triggering non-linear surges.”

The Bond Market Remains a Key Risk

Ardern’s main concern is positioning in the derivatives market.

Implied volatility is close to its lowest percentile on record, while one-year options skew remains neutral to bearish.

“The derivatives market has bought ‘shallow’, but nobody is willing to pay for ‘upside exposure’ yet,” he said.

Options skew compares the pricing of bullish call options with bearish puts. A neutral reading suggests traders are not aggressively seeking upside exposure.

Ardern also warned that the market’s growing confidence in shallow bitcoin declines could be a warning sign because downside protection is often cheapest when investors feel most comfortable with risk.

He believes the size of bitcoin’s next major decline could ultimately depend more on long-term Treasury yields than on BTC’s chart.

“If the 30-year [yield] defence keeps failing, this cycle may not stay shallow either,” he said.

The 30-year Treasury yield recently reached 5.7%, its highest level since April 2002. It has increased more than 80 basis points this year, making non-yielding assets such as bitcoin and gold relatively less attractive.

The Treasury announced an expanded bond buyback program in August to help slow the increase in yields. Bitcoin initially responded positively, rising from about $64,000 to almost $80,000 within days.

Yields have not stopped climbing, however. Some analysts attribute the move to fiscal concerns rather than stronger economic growth, a backdrop that could ultimately support demand for gold and bitcoin.

Ardern compared the present market with the Nasdaq between 1994 and 1999, when “policy slows down, the cycle stretches, every interim correction is shallow.”

But he cautioned that a prolonged period of shallow corrections does not guarantee a benign ending.

“Just remember how that story ended,” he said.

The Nasdaq peaked in March 2000 and then lost nearly 78% over roughly the following two years.