Bitcoin has polarized investors for over a decade. From dramatic bull runs to extended bear markets, its price swings have been unlike any traditional asset. But understanding its structural characteristics is critical to separating narrative from reality and to making better long-term allocation decisions.
The Logic Behind HODL is Very Different for Crypto Than for Stocks
When I first encountered crypto in 2016, the dominant advice was simple: HODL — hold on for dear life. This seems to fit neatly with how many prominent investors discuss owning other asset classes. But buy-and-hold investment philosophies have historically worked for equities not because patience is magically rewarded, but because equities have a built-in recovery engine. The global economy expands, businesses reinvest, and earnings compound. Drawdowns are painful but prices have historically recovered because the underlying assets generate returns internally. Over the long run, using Robert Shiller’s data back to 1871, stock prices have had a 0.98 correlation with corporate earnings. Valuations move, sentiment shifts, and over shorter periods earnings can feel secondary, but fundamentally, what powers equities upward over time is companies growing their profits.
Bitcoin lacks that mechanism. Supply is largely fixed and returns are almost entirely demand-driven. Prices rise when demand increases and fall when it fades. So what actually drives Bitcoin’s returns? Unlike with corporate earnings and stock prices, we don’t have 100 years of data to make strong mechanistic claims, but I took the data we do have and tested the obvious candidates. Inflation, given the “inflation hedge” narrative. Gold, given the “digital gold” narrative. M2 money supply growth, given the narratives around hedging monetary debasement. All showed weak correlations with Bitcoin price changes.
What actually explained it best? Changes in Google Trends.
Exhibit 1: 12 Month Bitcoin Returns vs 12 Month Changes in Google Trends1
From 2013 to 2026, yearly changes in Bitcoin price had a 0.66 correlation with changes in Google search interest for “Bitcoin.” Higher prices attract more searches, more searches drive more excitement, more excitement pushes prices higher — a cycle that appears to feed on itself. This isn’t a definitive causal claim, and the data from Google Trends doesn’t explain Bitcoin’s returns in full. But it serves as a useful reminder that the fundamental case for expecting equities to deliver positive returns over time is anchored in something real and measurable. While this relationship may have weakened in recent years, Bitcoin’s returns remain anchored in demand — whether that stems from Google-driven retail investors or longer-term institutional capital.
Crypto Winters are the Norm not the Exception
When demand and attention dry up, we’ve historically seen dramatic falls in the price of Bitcoin. Financial media and crypto analysts often refer to these periods as “crypto winter,” but the reality is that Bitcoin has spent the majority of its life in relatively deep drawdowns, punctuated by periods of rapidly rising prices.
US stocks have spent roughly 21% of their history in drawdowns of 20% or more — the threshold commonly used to define a bear market, though admittedly an arbitrary one. Bitcoin has spent roughly 65% of its history in that condition.
Exhibit 2: Percent of Time Spent in 20% Drawdown from Prior All-Time High2
This isn’t incidental. It’s structural. It’s not surprising that an asset whose returns are driven by demand would spend a significant amount of time waiting for the next wave of interest, rather than compounding quietly in the background. These winters have been common, but the bull markets that have punctuated them have been dramatic — though crucially, they’ve also been getting smaller.
Bitcoin’s Bull Market Cycles Have Been Progressively Smaller
Bitcoin’s bull markets have been spectacular, and the asset is well known for its cycles of boom and bust. But a lesser-mentioned observation is that each cycle has delivered materially smaller percentage gains than the last. Looking at rolling 12-month peak returns:
- ~4,843% in 2013
- ~1,324% in 2017
- ~816% in the 12 months ending March 2021
- ~164% in the 12 months ending February 2024
Exhibit 3: Rolling 12-Month Bitcoin Returns3
This isn’t surprising. A nearly 5,000% return at today’s market capitalization would imply a value over $50 Trillion, well beyond the scale of the US National Debt, and an order of magnitude larger than the biggest publicly traded companies. Bitcoin has moved from a niche asset to a widely known one. Early period return dynamics simply haven’t survived that transition.
The practical implication is straightforward: forward-looking assumptions built on full-history Bitcoin returns are implicitly assuming the early-period gains are repeatable. Several major asset managers and broker-dealers now advocate for (relatively small) Bitcoin allocations for client portfolios. The portfolio math supporting these recommendations often looks compelling, but the improvement in risk-adjusted returns is highly sensitive to which period of Bitcoin’s history is used to build those assumptions. That sensitivity deserves scrutiny.
Conclusion
Bitcoin is a genuinely novel asset, one that has delivered extraordinary returns over its history and continues to attract serious institutional interest. But it is a scarce asset that reprices on demand, not a productive asset with an internal compounding engine. Its return history is dominated by a small number of dramatic bull runs that have become progressively smaller as the asset has scaled. And the best empirical explanation for its price movements points to demand and sentiment rather than fundamentals. None of this necessarily means Bitcoin cannot play a role in a diversified portfolio. But it means allocation decisions should reflect what Bitcoin actually is, and the return assumptions underlying them deserve the same scrutiny practitioners apply to any other asset class.
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Disclosures:
Past performance is no guarantee of future results. This piece is for informational purposes only and does not constitute financial advice. Indices are not investible and do not represent the costs associated with investing.
1. Data Sources: Coinglass and Google. Author calculations. January 2013-February 2026. Correlation calculated using rolling-12 month returns – which includes overlapping periods. Google Trends data represents relative search interest indexed to 100. 12-month percentage changes in the index were calculated to allow direct comparison with 12-month Bitcoin returns.
2. Stock data is represented by the S&P 500 Index. Bitcoin data derived from Coinglass monthly return series. Data sources: Coinglass and Standard and Poors (via Dimensional Fund Advisors). Bitcoin data January 2013-February 2026. S&P 500 data shown from January 1926-February 2026. Ibbotson data courtesy of © Stocks, Bonds, Bills and Inflation Yearbook™, Ibbotson Associates, Chicago (annually updated works by Roger C. Ibbotson and Rex A. Sinquefield). Copyright 2026 S&P Dow Jones Indices LLC, a division of S&P Global. All rights reserved.
3. Data Source: Coinglass. Author calculations. Exact Bitcoin returns, particularly for early years, vary depending on source.
Other Data Sources: Shillerdata.com