Historically, financial bubbles, once burst, have shown little propensity for recovery. The infamous Tulip Mania of the 17th century exemplifies this trend, with tulip prices soaring twenty times before crashing a staggering 99% in 1637, as reported by Investopedia.
Tulip Price Index: (Source: adamsmith)
Japanese Real Estate Market
The Japanese real estate market provides another poignant example. After peaking in 1991, the market has yet to recover from the devastating fallout of the Asian Financial Crash in the 1980s, according to data from FRED.
Residential Property Price for Japan: (Source: FRED)
Dot Com Bubble
The Dot Com bubble of the late 1990s marked a pivotal era in the world of technology startups. This period saw an unprecedented surge in internet adoption, leading to an influx of massive valuations for dot com startups. Between 1994 and 2000, the sector experienced a remarkable 945% gain, a reflection of the euphoria and speculative frenzy that defined the era.
However, the bubble eventually burst, resulting in an 80% tumble from the peak for the Nasdaq. Amazon, a prime example, suffered a 95% drawdown during this downturn.
Since the collapse, there has been a resurgence, with the Nasdaq just 3% shy of the all-time high recorded in December 2021. Yet, many companies, such as boo.com, pets.com, and Global Crossing, went bankrupt following the collapse, never recovering.
Nasdaq and Amazon Share Price: (Source: Trading View)
Yet, Bitcoin, a digital entity frequently compared to these historical bubbles, presents a contrasting narrative. Despite experiencing an all-time high drawdown of 75% or more on four separate occasions, Bitcoin has consistently rallied back, proving its resilience over its 15-year lifespan.
Price drawdown from ATH, Bitcoin: (Source: Glassnode)
This unusual pattern of recovery sets Bitcoin apart from previous financial manias such as the South Sea Bubble and the U.S. real estate market crash. As Bitcoin embarks on yet another recovery, it’s worth examining the factors contributing to its repeated resilience. Could this be attributed to its decentralized nature, global adoption, or the evolving perception of digital assets?