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Bitcoin Experiences Rare Extreme Downturn

06/02 15:03

Bitcoin experienced a significant downturn this morning, according to ChainCatcher. The cryptocurrency's decline reached -5.65 standard deviations over a 200-day look-back period. In manufacturing, the Six Sigma standard allows for only 3.4 defects per million, defining such an event as nearly impossible. Yesterday's Bitcoin volatility was just 0.35 standard deviations away from this industrial-level improbability. The theoretical probability of a -5.65σ event in a normal distribution is about one in a billion. Despite the presence of fat-tail effects in financial markets, such volatility has only occurred four times since Bitcoin trading records began in July 2010, representing approximately 0.07% of all trading days. Even during the deep bear markets of 2018 and 2022, such rapid declines within a 200-day rolling period were not observed, posing a significant challenge to quantitative strategies. Most current quantitative models are based on data from 2015 onwards. Historical samples exceeding 5.65σ, aside from the 2020 '312' flash crash anomaly, occurred before 2015, leaving little precedent for reference. CoinKarma's quantitative strategy faced a paper loss during this market event. However, due to maintaining low leverage (around 1.4 times), the overall impact remains manageable, with a maximum drawdown of about 30%. While extreme market conditions are costly learning experiences, contract and on-chain data will be crucial for future risk control models.

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