Benson Sun: Bitcoin Plunges to Rare -5.65σ, Only Seen 4 Times in History

BlockBeats News, February 6th, Crypto KOL and former FTX Community Partner Benson Sun posted, stating that this morning Bitcoin experienced an extreme downswing. Calculated based on a 200-day lookback period, BTC's decline reached -5.65 standard deviations (σ). In the manufacturing industry, the Six Sigma standard means allowing only 3.4 defects per million occurrences, defining "almost impossible to happen" in human industrial civilization. Yesterday's BTC volatility was only 0.35 standard deviations away from this "industrial-level impossibility." And -5.65σ has a theoretical probability of occurring in a normal distribution of about one in a billion.

Despite the presence of fat tails in the financial market, since BTC has a trading record (since July 2010), this level of volatility has only occurred 4 times, accounting for approximately 0.07% of all trading days. Even during the deep bear markets of 2018 and 2022, such a rapid decline did not occur within a rolling 200-day period. This poses a severe challenge to quantitative strategies. Current quantitative models are mainly built on data from after 2015, and historical samples exceeding 5.65σ, except for the outlier of the 2020 "3/12" flash crash, all occurred before 2015, with almost no referenceable precedents.

The CoinKarma quantitative strategy incurred paper losses in this round of market activity, but due to maintaining low leverage in the long term (about 1.4 times), it can still be sustained overall, with a maximum drawdown of about 30%. While extreme market conditions represent a costly "tuition," futures contracts and on-chain data will become important nourishment for future risk control models.