Definition ∞ Asset drawdown refers to a reduction in an asset’s value from its highest point. It quantifies the percentage decline from a peak value to a subsequent trough, before a new peak is achieved. This metric is crucial for assessing risk and volatility within digital asset portfolios. Understanding drawdown helps investors evaluate potential losses and recovery periods.
Context ∞ In cryptocurrency markets, asset drawdowns are a frequent topic due to high volatility. Analysts often discuss the depth and duration of these declines to gauge market health and investor sentiment. Observing drawdown patterns assists in developing more resilient investment approaches.
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