Definition ∞ Market Drawdown Analysis involves evaluating the peak-to-trough decline in the value of an investment or portfolio over a specific period. This analytical method quantifies the downside risk and resilience of an asset under adverse market conditions. It provides insights into potential capital losses and recovery periods. Understanding drawdowns is essential for risk assessment and portfolio construction.
Context ∞ Investors frequently conduct market drawdown analysis to assess the historical risk exposure of digital assets, particularly given their volatility. Discussions often center on comparing drawdown magnitudes across different cryptocurrencies or market cycles to inform risk tolerance. This analysis helps prepare for potential market downturns and evaluate recovery potential.
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