Retracement, Liquidation, and Recovery: The 4-Year Cycle Revelation of US Stocks, A-shares, and Crypto

Written by: Frank, MSX Research Institute

What is your view on cycles and drawdowns?

If you have been in the Crypto market for a long time and have experienced extreme stress tests like "9·4", "3·12", "5·19", and the latest "10·11", you might conclude a hard rule: every crisis and drawdown often marks the starting point for a cycle restart.

Although the time scale of Crypto is still too short and the volatility is more intense, if you observe it alongside the two giants, the US stock market and the A-share market, you will find a commonality across markets------from the peak of the bubble, to violent liquidation, and then to differentiated recovery, the script of the cycle always repeats itself.

The past four years serve as the best example. In October 2021, global assets began to retract from their peaks, and gradually recovered in the AI wave and new interest rate cycle from 2023 to 2025. Today, the US stock market and Crypto have reached new highs again, while the A-share market is hovering at the threshold of recovery.

It can be said that these four years have been a stress test concerning global capital flows, risk pricing, and market psychology. Today, we will attempt to delve into this vivid "market cycle lesson" from the perspective of "drawdowns."

1. Cross-Market Cycle Lesson: Drawdowns Are Never a Distant Story

"In the long run, we are all dead" --- Keynes.

However, in the capital markets, what everyone is most obsessed with is still the long-term macro narrative: cycles.

Taking the Crypto market as an example, over the past decade, Bitcoin has almost formed a widely recognized "four-year cycle" pattern, including about three years of upward trends, followed by roughly one year of adjustments and liquidations, and then the next cycle begins. So far, this cycle has played out completely four times.

However, from Q4 2021 to Q4 2025, we have witnessed a broader and more profound resonance of macro liquidity and risk assets. This time, whether it is the emerging Crypto market or the mature US and A-share markets, they have all been inevitably swept into it, with a path so clear that it can be considered a textbook example of the "prosperity peak - drawdown liquidation - differentiated recovery" cycle:

• Q4 2021: The last carnival of global liquidity flooding, Bitcoin, Nasdaq, and S&P 500 (Q1 2022) successively reached historical highs, while the A-share market was also at the tail end of a collective rally;
• 2022-2023: The fastest interest rate hike cycle in Federal Reserve history led to a sudden tightening of dollar liquidity, and risk assets were not spared, the US stock market, Crypto, and A-shares experienced a brutal wave of liquidations;
• 2023-2025: Inflation peaked, AI concepts surged, and interest rate cut expectations reignited, different markets began to emerge with completely different recovery curves according to their underlying logic;

Therefore, the complete cycle experienced by the global market from 2021 to 2025 is the most suitable for retrospective comparison, raising a core question: when a macro tsunami strikes, all boats will sink, but why do some assets quickly float up and reach new highs, while others remain submerged, struggling on the edge of recovery?

Ultimately, drawdowns reveal the true nature of asset risk, pointing directly to the real quality of the supporting system behind the assets. After all, investment cannot only focus on returns; one must also ask------"Can you endure it?"

The long-term fate of the market is often determined by the recovery after drawdowns, which is where the real story of each cycle begins.

2. 21-25, A Complete "Three-Market Resonance" Cycle

If one had to choose a time frame to summarize the true fate of global assets over the past four years, Q4 2021 to Q4 2025 would undoubtedly be the ideal sample.

This is not an ordinary bull-bear transition, but a rare "three-market resonance cycle": global liquidity shifted from extreme easing to rapid tightening, and then returned to stability. In this dramatic macro variation, both the emerging Crypto market and the mature US and A-share markets experienced a complete three-act play of "prosperity → liquidation → recovery."

This provides us with a perfect laboratory for observing the true performance of different assets in the same storm.

1. Q4 2021: The Peak of the Bubble

First, 2021 marked the final chapter of the global liquidity frenzy spurred by the pandemic, with overflowing cheap funds pushing the valuations of risk assets to unprecedented heights.

The most direct signal was the US stock market reaching historical highs from the end of 2021 to the beginning of 2022, where the Nasdaq index broke through 16,200 points on November 22, 2021, followed by the S&P 500 index reaching 4,818 points on January 4 of the following year, with high valuations and the bubble in the tech sector becoming the market's main theme.

Interestingly, Crypto resonated almost simultaneously with the Nasdaq, reaching its peak moment------Bitcoin hit a high of $69,000 on November 10, 2021 (Binance spot data, same below), and Ethereum also set a historical high of $4,868 on the same day, with the wealth myths of NFTs and DeFi virally spreading on social media, attracting the last batch of latecomers.

For the A-share market, although the CSI 300 index did not reach a historical high simultaneously (its peak was in early 2021), driven by structural trends such as "carbon neutrality," "new energy," and "core assets in liquor," the market still maintained a local frenzy at high levels of 3,500 - 3,700 points.

2. 2022-2023: Violent Liquidation

However, the end of the feast was swifter and more violent than anyone expected. Faced with inflation not seen in 40 years, the Federal Reserve initiated the fastest interest rate hike cycle in history, leading to a sudden depletion of global market liquidity, with risk assets being no exception.

Especially for the Crypto market, 2022 was a devastating "black swan year": from the death spiral of Terra/LUNA, to the bankruptcy liquidation of Three Arrows Capital, and then the collapse of FTX, liquidity, confidence, and valuations collapsed almost simultaneously, with internal leverage liquidation and macro liquidity depletion forming a perfect "Davis double kill."

Bitcoin experienced a complete avalanche, hitting a cycle low of $15,476 on November 21, 2022, while Ethereum touched a cycle bottom of $881 on June 18, 2022. From the peak, Bitcoin's maximum drawdown reached 77.5%, and Ethereum's maximum drawdown reached 82%, which was truly devastating.

As the pricing anchor for global assets, the drawdown of the US stock market was comparatively more orderly, with its decline logic clearly revolving around "anti-inflation" and "tightening expectations." The S&P 500 index bottomed at 3,491 points (intraday) on October 13, 2022, with a maximum drawdown of about -27.5%, while the Nasdaq also hit a low of 10,088 points (intraday) on the same day, with a maximum drawdown of about 38%.

Although the absolute decline was far less than that of Crypto, considering its massive scale, the evaporated market value was also astronomical, officially declaring the global entry into a technical bear market.

The decline process of the A-share market was more complex, resulting from a combination of "global tightening" and "domestic factors." Over a period of two years, the market experienced repeated bottom-seeking processes, with the Shanghai Composite Index touching lows around 2,860 points multiple times in April and October 2022, and even setting a new cycle low of 2,635 points on February 5, 2024.

From the absolute high point of 3,731 points on February 18, 2021, the Shanghai Composite Index's maximum drawdown approached 30%. Although the depth was similar to that of the US stock market, the recovery process was extremely long, posing an ultimate test of confidence and patience for investors.

3. 2023-2025: Differentiated Recovery

As we entered 2023, when global inflation peaked and the interest rate hike cycle approached its end, the market began to brew recovery, especially as the AI boom ignited the US stock market and ETF expectations boosted Crypto. This round of recovery began to diverge rather than synchronize.

First was the recovery of the US stock market, undoubtedly driven by the AI narrative as the new growth engine------tech giants like Nvidia surged ahead, and their explosive profit growth became a booster, leading the Nasdaq and S&P 500 out of the mire first.

The S&P 500 officially regained its lost ground on January 19, 2024, followed by the Nasdaq Composite Index recovering on March 1, 2024, both reaching historical highs. As of October 14, 2025 (closing), the S&P 500 closed at 6,644 points, and the Nasdaq closed at 22,521 points, representing increases of 38% and 39% respectively compared to the previous cycle highs in 2021/2022.

Crypto, on the other hand, attracted mainstream capital's attention again with the internal risk clearance of the industry and the approval of Bitcoin spot ETFs, a "compliance" milestone event. The price of BTC experienced a V-shaped reversal, also breaking through the 2021 high, reaching $126,199, nearly an 83% surge compared to the historical peak, while ETH also set a new historical high of $4,956 in August of this year.

However, the Altcoins experienced a stark contrast; apart from leading public chains like Solana, Sui, and TON benefiting from ecological revival or narrative dividends, most have nearly perished in the environment of liquidity contraction. The Alt market gradually differentiated into a "mainstream asset pool" and "speculative islands."

The recovery path of the A-share market appeared particularly tortuous. Despite frequent policy tailwinds, market confidence recovered slowly, with the Shanghai Composite Index lingering at low levels for an extended period, starkly contrasting with the performance of major global markets. It only officially crossed the 3,800-point mark in August, beginning its arduous recovery journey.

Note: Data sourced from TradingView and Binance; drawdown magnitudes calculated from peak to trough, cycle performance as new high / previous high, percentages rounded to 0.1%

It is worth noting that although the highest point of the A-share market occurred in February 2021, earlier than the defined starting point of the cycle (October 2021), based on the "triple top" structure and from the perspective of drawdown calculation, this article still starts from that absolute high point, which better reflects its complete downward cycle.

Thus, a complete cycle has been completed, with the three major markets presenting distinctly different results after experiencing similar macro shocks.

3. Cross-Market Comparison: Who Can Withstand Cycle Drawdowns?

Overall, the drawdowns in the three major markets of the US stock market, Crypto, and A-shares share a clear commonality, which is their strong correlation with the dollar liquidity cycle. For instance, all three peaked around Q4 2021 and resonated to the bottom around Q4 2022, indicating that the dollar liquidity cycle remains the "master valve" hanging over the global market.

However, under the opening and closing of the valve, a closer look at the underlying logic of the three reveals that they each represent different cycle paradigms:

• The US stock market relies on systems and profits, making it the most standard "liquidity---profit" dual-cycle market;
• Crypto relies on narratives and liquidity supply, making it a "high-elasticity cycle asset" with built-in leverage;
• The A-share market relies on policies and confidence, making it a typical "structural recovery market";

In other words, the depth of the US stock market's drawdown is determined by liquidity, but the speed of recovery is driven by corporate profits. Therefore, during the tightening storm of 2022, the decline of the US stock market was a valuation compression dominated by macro logic, but when the liquidity panic receded, the market's focus quickly returned to fundamentals.

Especially the enormous productivity expectations brought about by the subsequent AI revolution directly translated into tangible profit growth and profit statement expansion for tech giants. This powerful "profit - stock price" positive feedback mechanism, combined with its mature financial system (such as the long-term allocation needs of institutional investors), formed a resilient recovery loop, making the US stock market a model of "orderly declines and quicker recoveries."

On the other hand, Crypto is largely an amplifier of risk appetite for the US stock market (especially the Nasdaq)------when liquidity is abundant, its gains are more astonishing; when liquidity is depleted, its declines are also more severe, and it can be regarded as a "cyclical offensive target" with built-in high leverage.

However, the other side of high elasticity is severe differentiation. As Bitcoin ETFs deeply bind this market to Wall Street, the vast majority of Altcoins have nearly perished in the liquidity contraction, and the "Altcoin bull market" that ordinary people expect is becoming increasingly scarce, with the market gradually differentiating into a "mainstream asset pool" and "speculative islands."

To put it bluntly, as Crypto assets gradually become "Wall Street-ized" and "institutionalized," what they represent is no longer the excess returns of the wild era, but a market with extremely high volatility and diminishing marginal returns, where liquidity dividends begin to give way to structural opportunities. This also means that the US stock market has, in fact, become a more cost-effective choice.

After all, compared to Altcoins, the US stock market has higher certainty, information transparency, and institutional maturity, with quality assets experiencing smaller drawdowns and quicker rebounds. Since corporate profits can be verified and policy cycles are predictable, the logic of news can always be unearthed------there are rarely occurrences of "unexplained surges or drops," so from an investment perspective, this certainty is precisely the most scarce value in the current liquidity environment.

The recovery logic of the A-share market neither fully relies on global technological waves nor has an endogenous supply mechanism. The core driving force resembles a long game between a "policy bottom" and a "market bottom," fundamentally a restoration of confidence and expectations.

In summary, from this perspective, one can consider the US stock market as a core asset, view Crypto as a cyclical offensive asset with built-in leverage, while A-shares belong to structural strategy targets.

In Conclusion

Looking back at this global market experiment from 2021 to 2025, it becomes clear that enduring drawdowns is the only way to grasp cycles.

However, there is no standard answer to how to withstand drawdowns peacefully. Understanding their risk-return characteristics, especially their drawdown performance under extreme pressure, is the first step toward making wise decisions.

After all, in this long-distance race of investment, what determines how far we can go is never how fast we run in tailwinds, but how much drawdown we can withstand in headwinds.

Let us encourage each other.