Do Extreme Bitcoin Price Movements Persist or Reverse? Evidence from Daily Bitcoin Returns

Abstract

Bitcoin is characterized by large daily price fluctuations, yet the direction of price adjustment following extreme movements remains uncertain. While previous research documents both momentum and reversal in cryptocurrency returns, this study examines whether extreme daily Bitcoin movements are followed by continuation or reversal and whether the response varies with shock direction, severity, and post-event horizon. Daily BTC-USD closing prices from 17 September 2014 to 31 July 2026 are used to construct percentage log returns. Extreme positive and negative movements are identified using symmetric thresholds of 3%, 5%, and 7%. Subsequent cumulative returns are evaluated over one-, three-, and five-day horizons. Statistical inference combines parametric and non-parametric tests, exact binomial tests of reversal frequency, and regressions with heteroskedasticity and autocorrelation consistent standard errors. The findings show that Bitcoin does not exhibit a uniform post-extreme-return pattern. Moderate positive shocks display evidence of short-horizon continuation, particularly at the 3% and 5% thresholds. Negative extreme movements exhibit a stronger tendency toward reversal, with reversal frequencies significantly above 50% at several thresholds and horizons. However, formal comparisons of conditional mean returns following positive and negative shocks generally fail to establish statistically significant directional asymmetry. The results suggest that momentum and reversal can coexist within Bitcoin and depend on the magnitude, direction, and horizon of the initiating movement.