In a memo to investors on Monday, Bitwise Chief Investment Officer (CIO) Matt Hougan noted that the recent crypto market decline has provided an “opportunity” for Bitcoin (BTC) to replicate a similar rally that followed the end of COVID-19 lockdowns.
Why Does Bitcoin's Recent Decline Present an “Opportunity”?
Bitcoin suffered its worst drop since the FTX incident over the past few days, falling about 20% from Friday to Monday morning. The drop has wiped out more than half a trillion dollars from the crypto market since the beginning of August.
A series of bearish events – lower-than-expected nonfarm payrolls (NFP) data, geopolitical tensions in the Middle East, Japan raising interest rates and rising odds of Kamala Harris on Polymarket – coupled with a low-volume weekend added to the market impact.
The decline was not limited to crypto, as the entire equity market also plunged, with the Japanese stock market suffering the heaviest losses.
Hougan noted that the last time the capital markets faced such a sell-off was on March 12, following the global emergency over the impact of COVID-19. Bitcoin fell 37%, from $7,911 to $4,971. However, an external crisis does not change Bitcoin's fundamentals. Quantitative easing programs and interest rate cuts by banks helped Bitcoin rise more than 1,000% to $57,322 in a year, Hougan noted.
“At the same time, COVID has reinforced the reasons for Bitcoin’s long-term growth. It showed that central banks will bail out economies at the first sign of trouble. It has demonstrated the limitations of centralized institutions. And it reminds us that the future is increasingly online and digital,” Hougan said.
Similarly, market participants including Tesla CEO Elon Musk and Wharton's Jeremy Siegel have begun to predict a rate cut by the US Federal Reserve (Fed) at its September meeting. Polymarket shows the odds of a rate cut of more than 50 basis points have surpassed 55%.
Hougan pointed out a number of indicators to watch before a market recovery is possible:
1. Watch to see if the crypto market has found a bottom, as more than $1 billion in liquidations could be a sign that a bottom is near. According to Ki Young Ju, founder and CEO of CryptoQuant, Bitcoin remains above the average miner base price. A drop below this level has confirmed a bear market in previous market downturns.
BTC cost basis comparison | Source: CryptoQuant
2. Pay attention to the overall health of crypto companies as the sharp market decline in 2022 revealed that a sharp market decline could “drain down companies with overleveraged balance sheets.”
3. Watch the flows through crypto ETFs to see if ETF investors are joining the crowd in selling their holdings or holding on to stem the bleeding. Bloomberg analyst James Seyffart has noted that Bitcoin ETFs could see overall net inflows when issuer flow data emerges later.
Meanwhile, Capula Management, the fourth largest fund in the EU, has reportedly invested $500 million in Bitcoin ETFs.
Source: https://tapchibitcoin.io/tai-sao-su-sut-giam-moi-nhat-cua-bitcoin-la-mot-co-hoi-mua-history-su-bitwise.html
