原文标题：《The Crypto Market Sell-Off: What Happened and Where We Go From Here》
Written by Matt Hougan, Chief Investment Officer at Bitwise
Compiled by: Chris, Techub News
The cryptocurrency market experienced a sharp drop over the weekend. From 4 p.m. on Friday to 7 a.m. on Monday, the price of Bitcoin fell nearly 20%, from $63,356 to $51,026. Ethereum's drop was even more severe, plunging more than 30% from $3,307 to $2,234.
Of course, cryptocurrencies aren’t the only market taking a nosedive.
Global financial markets have seen wild swings on recession and geopolitical concerns, with the Nikkei (the main stock index on the Tokyo Stock Exchange) experiencing its worst day since 1987, falling more than 12%. Nasdaq futures fell more than 4%, while the VIX volatility index (a measure of expected volatility and uncertainty in the market) has risen 100% since last Friday.
Most cryptocurrency investors may experience dramatic mood swings, such as fear and despair, but the biggest emotion is anger. Investors may feel angry because the market does not perform as expected, because of heavy losses, or because of frustration with their investment decisions.
“Isn’t cryptocurrency a hedge against global uncertainty? What’s going on?”
I feel the same way. But based on my experience of managing cryptocurrency funds full-time for more than six years, there is one thing I feel more deeply, that is, the opportunity has arrived.
Lessons from the COVID-19 Slump
The last similar market crash was on March 12, 2020. On that day, the world realized the impact of the COVID-19 pandemic, and the Dow Jones Industrial Average fell 2,353 points, the biggest one-day drop since 1987. Technology stocks and commodity prices also fell sharply, with Bitcoin suffering the biggest drop, plunging 37% from $7,911 to $4,971, wiping out the gains of the past year.
The feeling was that we might be screwed. The media claimed that Bitcoin had failed the test of being a hedge asset. However, as global leaders took steps to stabilize their economies (such as rate cuts and monetary easing), the price of Bitcoin began to recover, eventually rising to $57,332 within a year, an increase of more than 1,000%.
In hindsight, March 12, 2020 was not a time to panic, but rather the best buying opportunity for Bitcoin in a decade. This is because COVID-19 did not change the fundamental properties of Bitcoin, which has a constant maximum supply and is not dependent on any bank, government, or company.
Current market conditions are similar to those of 2020, and even in the face of economic uncertainty, Bitcoin’s value and importance are likely to increase in the long run. The pandemic has accelerated Bitcoin’s long-term upward trend because it demonstrates the limitations of centralized institutions and the trend toward a more digital future.
I saw the same thing today.
The reasons for the market crash
I don’t want to spend too much time reviewing the reasons that led to the current market correction, but in short: weak U.S. economic data sparked concerns about a global economic slowdown, leading to panic in Asian markets and a sharp drop in Japanese stocks; geopolitical risks in the Middle East increased, with Iran threatening to attack Israel;
These events coincided with the forced liquidation of a large number of Jump Trading positions. All of this happened on a summer weekend with low liquidity, further exacerbating the decline.
But watch what happens next: We are about to see a repeat of the COVID-19 script.
The federal funds futures market has already priced in an aggressive response. A week ago, Fed Chairman Jerome Powell was downplaying the need for rate cuts this year, and the market expected only an 11% chance of a 50 basis point rate cut at the Fed's September meeting. Now, the market has raised that probability to 98%. Some are even calling for an "emergency rate cut" before the September meeting.
Probability of target interest rate for the Federal Reserve meeting on September 18, 2024, data as of August 5, 2024. Source: CME Fedwatch
Whenever similar economic crises occur historically, governments usually take measures to increase the money supply, such as cutting interest rates or printing more money. This has happened in the past during the pandemic, after the 2010 eurozone crisis, and during the 2008 financial crisis. If the events of this weekend lead to real economic turmoil, this may happen again.
What to watch for in the future
In the short term, we need to watch whether the cryptocurrency market has bottomed out. A sharp market correction could create a vicious cycle where a fall in market prices triggers more selling, further exacerbating the fall. This is because when prices fall, investors who use leveraged trading face margin calls and are forced to sell assets to replenish their margin. More than $1 billion in futures positions have been forced to close, but we are not sure yet whether the market has bottomed out.
Additionally, it’s important to keep an eye on the health of companies in the crypto ecosystem. As we saw in the 2021 crisis, extreme market volatility can hit companies with overleveraged balance sheets hard. There are now rumors that at least one market maker (Jump Trading) is facing difficulties. If these problems spread to other companies, it could cause the downtrend to last longer.
I will also be watching ETF flows to see if ETF investors take advantage of this pullback to sell or buy more. These three factors will largely determine where we go in the short term.
But my real advice is to ignore short-term market fluctuations. Bitcoin is a very volatile asset and its price can go up and down dramatically. This has always been the case and will continue to be the case. Therefore, it is unwise to try to invest through short-term market timing.
Bringing a trader's mentality into the cryptocurrency market is a mistake. You are investing in a major change in the global financial system. Resist the urge to check intraday prices and focus more on Bitcoin's prospects for the next year, five years, and ten years.
When you get your first job on Wall Street, they will tell you that the five most expensive words in finance are “this time is different.”
History shows that whenever there is a panic in the global economy, the cryptocurrency market tends to fall first, but rises in the following year. Although this time may be different, I believe that in the long run, cryptocurrencies will resume their upward trend.
