7 August 2024
In the aftermath of a tumultuous week that saw Bitcoin (BTC) plummet to a seven-month low of $49,000 on Monday, global financial markets were rattled by a significant downturn, sparking concerns across stock exchanges and the crypto sphere.
However, amid the chaos, Bitwise’s Chief Investment Officer Matt Hougan analyzed the drivers behind the recent market meltdown. He explained why he believes traders’ fears may be misplaced and that the market dip holds key opportunities for potential Bitcoin price appreciation.
Crypto Crash Or Opportunity?
In a recent note to investors, Hougan pointed to the broader market chaos, including a 12% single-day crash in Japan’s Nikkei index and a 4% tumble in Nasdaq futures, sparking the crypto selloff. He drew parallels to the market turmoil seen at the onset of the COVID-19 pandemic in March 2020, when Bitcoin crashed 37% in a single day.
“It felt as if we might never recover. The media claimed Bitcoin had failed its test as a hedge asset,” Hougan recalled. However, he noted that in the year following that crash, Bitcoin surged over 1,000% to new record highs of $57,322.
Hougan believes a similar dynamic could play out this time, arguing that Bitcoin’s fundamental case remains intact, regardless of short-term price volatility.
“Nothing fundamental had changed about Bitcoin because of Covid,” Hougan said. “The maximum number of Bitcoin that could exist (21 million) was the same on March 11 as on March 12. You didn’t need to rely on any bank, government, or company to store wealth in Bitcoin on March 11, which was still true on March 12.”
Moreover, Hougan contends that the factors that propelled Bitcoin’s rise during the pandemic – the expansion of central bank intervention, the limitations of centralized institutions, and the growing digitization of the economy – are still in play today.
Will Bitcoin Emerge Stronger?
Hougan also acknowledged in his remarks the near-term uncertainty, noting that it remains unclear whether the crypto market has found its bottom yet. He pointed to the potential for further deleveraging and contagion risk among crypto firms as key monitoring factors.
However, the Bitwise CIO urged investors to look past the short-term noise and focus on Bitcoin’s long-term trajectory. He warned against the temptation of market timing, reminding readers that “the four most expensive words in finance are ‘this time it’s different.’”
Historically, Hougan said, crypto has tended to trade lower initially during periods of broader economic panic, only to end up higher over the following 12 months. He expressed confidence that the current market meltdown will be no exception and that Bitcoin will emerge stronger from the turmoil.
“In fact, I’m betting the other way,” Hougan concluded. “Resist the urge to look at intraday prices, and focus instead on where Bitcoin could be next year, in five years, and in ten years.”
When writing, the largest cryptocurrency on the market has climbed back to the $56,300 level, surging 4.5% in the last 24 hours.
Featured image from DALL-E, chart from TradingView.com