By Brian Rudick
Compiled by: BitpushNews Scott Liu
The recent turmoil in traditional markets has sparked widespread concerns for a variety of reasons. First, the Bank of Japan raised interest rates in response to the depreciation of the yen, causing traders to unwind yen carry trade positions. Second, concerns about a US recession have grown after a series of disappointing data, especially the employment report. Finally, tensions in the Middle East have increased, with Iran promising revenge after the assassination of a Hamas political leader, further deepening concerns about a wider war.
This financial, economic, and geopolitical uncertainty has caused widespread panic. For example, Japan's Nikkei index suffered its biggest one-day drop since 1987, and many large U.S. technology stocks suffered double-digit declines in a few days.
Cryptocurrencies, however, have seen even bigger declines due to their own unique set of negative factors. These include potential selling pressure from Mt. Gox’s initiation of BTC repayments, mixed flows in spot digital asset ETFs, the uncertainty surrounding the election win of crypto-friendly Trump, and reports that a large market maker sold hundreds of millions of dollars in crypto at the height of the panic. All in all, Bitcoin hit $49,200, down 30% from a week ago, while Ethereum fell below $2,200, down 35%.
Despite all the negatives and the market decline, we remain convinced of our bullish thesis as its core elements remain solid:
- Central bank rate cuts: We are at the beginning of global monetary easing. As the chart below shows, increases in global liquidity have historically been a catalyst for Bitcoin’s gains.
- ETF flows: Spot Bitcoin ETFs have attracted $17 billion in net inflows, spot Ethereum ETFs are also overcoming ETHE outflow problems, and securities firms are beginning to allow financial advisors to include cryptocurrencies in asset allocations, all of which are slowly but steadily driving buy-ins.
- Improved U.S. Position: Regardless of who becomes president, there is a stronger bipartisan appetite for clear regulatory frameworks that protect consumers and promote innovation, which will drive more business activity.
- Government Bitcoin Strategy: Although the odds are low and would likely require Trump to win, the creation of a US strategic Bitcoin reserve could spark a national Bitcoin war given the potential impact and other countries’ moves in this space.
Global liquidity and Bitcoin price year-on-year growth rate
Although black swan events are always possible, it is difficult for people to identify risks with high probability and high damage. For example:
- Risk reduction: Whether it is FTX returning $13 billion to creditors or Mt Gox paying BTC to hacker victims, the shadows of the past market are dissipating. If FTX's compensation can be reinvested in the market and the Mt Gox problem is resolved, these may become catalysts for market growth.
- Traditional Market Risks: Financial and economic uncertainty may be waning, with the Bank of Japan saying it is done raising rates for now, while Goldman Sachs sees only a 25% chance of a U.S. recession (the Fed has pledged to address slowing growth).
- Other risks: If the US sells the $13 billion of BTC it seized, the bankruptcy of centralized exchanges/stablecoins may be reversed, or at least more manageable and less risky.
All in all, if these bullish factors come to fruition and risks recede, cryptocurrencies will move towards their ultimate goal. We believe Bitcoin will easily break $1 million, and the risk-reward ratio becomes very optimistic in any probability of the above scenario happening. Imagine that Bitcoin is no longer "digital gold", but "physical Bitcoin".
Buy the dips opportunity – it’s time to buy
Ultimately, we think the recent decline is a good thing, providing a solid entry point and pushing crypto to the highest risk-reward ratio. Yes, we are in a much different macro environment than before, but it is hard to say what the previously mentioned catalysts will have a significant impact on prices.
So while 30%+ declines are certainly unsettling, they also create a lot of opportunities. And while it’s easy to get negative after last week’s price crash, judging fundamentals based on price often leads to buying high and selling low. Instead, the best analysts examine the reasons for the price movement and determine if their theory is still valid. If it’s not, analysts add to their positions because of greater upside potential.
So, with risks receding, the bullish fundamentals fully in place, the possibility of Bitcoin reaching $1 million is real, and there is more upside potential after the recent drop, the risk reward has never been better. It’s time to buy the dips.
