Author: Wu Tianyi
With the approval of Bitcoin ETF this year, Bitcoin has broken through its historical high. The topic of whether Bitcoin can break through $100,000, which has been heated up since the beginning of 2019, has once again become popular. However, in the crypto market, volatility is eternal. After the historical high, investors are waiting for the largest market correction since 2020. The total market value of cryptocurrencies has shrunk from $2.44 trillion on August 2 to $1.99 trillion on August 6, with the largest single-day decline of 8.4%.
The reasons for this pullback are complex. First, it was affected by the global economy, with Japanese and US stocks plummeting and the Bank of Japan raising interest rates. Secondly, the US economy showed signs of recession, and non-farm employment data was significantly weaker than market expectations. Finally, factors such as the "dumping" of the trading group JUMP and the intensification of tensions in the Palestinian-Israeli region are also affecting the market.
In the 2020 halving cycle, Twitter analyst PlanB's S2F model was praised for its accurate prediction of the high point, but since then, the scarcity principle derived by the model through a high stock-to-flow ratio has repeatedly failed. This callback once again proves a truth - Bitcoin prices are closely related to macroeconomic and political factors, and may no longer be the financial "safe haven" it once was.
At present, the Fed's interest rate cut expectations, the US election, the global market, geopolitics, etc. will become important factors affecting the future bull market. When the perspective returns to ordinary investors, the phenomenon of "no takeover" has not disappeared, and the crypto market is still waiting for the driving force brought by native innovation. Under various factors, the market will continue to remain volatile.
Is a rate cut still good news?
Although the expectation of interest rate cuts has been stimulating the crypto market, when the rate cuts actually come, everything seems to be a little different. According to CME Fed Observation data, the probability of the Fed cutting interest rates on September 24 has risen to 100%. From a macro perspective, the interest rate cuts will reduce deposit rates and borrowing costs, prompting capital outflows from banks, and investors will be more inclined to high-risk investments such as crypto assets.
However, since the second half of 2022, the expectation of rate cuts has dominated market sentiment and become one of the key catalysts for the surge in Bitcoin prices, so the actual rate cut may only cause a mild market reaction. Bitcoin often rises the most when the Fed pauses its rate hike cycle, but the first rate cut reaction is usually tepid, and if the rate cut is due to economic uncertainty, it may have a negative impact on BTC prices.
Therefore, what is more critical is the background of the interest rate cut. If it occurs in a period of low inflation and economic prosperity, the stimulating effect on asset prices may be more obvious; but if the interest rate is cut when the economy is fragile, it may send a negative signal and cause funds to flow from high-risk assets to safer assets.
Pessimism about the impending recession in the United States is spreading. U.S. job market data released on August 2 showed that the unemployment rate hit its highest level since October 2021, while job growth was lower than expected. The U.S. economy will remain weak in the future, and the impact of interest rate cuts on the crypto market will weaken with the economic background, and the market will continue to fluctuate in the short term.
Since 2008, the United States has started a debt-driven economic growth model, and periodic economic crises are inevitable. However, as long as capital can flow freely, switching from fiat currency to cryptocurrencies such as Bitcoin will remain one of the long-term options for wealth preservation.
The two parties and cryptocurrencies
As cryptocurrencies gradually move to the center of the U.S. political stage, the U.S. election and the attitudes of the two parties toward cryptocurrencies have also become important factors affecting the market. At the same time, the crypto market has also welcomed its temporary "savior" - Donald Trump. In 2019, he stated at the Bitcoin Conference that after being elected, he would maintain the "national strategic Bitcoin reserve" and formulate a "comprehensive" crypto policy, from stablecoin supervision to Bitcoin self-custody.
Unlike the Republicans, the Democratic Party has a more ambiguous attitude towards cryptocurrencies after Biden withdrew from the election. Previously, Circle’s CEO said that the crypto industry is seeking clarity on Harris’ economic policy intentions and her stance on cryptocurrencies.
Although Trump's approval rating has soared after his assassination, and Bitcoin has returned to the $60,000 mark, the first time a major party nominee has emphasized cryptocurrency will further draw the market into the political vortex between the Democratic and Republican parties, and volatility will increase.
In the recent SEC v. Ripple case, the judge imposed a fine that was far lower than the SEC's previous request. This shows that the attitude of the United States has gradually improved. Regardless of who becomes president, both parties have a stronger desire to establish a clear regulatory framework to protect consumers and promote innovation, which will boost the enthusiasm of corporate activities.
The Democratic Party is on the left, emphasizing the role of government and social fairness, while the Republican Party is on the right, focusing on small businesses and corporate interests. The resistance to policy implementation mainly depends on the ownership of the two houses of Congress. If the Democratic Party controls the majority of seats, the resistance to policy implementation will be small; otherwise, the resistance will be great.
For cryptocurrencies, the Democrats advocate stricter regulation, while the Republicans are more open. Therefore, if the Democrats win, the cryptocurrency market will face regulatory pressure, which may be unfavorable to market growth in the short and medium term, but in the long run, a healthy and regulated market will promote its development and inclusion in the mainstream financial market, which is beneficial to the cryptocurrency market.
If the Republicans win, the cryptocurrency market may see positive news in the short and medium term, but in the long run, necessary supervision is still indispensable for the mainstream financial market to accept cryptocurrency.
Is gold a better store of value than BTC?
Cryptocurrency first appeared on the world stage due to the 2008 Cyprus economic crisis, during which people bought a large number of Bitcoins to hedge against currency depreciation. However, the current crypto market is gradually tied to the global political and economic situation.
As expected, the tension in the Middle East and a series of disappointing data from the US economy will bring more uncertainty to the market, and the market will remain volatile. In addition, all the funds accumulated in the early stage of Bitcoin ETF have entered the market, and it is difficult to continue to bring substantial growth in the short term.
Not only that, in August, the "Bitcoin Strategic Reserve Act" was submitted to Congress and submitted to the Senate Banking Committee for review. Cardano founder Charles Hoskinson said that although strategic Bitcoin reserves may be beneficial to price trends, if the U.S. Treasury Department controls 19% of the BTC supply as it wants, it will pose a significant centralization risk to Bitcoin.
Amid tensions, capital seems to favor gold more. Since the market's sharp correction last Monday, gold has outperformed Bitcoin and has decoupled from broader market indices such as the SPX and Nasdaq. However, according to the data, in the past decade, among asset classes including stocks, bonds, commodities, gold and real estate, Bitcoin has been the best asset in 8 of the past 10 years, with a return of 18,719% after holding for 10 years.
In fact, gold's short-term brilliance only reflects recent market fluctuations, but it still cannot change the laws of the global economy. The core elements of the crypto market's bullishness remain solid. First, the global economy is at the beginning of monetary easing, and the increase in global liquidity has historically been a catalyst for Bitcoin's rise.
Secondly, the spot Bitcoin ETF has attracted $17 billion in net inflows, and the spot Ethereum ETF is also overcoming the ETHE outflow problem. Robert Michnik, head of digital assets at BlackRock, said that pension funds, endowment funds, sovereign wealth funds, insurance companies, other asset management companies and family offices are expected to lead a new wave of capital inflows. The SEC filling report also shows that BNP Paribas, the second largest bank in Europe (by assets), has purchased shares of BlackRock's Bitcoin spot ETF.
The highs and lows in the cryptocurrency market have historically been driven by a range of factors, including high interest rates, technological leaps and investor herd psychology, rather than a single event, and for now, the long-term bullish factors remain, "everything is slowly but steadily driving buy-ins."
How can investors better seize opportunities?
As an emerging market in the global financial market, the crypto market is still full of opportunities as a new technology, although the market trend is increasingly affected by macro factors and volatility may continue for some time.
This round of bull market was initiated by the US Bitcoin ETF and the expectation of a US dollar interest rate cut, and has little correlation with public chains and Altcoin, so there are no truly valuable, highly innovative projects or tokens other than Bitcoin. Tokens without sufficient innovation naturally cannot attract the consensus of global users, and can only promote local consensus through a strong community, so the phenomenon of "no mutual acceptance" has formed on the surface.
At the same time, a market lacking native innovation is susceptible to unexpected events that may cause short-term fluctuations, but under the influence of the above-mentioned monetary easing policies, Bitcoin and Ethereum ETFs, and changes in attitudes of the two major parties in the United States, the market remains bullish in the long term.
If you are an ordinary investor who has a certain understanding of the crypto market and is waiting to see when to enter the market, fixed investment is a good choice in the long run. Taking OKX's fixed investment strategy as an example, investors can invest a fixed amount of money in a fixed time period to buy a strategy of a selected currency combination. When the market fluctuates violently, use appropriate fixed investment strategies to buy more chips at low points with the same investment amount to obtain more substantial returns. This strategy is suitable for everyone to a certain extent, especially long-term investors. It supports one-click fixed investment, redemption at any time, and free combination of currencies. As a tool product, the fixed investment strategy avoids the failure of manual orders to a certain extent.
At present, cryptocurrency has become an indispensable part of investment allocation. According to Bitwise research, Bitcoin allocation has a positive impact on the overall Sharpe ratio of every possible three-year traditional investment portfolio. Increasing the Bitcoin allocation by 2.5% will increase the cumulative return of the portfolio to approximately 101.6%. If Bitcoin (BTC) holdings account for 5% of the portfolio, the return rate rises to 144.7%.
In the context of short-term volatility and long-term bullishness, investors should currently control risks reasonably, improve capital utilization efficiency, and wait for opportunities. Ways to improve capital efficiency include using financial instruments that generate currency by depositing coins, focusing on compound interest trading strategies, gradually building positions and choosing appropriate buy the dips strategies, and choosing reliable encryption platforms.
Whether in the crypto market or the traditional financial market, the key to profitability lies in the user's scientific analysis of market trends and risk-aware capital allocation. Trading tools are only auxiliary, and their core advantage is to save time costs. Although the trading tools on the market are becoming increasingly diversified, investors still need to make long-term plans based on their own needs in order to effectively improve capital efficiency and achieve profitability.
