Research and brokerage firm Bernstein isn’t sweating the latest Bitcoin crash, believing the asset’s short-term reaction to macroeconomic factors is a bit irrational.
Stay Calm On Bitcoin, Says Bernstein
In a research report published on Monday, Bernstein said it’s “not Bitcoin’s fault this time,” as the entire crypto market plunged to lows unseen since early February, including a 20% weekly drop for the leading digital currency.
“We don’t see any incremental negatives for crypto here,” wrote analysts Gautam Chhugani, Mahika Sapra and Sanskar Chindalia to clients on Monday. “If rate cuts and monetary liquidity is the usual template response to U.S. recession fears, we expect ‘hard assets’ such as bitcoin (digital gold) to reprice up.”
Crypto’s slide began with haste late last week after a slew of weak economic data from the United States bolstered recession fears across the country.
Recessions mean less earnings for companies, so they usually drive down stock values. Bitcoin and crypto have held a strong correlation to stocks historically, so they were naturally caught up in this week’s frenzied equity selloff.
The is down 5.6% over the last five trading days. Meanwhile, BTC is down 19.3% on the week, and ETH is down 25.2%.
The correlation may seem irrational to many, however, given that Bitcoin is viewed by many investors today as a “risk-off” asset, similar to digital gold.
“Bitcoin’s initial reaction as a ‘risk off’ asset is not surprising,” the analysts wrote. “This has often been the pattern for bitcoin markets (seen before in March 2020 flash crash too), particularly, as it is the only market trading over the weekend. We remain calm.”
In March 2020, Bitcoin crashed from over $9000 to under $4000 in a single day, with crypto and stocks alike plummeting due to fears around the emerging coronavirus pandemic. However, central banks across the world soon lowered interest rates to cushion global markets, helping BTC surge over 15X throughout the following 12 months.
Many investors see parallels to between “Black Thursday” of March 2020 and today. For example, the VIX soared up to 65 at Monday’s open, a level only seen before in March 2020 and October 2008.
The $VIX is at 65 right now, up from 23 at Friday's close. If that were to hold it would be the biggest 1-day % increase in history and one of the highest closes ever. Only periods with higher levels of implied volatility: October/November 2008 and March 2020. pic.twitter.com/ikXx02Wt7v
— Charlie Bilello (@charliebilello) August 5, 2024
Still a Trump Trade
Bernstein still believes Bitcoin will remain a “Trump trade” over the following few months, with the currency rising and falling in line with Donald Trump’s odds of winning the U.S. federal election.
Over the last few weeks, Trump’s odds of victory have narrowed closer to even, partially explaining the weakness in crypto prices.
“We expect bitcoin and crypto markets to be range bound until the U.S. elections, trading off catalysts such as the presidential debate and the final election outcome,” the firm concluded.
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