For months, Wall Street investors had been predicting that the price of Bitcoin(BTC 0.79%) would soar as soon as the SEC finally approved the new spot-price Bitcoin ETFs. But this didn’t happen. In fact, quite the opposite. The price of Bitcoin is now down to $40,000, and concerns are growing that it could dip even lower.
This is all probably a bit jarring, especially for the first-time crypto investor who expected to become a Bitcoin millionaire overnight. But it’s actually part of a pattern we’ve seen over and over again with Bitcoin, and there’s no need to panic now. Let’s take a closer look.
Bitcoin and tactical asset allocation
There’s been intense media coverage of the new spot-price Bitcoin ETFs, as well as an exhaustive list of possible reasons the price of Bitcoin has dipped in the aftermath of SEC approval. One possible explanation is related to the concept of tactical asset allocation, which simply refers to the process of reallocating funds among different asset classes to take advantage of short-term market situations.
Image source: Getty Images.
In layman’s terms, this simply means that money is being shuffled around among different Bitcoin investment products as people search for the best way to get exposure to Bitcoin. The process of doing this, unfortunately, is causing downward pressure on the price of Bitcoin.
Keep in mind that people have different options when they want to buy Bitcoin now. They can invest in Bitcoin proxy stocks (such as Bitcoin mining companies). They can invest in Bitcoin futures contracts. They can buy futures-based Bitcoin ETFs. They can buy Bitcoin directly in the spot market via a cryptocurrency exchange. And they can invest in the new spot-price Bitcoin ETFs.
For the Bitcoin tactical asset allocation thesis to make sense, you would expect to see certain things. You would expect to see people selling off Bitcoin proxy stocks as they look for more direct exposure via the spot-price Bitcoin ETFs. This has happened. You would expect to see people moving out of the higher-cost futures Bitcoin ETFs into the lower-cost spot-price Bitcoin ETFs. This has happened. And you would expect Bitcoin trading volume on crypto exchanges to fall as people instead buy ETFs. This, too, appears to be happening.
From my perspective, this explanation makes a lot of sense if you assume most investors are rational as they search for the best way to invest in a certain asset. Moreover, I find this explanation strangely comforting, because it means that nothing has changed in the grand macro thesis of Bitcoin adoption. It means that there has been no major change in the long-term growth prospects of Bitcoin. The only downside, really, is that less “new” money might be flowing into Bitcoin than we expected. Instead, it’s just “recycled” money from other Bitcoin products.
Historical evidence from Bitcoin
Still not convinced? Well, let’s consider the historical evidence from Bitcoin and similar types of product launches.
One of the best graphics that I’ve seen over the past two weeks appeared on CNBC. As Markus Thielen of 10x Research pointed out, the same pattern has occurred with every major launch of Bitcoin-related financial products. A lot of early hype leads to a surge in the price of Bitcoin, followed by a swift downward correction on the actual news.
This happened with the first Bitcoin futures contracts, which launched in December 2017. It happened with the April 2021 initial public offering (IPO) of crypto exchange Coinbase Global(COIN 3.46%), which brought Bitcoin trading to the average investor. It happened with the launch of the Bitcoin futures ETFs in October 2021. And it is now happening with the launch of the new spot-price Bitcoin ETFs in January 2024. If you take a trading chart of Bitcoin and highlight these dates, the trend is unmistakable. Peaks follow listings, with dips in their wake. And the long-term price gains continue after a pause.
While you could argue that correlation does not imply causation, there does appear to be a strong pattern here, right? It suggests that as soon as there is a new way of investing in Bitcoin, people start reallocating their Bitcoin funds, and that causes a short-term price downturn.
Buy the dip on Bitcoin
Long story short: You should buy the dip. Bitcoin under $40,000 is a no-brainer investment opportunity in my eyes. By my analysis, there is simply no way that a sustained surge in new retail and institutional money into Bitcoin won’t help to prop up its price. And if many investors decide to allocate just 1% of their portfolio to Bitcoin, that’s going to provide long-term price support — and it’s easier than ever to do it thanks to the new spot-price ETFs.
That’s why I’m still strongly bullish on Bitcoin. The process of democratizing crypto for the average investor continues, and the spot-price Bitcoin ETFs are a welcome new addition. Yes, it’s been messy for the past two weeks, but I’m more convinced than ever that investors need to hold Bitcoin for the long term and learn to embrace its volatility.
TORONTO – Canada’s main stock index was down more than 200 points in late-morning trading, weighed down by losses in the technology, base metal and energy sectors, while U.S. stock markets also fell.
The S&P/TSX composite index was down 239.24 points at 22,749.04.
In New York, the Dow Jones industrial average was down 312.36 points at 40,443.39. The S&P 500 index was down 80.94 points at 5,422.47, while the Nasdaq composite was down 380.17 points at 16,747.49.
The Canadian dollar traded for 73.80 cents US compared with 74.00 cents US on Thursday.
The October crude oil contract was down US$1.07 at US$68.08 per barrel and the October natural gas contract was up less than a penny at US$2.26 per mmBTU.
The December gold contract was down US$2.10 at US$2,541.00 an ounce and the December copper contract was down four cents at US$4.10 a pound.
This report by The Canadian Press was first published Sept. 6, 2024.
TORONTO – Canada’s main stock index was up more than 150 points in late-morning trading, helped by strength in technology, financial and energy stocks, while U.S. stock markets also pushed higher.
The S&P/TSX composite index was up 171.41 points at 23,298.39.
In New York, the Dow Jones industrial average was up 278.37 points at 41,369.79. The S&P 500 index was up 38.17 points at 5,630.35, while the Nasdaq composite was up 177.15 points at 17,733.18.
The Canadian dollar traded for 74.19 cents US compared with 74.23 cents US on Wednesday.
The October crude oil contract was up US$1.75 at US$76.27 per barrel and the October natural gas contract was up less than a penny at US$2.10 per mmBTU.
The December gold contract was up US$18.70 at US$2,556.50 an ounce and the December copper contract was down less than a penny at US$4.22 a pound.
This report by The Canadian Press was first published Aug. 29, 2024.
The crypto market has recently experienced a significant downturn, mirroring broader risk asset sell-offs. Over the past week, Bitcoin’s price dropped by 24%, reaching $53,000, while Ethereum plummeted nearly a third to $2,340. Major altcoins also suffered, with Cardano down 27.7%, Solana 36.2%, Dogecoin 34.6%, XRP 23.1%, Shiba Inu 30.1%, and BNB 25.7%.
The severe downturn in the crypto market appears to be part of a broader flight to safety, triggered by disappointing economic data. A worse-than-expected unemployment report on Friday marked the beginning of a technical recession, as defined by the Sahm Rule. This rule identifies a recession when the three-month average unemployment rate rises by at least half a percentage point from its lowest point in the past year.
Friday’s figures met this threshold, signaling an abrupt economic downshift. Consequently, investors sought safer assets, leading to declines in major stock indices: the S&P 500 dropped 2%, the Nasdaq 2.5%, and the Dow 1.5%. This trend continued into Monday with further sell-offs overseas.
The crypto market’s rapid decline raises questions about its role as either a speculative asset or a hedge against inflation and recession. Despite hopes that crypto could act as a risk hedge, the recent crash suggests it remains a speculative investment.
Since the downturn, the crypto market has seen its largest three-day sell-off in nearly a year, losing over $500 billion in market value. According to CoinGlass data, this bloodbath wiped out more than $1 billion in leveraged positions within the last 24 hours, including $365 million in Bitcoin and $348 million in Ether.
Khushboo Khullar of Lightning Ventures, speaking to Bloomberg, argued that the crypto sell-off is part of a broader liquidity panic as traders rush to cover margin calls. Khullar views this as a temporary sell-off, presenting a potential buying opportunity.
Josh Gilbert, an eToro market analyst, supports Khullar’s perspective, suggesting that the expected Federal Reserve rate cuts could benefit crypto assets. “Crypto assets have sold off, but many investors will see an opportunity. We see Federal Reserve rate cuts, which are now likely to come sharper than expected, as hugely positive for crypto assets,” Gilbert told Coindesk.
Despite the recent volatility, crypto continues to make strides toward mainstream acceptance. Notably, Morgan Stanley will allow its advisors to offer Bitcoin ETFs starting Wednesday. This follows more than half a year after the introduction of the first Bitcoin ETF. The investment bank will enable over 15,000 of its financial advisors to sell BlackRock’s IBIT and Fidelity’s FBTC. This move is seen as a significant step toward the “mainstreamization” of crypto, given the lengthy regulatory and company processes in major investment banks.
The recent crypto market downturn highlights its volatility and the broader economic concerns affecting all risk assets. While some analysts see the current situation as a temporary sell-off and a buying opportunity, others caution against the speculative nature of crypto. As the market evolves, its role as a mainstream alternative asset continues to grow, marked by increasing institutional acceptance and new investment opportunities.
