It has surely been a rollercoaster of emotions lately with Bitcoin dropping under $50,000, just 24 hours ago, and it’s perfectly normal to feel a bit rattled. Nevertheless, according to Matt Hougan, CIO of Bitwise, this might be a prime time to buy Bitcoin. Let’s take a closer look at what he says and why this weekend’s sell-off could be a great opportunity to add more coins to your stack.
“History suggests that this weekend’s sell-off is a buying opportunity.” – Matt Hougan
Market Mayhem
Over the past few days, global markets have taken a beating. “The NIKKEI had its worst day since 1987 today, US stock markets are trembling, the VIX volatility index is up 100%, and BTC is down 20%. It’s nasty out there,” says Hougan. If you’re like most crypto investors, you’re probably feeling a mix of fear, despair, and maybe even anger.
Hougan relates to those feelings but also sees an opportunity. Drawing from his extensive experience in managing crypto investments, he’s seen similar scenarios play out before and states, “History suggests that this weekend’s sell-off is a buying opportunity.”
Flashback to March 2020
Hougan reminds us of the last major market meltdown on March 12, 2020, when the world was grappling with the reality of Covid-19. He says, “The Dow Jones Industrial Average sold off 2,353 points, its worst day since 1987; tech stocks were in free fall; commodities crashed. We all thought the global economy was going to end, and for good reason: The president declared a national emergency the following morning.”
Amid this chaos, Bitcoin fell a staggering 37%, wiping out a year’s worth of gains in just 24 hours. The media was quick to declare Bitcoin a failed hedge asset. But here’s the twist: that crash turned out to be the best buying opportunity for Bitcoin in a decade.
The Long-Term Potential of Bitoin
Hougan explains, “With the benefit of hindsight, it’s easy to see why. Nothing fundamental changed about Bitcoin because of Covid. The maximum number of Bitcoin that could exist (21 million) was the same on March 11 as it was on March 12. You didn’t need to rely on any bank, government, or centralized institution.”
Covid-19 highlighted the limitations of centralized institutions and the willingness of central banks to bail out economies at the first sign of trouble. These factors actually underscored Bitcoin’s value proposition. Fast forward to today, and we see a similar setup.
This weekend’s market downturn was triggered by rough macro news and low liquidity, creating a perfect storm for a pullback. Yet, the fundamentals of Bitcoin remain unchanged.
Central Banks and Rate Cuts
In recent days, the likelihood of a 50 basis points rate cut from the Federal Reserve in September has skyrocketed from 11% to 98%. There’s even talk of an emergency rate cut before the next meeting. Hougan points out, “We shouldn’t be surprised. It happened during Covid. It happened after the eurozone crisis in 2010. And it happened in 2008.”
History teaches us that such panic often leads to crypto trading down initially, but ending much higher a year later. Hougan suggests that while this time might feel different, the historical patterns offer a reason for optimism. He states, “When you get your first job on Wall Street, they teach you that the four most expensive words in finance are ‘this time it’s different.’ Historically, when we’ve seen this kind of global economic panic, crypto has traded down initially but ended much higher a year later.”
Looking Ahead
Hougan concludes, “Maybe this time really is different, but I wouldn’t bet on it. In fact, I’m betting the other way.” So, what does this mean for us? It’s essential to stay informed, keep a cool head, and consider the long-term potential of Bitcoin. If history is any guide, this crash could be the buying opportunity we’ve been waiting for.
Why Did Bitcoin Tank?
The sell-off in the crypto market started last Friday when disappointing job market figures from the United States were released. This sparked fears of a recession, hitting both the crypto market and traditional markets hard.
On Monday, the Japanese stock market experienced its biggest drop since Black Monday in 1987—one of the largest stock market crashes ever—with a decline of over 12%.
In addition to recession fears, unrest in the Middle East has been growing. Iran has been threatening a major attack on Israel for days, causing a lot of market turmoil.
At time of writing, Bitcoin is trading at $55,730, up 7.89% in the last 24 hours according to CoinMarketCap data. Compared to a week ago, when Bitcoin was above $66,000, we are still sitting at a 16% decline in value.
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