Key points to remember
- Bitcoin and cryptocurrency prices fell sharply on Monday as market turbulence sparked by concerns over the U.S. economy spread beyond stocks.
- Cryptocurrency markets could face some volatility due to lingering economic uncertainties, although some analysts believe the decline in bitcoin, which gained ground on Tuesday, could be limited.
- Some experts believe the recent decline could be a buying opportunity, noting that the cryptocurrency’s underlying value proposition has not changed.
The dramatic drop in cryptocurrencies on Monday, which fell along with stocks on concerns about a slowing U.S. economy, not only made investors nervous but also tested bitcoin’s case as a safe-haven investment.
Here’s what experts say happened in the past few days and what’s ahead for cryptocurrency markets as the U.S. navigates fears of economic uncertainty.
What happened during the cryptocurrency selloff?
Bitcoin (BTCUSD) is not as far removed from the price fluctuations of traditional markets as once thought, calling into question its proposition as digital gold.
As the turmoil in the stock market spills over into cryptocurrency markets, bitcoin fell more than 18% on Monday to below $50,000, a level not seen since February. Although bitcoin recovered to around $56,000 on Tuesday, it is still down nearly 20% since the start of last week.
The rest of the cryptocurrency market fared even worse on Monday, as alternative crypto assets continue to tend to follow bitcoin’s lead rather than move on their own.
However, ether’s (ETHUSD) nearly 26% drop to a low of $2,116 could be attributed to investor nervousness over large fund movements from trading firm Jump Trading to various cryptocurrency exchanges that began on July 25, according to blockchain data intelligence firm Arkham Intelligence.
What’s Next for Cryptocurrencies? Maybe Toward Volatility
In the short term, crypto assets could experience greater volatility.
Matt Hougan, Bitwise’s chief investment officer, suggests watching for a few signs that could indicate where the cryptocurrency markets are headed: forced liquidations of cryptocurrencies as leveraged traders scramble amid falling prices, the financial health of crypto firms, and flows of spot exchange-traded products.
If there is a recession in the United States, bitcoin will fall, but not as much as in the past, said Zach Pandl, director of research at Grayscale.
“Downside risks to token prices are lower than in the previous cycle, in our view, due to relatively low altcoin valuations, limited credit/leverage in crypto markets, and institutional demand for #Bitcoin and #Ethereum spot ETPs,” Pandl posted on X.
Bernstein analysts are more optimistic. “If rate cuts and monetary liquidity are the usual response to U.S. recession fears, we expect ‘hard assets’ such as bitcoin (digital gold) to rise,” the analysts write, according to The block.
Is it time to hold on?
Hougan suggests investors ignore short-term price signals and focus on the long-term fundamentals of bitcoin investing.
He compared the recent volatility in the markets, both stocks and cryptocurrencies, to the sharp decline seen on March 12, 2020, when the world realized that COVID-19 was going to be a serious problem. After falling 37% that day, bitcoin went on a tremendous rise and recorded gains of more than 1,000% over the next 12 months.
“In retrospect, March 12, 2020 was not the time to panic,” Hougan wrote in a recent note. “It was the best buying opportunity for bitcoin in a decade.”
