experienced a 13% drop over the weekend as global stock markets reacted to fears of a US recession and dislocation in yen markets.
According to Bernstein analysts, “Bitcoin's initial reaction as a 'risk-off' asset is not surprising.”
They note that this pattern has been observed before, such as during the flash crash in March 2020, especially since Bitcoin is the only market that trades over the weekend.
Despite the recent downturn, Bernstein remains optimistic about the future of Bitcoin. He argues that if rate cuts and monetary liquidity become the typical response to recession fears in the United States, “we expect ‘hard assets’ like Bitcoin (digital gold) to rise in price again.”
They add that unlike previous cycles, when investing in Bitcoin was more challenging through cryptocurrency exchanges, Bitcoin ETFs are now active and highly liquid, trading approximately $2 billion per day.
Bernstein also highlights Bitcoin's association with political dynamics, referring to it as a “Trump deal” due to the cryptocurrency market favoring Trump as a crypto-friendly candidate.
“Bitcoin remains a 'Trump trade,' given that the crypto market favors Trump as a crypto-friendly candidate,” they write. “Not surprisingly, as the Trump-Harris polymarket odds narrowed, bitcoin and crypto have traded weakly.”
Bitcoin and other cryptocurrency markets are expected to remain range-bound until the US election, influenced by catalysts such as the presidential debate and the final election result.
Bernstein also notes that ETFs have seen significant inflows, nearly $1.2 billion in two weeks, although Grayscale's ETHE outflows have offset these gains.
Overall, Bernstein believes that Bitcoin and cryptocurrency markets will likely trade on macroeconomic and election signals for most of Q3 2024. He suggests that investors looking for exposure to a “Trump trade” may want to consider adding Bitcoin or Bitcoin stocks.
If broader equity markets rally due to a Fed response, Bernstein expects Bitcoin and other cryptocurrency markets to follow suit.
