“Bernstein Anticipates Positive Bitcoin Trends Following Federal Reserve’s Reaction to Market Decline”

Research and brokerage firm Bernstein is not overly concerned about the recent Bitcoin downturn, considering the asset’s short-term response to macroeconomic influences to be somewhat irrational.

Remain Composed Regarding Bitcoin, According to Bernstein

In a research document released on Monday, Bernstein stated that it’s “not Bitcoin’s fault this time,” as the entire cryptocurrency market fell to levels not seen since early February, including a 20% weekly decline for the leading digital currency.

“We don’t observe any additional negatives for crypto here,” wrote analysts Gautam Chhugani, Mahika Sapra, and Sanskar Chindalia to clients on Monday. “If rate reductions and monetary liquidity are the typical responses to U.S. recession anxieties, we anticipate ‘hard assets’ like bitcoin (digital gold) to increase in value.”

The decline in crypto began rapidly late last week following a series of disappointing economic reports from the United States, which heightened recession concerns nationwide.

Recessions typically lead to reduced earnings for businesses, which usually results in lower stock prices. Historically, Bitcoin and crypto have maintained a strong correlation with stocks, so they were inevitably swept up in this week’s chaotic equity selloff.

The index is down 5.6% over the past five trading days. In contrast, BTC has decreased by 19.3% this week, while ETH has fallen by 25.2%.

This correlation may appear irrational to many, however, considering that Bitcoin is regarded by numerous investors today as a “risk-off” asset, akin to digital gold.

“Bitcoin’s initial response as a ‘risk-off’ asset is not unexpected,” the analysts noted. “This has frequently been the trend for Bitcoin markets (as observed during the March 2020 flash crash), particularly since it is the only market operating over the weekend. We remain composed.”

In March 2020, Bitcoin plummeted from over $9000 to below $4000 in a single day, with both crypto and stocks crashing due to concerns surrounding the emerging coronavirus pandemic. However, central banks worldwide soon reduced interest rates to stabilize global markets, enabling BTC to surge more than 15 times over the subsequent 12 months.

Many investors draw parallels between “Black Thursday” in March 2020 and the current situation. For instance, the VIX surged to 65 at Monday’s opening, a level only previously observed 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 continues to believe that Bitcoin will act as a “Trump trade” in the coming months, with the currency fluctuating in accordance with Donald Trump’s chances of winning the U.S. federal election.

In recent weeks, Trump’s chances of victory have tightened closer to even, partially accounting for the decline in crypto prices.

“We anticipate that Bitcoin and crypto markets will remain range-bound until the U.S. elections, responding to catalysts such as the presidential debate and the final election results,” the firm concluded.

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