Bitcoin Crashes 20% — Is Now the Time to Buy the Dip?

Bitcoin and Ethereum are suffering their worst selloffs since the pandemic, with both cryptocurrencies falling more than 20% this past week.

Given the larger macroeconomic factors at play, with Japan’s stock market also falling 12% on Monday to suffer its worst day since 1987, it’s strange to say, but crypto seems to be holding up relatively… OK?

The VIX, the market’s fear gauge, also shot up to its highest level since the pandemic after its largest single-day jump in more than three decades. Given all that, many market commentators turned up the volume on calls for the Fed to intervene with emergency rate cuts.

If those come, it may be prudent to buy this dip. And even if they don’t, we take a look back on one amazing call from July 18 that perfectly pegged Bitcoin’s fair value at $53,000 (which is where Monday’s collapse seemed to bottom.)

Per usual, we discussed all this and more in our Monday News Recap above.

The Unwind of Japan’s Carry Trade

Japan’s decision to come off of artificially low interest rates has ended the free-money arbitrage trade. No more can people borrow essentially for free, and the Yen has been strengthening across all kinds of currencies, including the dollar.

On Monday, the Yen had shot to its strongest comparison to the Dollar since January (it has rocketed higher by 50% in just the last few days.) That led to an incredible amount of de-leveraging, and resulted in the market turmoil.

On CNBC, Chicago Fed president Austan Goolsbee was pelted with questions about whether the Fed should heed the calls to issue an emergency rate cut from the likes of Wharton Business School professor Jeremy Siegel. In short, Goolsbee basically said “No,” while signaling ahead to the September meeting.

So… Has Bitcoin Bottomed?

As we’ve been covering for the past few weeks, crypto historically performs quite well in periods of rate cuts. Those are essentially guaranteed now, with the market pricing in about a 90% chance of a 0.5% rate cut at the policy meeting next month.

But even so — we were reminded of a JPMorgan note from a few weeks ago that signaled Bitcoin had run ahead of its fair market price. We mentioned it at the time on July 18, but it’s worth revisiting now.

JPMorgan predicted that bitcoin’s price would revert back to its mean, calculating bitcoin’s actual fair value using gold’s volatility-adjusted price would mean it would be closer to $53,000. Indeed, that price call came scary close to where the crypto bottomed out on Monday.

“This is because the bitcoin price is too high at present, not only against its production cost (at $43k currently as shown in Figure 29) but also its vol-adjusted comparison to gold, which currently stands at $53k (Figure 30).”

Given that, the risk-reward has shifted quite significantly since. As many bitcoiners were quick to note — the path forward for the Fed seems to again point to the reason why the crypto was created — to hedge against the accommodations to which the market is seemingly addicted.

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Given the market collapses, it seems that meetings between the Kamala Harris camp and the crypto industry are being put on the back burner.

Nonetheless, it does seem like a sea change is brewing, with Democratic Congressman Wiley Nickel telling Coinage that the Harris camp is open to shifting pro-crypto in a break with the thinking under the old Biden administration.

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