The Anatomy of a Meltdown (and Just BTFD)

GSR’s Brian Rudick discusses the recent market meltdown, how towering bull tenets and fading risks could propel Bitcoin to $1m, and why the recent dip is a gift

A market meltdown hit traditional markets last week, as the Bank of Japan raised interest rates to counter the falling yen, which caused traders to unwind yen-carry trade positions.

Secondly, there were increasing worries around U.S. economic growth following a series of disappointing releases, such as the latest employment report.

Finally, fears of a wider war in the Middle East arose after Iran vowed retaliation for the assassination of a Hamas political leader.

Such financial, economic and geopolitical uncertainty caused widespread panic, resulting in, for example, Japan’s Nikkei recording its largest single-day drop since 1987 and many large U.S. tech stocks falling by double digits over several days, just to name a few.

Cryptocurrencies, which would have been expected to fall by a greater amount than equities anyway, had their own negative drivers.

These included impending Mt. Gox fallout, mixed spot digital asset ETF flows, a rising appreciation that pro-crypto Trump candidacy isn’t a lock and reports of a large market maker dumping hundreds of millions of dollars of crypto during the panic’s peak.

All in, Bitcoin (CRYPTO: BTC) touched $49,200, down 30% from just a week earlier, while Ethereum (CRYPTO: ETH) fell below $2,200, dropping 35% over that time.

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Towering Bull Tenets and Fading Risks Offer Chance at $1m BTC

Despite the downturn, we remain as convinced as ever in the bull thesis, with its core tenets towering in place:

Global Liquidity vs. Bitcoin Price, Year-Over-Year Growth

Source: The People’s Bank of China, Federal Reserve, European Central Bank, Bank of Japan, Investing.com, Glassnode, GSR

Note: Converts local currency M2 to US dollars and aggregates before taking year-over-year growth. Note that different countries may define M2 slightly differently, but the general concept of M2 is that of a measure of the money supply that includes cash, checking deposits, and non-cash assets that can easily be converted into cash.

Oh, and these near-term bull tenets say nothing of crypto’s supreme driver, which is what it will, over decades, ultimately become.

And, while there may always be a black swan event, it’s hard to identify many large and likely risks. For example:

All in, should the bull tenets materialize, risks fade, and crypto make strides towards its endgame – perhaps with a dapp that goes mainstream or Bitcoin/Ethereum’s adoption as the world settlement layer – we believe Bitcoin would easily surpass $1m, skewing the risk-reward exceedingly positive at just about any odds of the above occurring.

Imagine, instead of Bitcoin as “digital gold,” gold becomes relegated to “physical Bitcoin.”

The Dip as a Gift - Time to Buy

Ultimately, we see the recent dip as a gift, offering a solid entry point and pushing crypto to its greatest risk-reward in years.

Indeed, ETH is lower than prior to the SEC’s stunning about face on the Ethereum ETFs, while Bitcoin is down from prior to the U.S. changing its stance towards crypto.

Yes, we’re in a very different macro environment than before, but it’s hard to argue these catalysts are priced in any major way.

So while 30%+ drawdowns are indeed disconcerting, they create compelling opportunities.

And while it’d be easy to come away negative after the events of last week, using price to inform one’s view of the underlying fundamentals is a recipe to buy high and sell low.

Instead, the best analysts check whether the cause of any adverse price movements invalidated their thesis, and if not, they grow the position given the now-much-greater upside.

So with the bull tenets squarely in place as risks fade, a legit chance of $1m Bitcoin, and greater potential upside after the recent dip, the risk-reward has rarely looked so compelling.

Time to BTFD.

The views expressed in this column are those of the author and do not necessarily reflect those of CoinDesk, Inc. or its owners and affiliates.

CoinDesk is an independent operating subsidiary of Digital Currency Group, which also owns Grayscale, Genesis Trading, BlockFi, Deribit, Brave Software, Chain, Dapper Labs, Flow, Helium, Messari, Nifty Gateway, OpenSea, Polychain, Roll, Sorare, Sprout, Thebes, Unstoppable Domains and Variant.

This article is provided for informational purposes only, and is not intended to be, and should not be taken as, legal, tax, investment, financial, or other advice.